Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “F” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals)-VII, New Delhi [‘CIT(A)’ in short] dated 27.08.2018 arising from the assessment order dated 30.03.2017 passed by the Assessing Officer (AO) under Section 143(3) r.w. Section 254 of the Income Tax Act, 1961 (the Act) concerning AY 2007-08.
2. The grounds of appeal raised by the assessee read as under:
“1. Under the facts and circumstances of the case, the order passed by AO u/s 143(3) r.w.s. 254 of the Act is illegal & bad in law being barred by limitation.
The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 17,66,395/- by holding that sales tax incentive provided by Government of Rajasthan to encourage establishment/ enhancement of production capacity and for generation of employment is a revenue receipt and not a capital receipt as claimed by the assessee.”
Ground No.1 is dismissed being not pressed in the course of hearing.
Ground No.2 concerns addition of Rs.17,66,395/- received by way of sales tax incentive provided by the Government of Rajasthan as Revenue receipt against the capital receipt claimed by the assessee.
Briefly stated the assessee received sales tax incentive of Rs.17,66,395/- which was claimed by the assessee outside the purview of taxation being capital receipt. The Assessing Officer, however, held the same to be revenue receipt in the assessment order on the ground that the Incentive Scheme was operative from 2000-01 for a period of 11 years and the assessee has been receiving the sales tax under the scheme in the past and offering it for taxation. As observed, the assessee himself treated the above receipt as revenue receipts for past so many years. The Assessing Officer further observed that assessee has not placed complete facts supported with evidences for taking a different stand in the assessment year in question. The Assessing Officer accordingly rejected the claim of the assessee for treatment of such incentive as capital receipt.
Aggrieved by the denial of claim by the Assessing Officer, the assessee preferred appeal before the CIT(A). The CIT(A) also did not find any merit in the plea of the assessee towards claim of sales tax incentive as capital receipt. The CIT(A) has thus declined to interfere with the order of the Assessing Officer holding such incentive to be a revenue receipt.
Further aggrieved, the assessee has preferred appeal before the Tribunal in the second round of proceedings.
We have perused the appellate order and the order of the Assessing Officer and other material adverted in the course of hearing. The solitary question in contention is to determine the nature and character of sales tax incentive of Rs.17,66,395/- received by the assessee in the facts and circumstances of the case. It is the case of the assessee that sales tax incentive was given by the Government of Rajasthan for investment in Rajasthan to encourage the establishment / enhancement of production capacity and for generation of employment as envisaged in clause (3) of the scheme, namely, ‘The Rajasthan Sales Tax / Central Sales Tax Exempt Scheme for Industries, 1998’ as notified by the Government of Rajasthan vide S. No. 1131-F.14(8) FD/ Tax Divn/98 dated 7.4.1998. It is the claim of the assessee that such subsidy has direct nexus with investment in the capital resources and therefore the same is a capital receipt.
To augment its claim that such incentive is a revenue receipt, the assessee has referred to various judgments in similar facts which are summarized hereunder:
“(i) CIT vs. Chaphalkar Brother Pune (2018) 161 DTR 41/252
Taxman 360 (SC)
Object of giving subsidy to new multiplex theatre complexes was to promote these complexes as a means of entertainment facilities by providing Government support in the form of exemption/remission from entertainment duty as these complexes are highly capital intensive and their gestation period is quite long. Idea was that exemption from entertainment duty for a period of three years and partial remission for a period of next two years would go towards helping the industry to set up such highly capital intensive entertainment centres. It is difficult to accept the argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post-construction, that is when cinema tickets are actually sold. The fact that the incentives are not available unless and until commercial production has started and that the incentives are not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery is irrelevant. The object has to be seen and not the form in which it is granted. Under the West Bengal scheme also, the amount of entertainment tax collected is to be retained by the new multiplex theatre complexes for a period not exceeding four years and the objects of both the schemes are same. Therefore, the subsidy by way of exemption/remission of entertainment duty under both the schemes is capital receipt.
(ii) PCIT Vs. Deepak Vegpro (P) Ltd. (2018) 401 ITR 89 (Raj.) (HC)
Subsidy from Government in the form of VAT reimbursement related to encourage setting up of the new units and to generate fresh employment opportunities in the State is not taxable since it constituted capital receipt.
