C.I.T. vs. AGRAWAL M.J. ENTERPRISES

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ITR/117/1999HC Madhya PradeshMPHC01000253199919 March 20134 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the petition filed by the Revenue was without merit and rejected it. The Court found that the controversy was entirely covered by the Supreme Court's judgment in Commissioner of Income-Tax vs. P.J. Chemicals Ltd. In that case, the Apex Court held that government subsidies intended as incentives to encourage entrepreneurs to establish industries, quantified as a percentage of fixed capital cost, are not payments to meet any portion of the 'actual cost' under Section 43(1) of the Income Tax Act. Such subsidies are intended as incentives and their quantification based on fixed capital cost does not attract the condition for deductibility from 'actual cost'. Therefore, the amount of subsidy is not to be deducted from the 'actual cost' for the purpose of calculating depreciation. The Tribunal was correct in declining the Revenue's prayer for reference, as no substantial question of law arose. The Revenue had also confined its prayer to a specific question, and even on that, the matter was covered by precedent.

What were the facts?

The Commissioner of Income Tax (Revenue) filed a petition under Section 256(2) of the Income Tax Act, 1961, seeking a direction from the High Court of Madhya Pradesh to the Income Tax Appellate Tribunal (Tribunal) to refer three questions of law for the Court's opinion. The Tribunal had previously rejected the Revenue's application for reference under Section 256(1), holding that no question of law arose as the issue was decided in light of the Supreme Court's judgment in Commissioner of Income-Tax vs. P.J. Chemicals Ltd. The assessee, M/s Agrawal M.J. Enterprises, contended that the controversy related to the written down value of assets and whether it should be reduced by the capital subsidy received. The authorities had already held that the subsidy could not be reduced from the written down value, following the P.J. Chemicals decision.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal was justified in law in holding that the cinema building with its fixtures, including projections, sound system, and screen, constituted plant and machinery, allowing depreciation under Section 32 of the Income Tax Act, 1961, despite these assets not being explicitly listed with depreciation rates in Rule 5 and Appendix 1 of the Income Tax Rules? 2. Whether, on the facts and circumstances, the Tribunal was justified in law in holding that the amount received by the assessee under a scheme from the Government of Madhya Pradesh against payment of entertainment duty was a capital subsidy and not taxable, relying on jurisdictional High Court decisions? 3. Whether, on the facts and circumstances, the amount of subsidy received by the assessee from the M.P. State Government against payment of entertainment duty is a revenue receipt in light of the Supreme Court's decision in M/s Sahni Steel & Press Works Ltd. etc. v. CIT? Assessee's Contention: The assessee argued that the written down value of assets should not be reduced by the amount received as capital subsidy from the State Government. The authorities, following P.J. Chemicals, had already accepted this contention. Revenue's Contention: The Revenue initially proposed three questions. However, during the hearing, it confined its prayer to the question of whether the refund of entertainment tax received as a subsidy is a revenue or capital receipt. The Revenue's primary argument, as reflected in the proposed questions, was that the cinema building and its components should not be treated as plant and machinery for depreciation and that the subsidy received was taxable.

Which sections of the Income-tax Act were involved?

Section 32,Section 43(1),Section 256(1),Section 256(2)

AI-generated summary — verify with the full judgment below

I.T.R. No.117/1999 Commissioner of Income Tax, M/s Agrawal M.J. Enterprises Jabalpur Jabalpur 19.03.2013 Shri Sanjay Lal, Advocate for the Revenue. Shri L.L. Sharma, Advocate for the Assessee. This petition is filed under Section 256(2) of the Income Tax Act, 1961 for a direction against the Income Tax Appellate Tribunal to refer the matter for the opinion of this Court. In the application filed by the petitioner herein, following three questions were proposed to be referred for the opinion of the High Court of Madhya Pradesh:- "1. Whether on the facts & in the circumstances, of the case, the Tribunal was justified in law in holding that the cinema building with all its fixtures including projections, sound system and screen etc. as plant & machinery or allowing depreciation u/s 32 of the I.T. Act, 1961. Though the depreciation is allowed as per rule 5 of I.T. Rules, and Appendix 1 which does not contain description/rate of depreciation for those types of assets? 2. Whether on the facts & in the circumstances of the case, the Tribunal was justified in law in holding that the amount received by the assessee under scheme framed by the Govt. of M.P. against the payment of entertainment duty is capital subsidy and not taxable following jurisdictional High Court decisions reported in 162 ITR 784, 174 ITR 546 & 224 ITR 43? 3. Whether on the facts & in the circumstances of the case, the amount of subsidy received by the assessee from the M.P. State Govt. against payment of entertainment duty is revenue receipt in I.T.R. No.117/1999 Commissioner of Income Tax, M/s Agrawal M.J. Enterprises Jabalpur Jabalpur the light of Hon'ble Supreme Court's decision in the case of M/s Sahni Steel & Press Works Ltd. etc. v. CIT, reported in CTR VOL. 142 PAGE No.261? The Tribunal vide order dated 02.11.1998 rejected the prayer of the Department on the ground that the CIT(A) had decided the issue in the light of the judgment of the Apex Court in Commissioner of Income-Tax vs. P.J. Chemicals Ltd., 2010 ITR 830, so no question of law arises in the matter and rejected the application of the Department under Section 256 of the Income Tax Act. Thereafter, the Department has filed this petition under section 256(2) of the Income Tax Act for a direction to the Tribunal for referring the matter on the aforesaid three questions. On 12.03.2003, the matter was listed for hearing before this Court and the petitioner herein submitted that though three questions were proposed in the application, but the petitioner had confined its prayer only on the following question:- "Whether the refund of amount of entertainment tax received by the assessee from the State by way of subsidy is in the nature of Revenue Receipt or Capital Receipt?" Shri L.L. Sharma, learned counsel appearing for the assessee submits that in this case, the controversy is entirely different. The matter relates to written down value of the assets and the contention of the assessee I.T.R. No.117/1999 Commissioner of Income Tax, M/s Agrawal M.J. Enterprises Jabalpur Jabalpur before the authorities was that the written down value of the assets should not be reduced by the amount received as capital subsidy from the State Government. The authorities after following the judgment in P.J. Chemicals (supra) had found that the amount received from the Government by way of subsidy, cannot be reduced from the written down value of the assets and rejected the objection of the revenue in this regard. In P.J. Chemicals (supra) the Apex Court considering the identical question held that where the government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy being only a measure adopted under the scheme to quantify the financial aid, it is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantifications determined at a percentage of the fixed capital cost. The expression "actual cost" in Section 43(1) of the Income Tax Act needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the condition for its deductibility from "actual cost". The amount of subsidy is not to be deducted from the "actual cost" under section 43(1) of the Income Tax Act, for the purpose of calculation of depreciation etc. I.T.R. No.117/1999 Commissioner of Income Tax, M/s Agrawal M.J. Enterprises Jabalpur Jabalpur It appears that the question involved in the matter has already been decided by the Apex Court in P.J. Chemicals (supra) and the Tribunal was right in declining the prayer of the Revenue in referring the aforesaid question of law for the opinion of this Court. So, on 12.03.2003, when the matter was placed for consideration, the revenue had made a specific prayer that it was confining its prayer only on aforesaid question of law. But in the present case, the controversy is entirely different. As on the aforesaid issue no prayer has been made for direction to the Tribunal to refer the matter on the aforesaid question. Apart from this, the learned counsel appearing for the Revenue on 12.03.2003, had specifically submitted that though three questions were proposed but the reference application may be confined to the question which was quoted by the Division Bench on 12.03.2003 in the order. In view of the aforesaid, in the opinion of this Court, no question of law, deserves to be referred to this Court. The entire controversy is covered by the judgment of P.J. Chemicals (supra). This petition filed by Revenue is without merit and is accordingly rejected. (Krishn Kumar Lahoti) (M.A. Siddiqui) Judge Judge psm

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