(iii) CIT & Anr. Shree Balaji Alloys & Ors. (2016) 138 DTR 36 (SC)
Excise refund and interest subsidy received by the assessee in pursuance of the incentives announced and sanctioned vide Government of India, Ministry of Commerce and Industry’s Office Memorandum dt. 14.06.2002 and Central Excise Notification Nos. 56 and 57 dt. 14.11.2002 and other notifications issued on the subject, pertaining to the Industrial Policy for the state of Jammu & Kashmir, is capital receipt.
(iv) Shiv Shakti Flour Mills Pvt. Ltd. Vs. CIT (2017) 145 DTR 18 (Gauh.)
Transport subsidy received by the assessee is intended to stimulate industrial activity in the backward region, to generate employment opportunities and bring development in North-East States and not meant to provide higher profit for the entrepreneur. It is intended to encourage investment in difficult and far flung States and thus such incentive should be treated as capital receipt.
(v) CIT Vs. Birla VXL Ltd. (2013) 90 DTR 376 (Guj.) (HC) (PB 80-85)
Sales tax exemption granted by the Government as a part of initiative to encourage modernization of existing industries in under-developed areas constituted capital receipt.
The Ld. C1T(A) has relied on the decision of Hon’ble Delhi High Court in case of CIT Vs. Bhushan Steels & Strips Ltd. (2017) 156 DTR 49 (PB 37-63) where it was held that subsidy in the form of retention by assessee of sales-tax collected from customers
could be used for any purpose and there was no condition towards capital utilization which implied that the policy makers envisioned greater profitability as an incentive for investors to expand units, for rapid industrialization of the State, ensuring greater employment and thus the subsidy is revenue in nature. It is submitted that the said decision of Hon’ble Delhi High Court has been stayed by Hon’ble Supreme Court vide order dt. 20.11.2017 (PB 36) and thus this decision is not applicable more particularly when the Supreme Court after the decision of Delhi High Court has held such receipts as capital receipt.
On a reading of the incentive scheme, it is noticed that the Government of Rajasthan proposed incentive by way of exemption from payment of sales tax on goods manufactured by industrial unit with a view to encourage for establishment / enhancement of production capacity and for generation of employment.
A conspectus of case law cited above would show that the ‘purpose’ of subsidy is paramount for determination of character of subsidy in the hands of the recipient for the purposes of determination of character of subsidy whether revenue or capital. The source of fund and mechanism of giving subsidy is held to be immaterial. The subsidy in the instant case was given for promotion of capital investment by way of commissioning of new industrial units or industrial units going for expansion/diversion or revival of sick industrial units. Thus, the subsidy was principally aimed to cover the capital outlay of the assessee for undertaking modernization industries in Rajasthan and thus subsidy in the form of sales tax waiver deferment was not meant to give any benefit on day to day functioning of the business or to make it more profitable per se. Hence, such sales tax incentive is clearly capital in nature as claimed by the assessee. 12. The CIT(A) has followed the judgment rendered by the Hon’ble Delhi High Court in the case of CIT vs. Bhushan Steels and Strips Ltd. and Others in judgment dated 13.07.2017 against the assessee, the operation of the aforesaid judgment rendered by the Hon’ble Delhi High Court has been found to be stayed by the Hon’ble Supreme Court vide its order dated 20.11.2017 in SLP to Appeal (C) No.30728-30732/2017. 13. The subsidy in the instant case though computed in terms of sales tax deferment/waiver, it was essentially meant for capital outlay expanded by the assessee for set up of unit in case of new industrial unit and for expansion and diversification of existing unit. The entitlement was also stated to be related to percentage of fixed capital investment. 14. In this backdrop, we have no hesitation to accept the plea of the assessee. While doing so, we do not see any merit in the plea of the Revenue that necessary facts are not placed on record. It is nowhere spelt out what additional facts were exactly required to appreciate the factual matrix. We also observe that notwithstanding that the assessee has treated such incentive as revenue receipt in past, the same cannot be deterrent for making a correct claim in the subsequent assessment year. We also do not see any merit in the adverse observation made by the CIT(A) with reference to the amendment brought out by Finance Act, 2015 by insertion of clause (xviii) to Section 24 whereby such subsidy has been included in the definition of income. Such inclusion is to be regarded as prospective in operation in the light of the judgment in CIT vs. Vatika Township Pvt. Ltd., 109 DTR 33 (SC). 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 31/08/2022.