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Facts
The assessee, engaged in textile manufacturing, received interest subsidy under the TUF scheme. The Assessing Officer included this subsidy in the computation of book profit under Section 115JB of the Income Tax Act. The CIT(A) deleted this addition, treating the subsidy as a capital receipt, and the revenue appealed to the Tribunal.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that the interest subsidy received under the TUF scheme is a capital receipt and should be excluded from the computation of book profit under Section 115JB of the Income Tax Act. This decision was based on consistent views, previous judgments in the assessee's own case, and High Court rulings, distinguishing earlier precedents not applicable to Section 115JB.
Key Issues
Whether interest subsidy received under the Technology Upgradation Fund (TUF) scheme is a capital receipt and should be excluded while computing book profit under Section 115JB of the Income Tax Act.
Sections Cited
2(24), 115J, 115JA, 115JB, 143(3), 250
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM
O R D E R Per Kavitha Rajagopal, J M: These are appeals filed by the revenue, challenging the order of the learned Commissioner of Income Tax (Appeals) 54, Mumbai (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2006-07 to 2008-09. 2. As the facts are identical in these appeals, we hereby pass a consolidated order by taking A.Y. 2006-07 as a lead year.
A.Y. 2006-07 3. The solitary ground of appeal raised by the revenue challenging the order of the ld. CIT(A) in holding that the interest subsidy received under TUF scheme, which is in the , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. nature of compensation received on non-performance of energy generation is a capital receipt and the same is not to be included while computing book profit u/s. 115JB of the Act.
Brief facts of the case are that the assessee company is engaged in the business of manufacturing of apparels fabric, yarn, home textile and garments and had filed its return of income dated 30.09.2008, declaring total income at Rs.40,35,45,610/- under the normal provisions and Rs.1,52,44,68,844/- under the provisions of section 115JB of the Act. The assessee’s case was selected for scrutiny and assessment order u/s. 143(3) of the Act was passed on 29.12.2018, determining total income at Rs. 1,96,69,150/-, where the learned Assessing Officer (‘ld. AO’ for short) made certain addition/disallowance to the total income of the assessee, where the addition on subsidy received under the Technology Upgradation Fund (TUF) scheme was included while computing the book profit u/s. 115JB of the Act.
Aggrieved the assessee was in appeal before the first appellate authority, challenging the impugned addition.
The ld. CIT(A) deleted the addition by relying on the decision of the coordinate bench in assessee’s own case for earlier years, where the interest subsidy was excluded while computing the book profit u/s. 115JB of the Act.
In an appeal before the Tribunal, the issue was set aside vide order dated 16.07.2020 pertaining to the inclusion of interest subsidy for computing the book profit u/s. 115JB of the Act by relying on the decisions of the Hon'ble Jurisdictional High Court. The ld. CIT(A) vide order dated 18.11.2024, deleted the addition on interest subsidy received 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. under TUF scheme for computing the book profit u/s. 115JB of the Act by relying on the decisions of the Hon'ble Calcutta High Court in the case of PCIT vs. Ankit Metal and Power Ltd. [2019] 416 ITR 591 (Cal. HC) and the Hon'ble High Court of Madras in the case of CIT vs. Best Corporation Ltd. [2022] 446 ITR 211 (Mad.) (HC).
Aggrieved the revenue is in appeal before us, challenging the order of the ld. CIT(A).
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has received interest subsidy under the TUF scheme launched by the Ministry of Textiles, Government of India, where the objective of granting the subsidy was to upgrade and modernize the Indian Textile industry by encouraging to undertake and adopt modern technological process and for capacity expansion and for meeting out the global competition. The assessee contends that the said scheme is not merely for the benefit of the assessee but it is for the overall development of the textiles industry and hence, the same should not be treated as revenue receipt. The issue of whether the said receipt is a capital receipt or revenue receipt is no more in dispute as it has been settled by the various decisions and also in assessee’s own case for earlier years, where the said receipt was held to be a capital receipt. The moot issue that requires adjudication is whether the interest subsidy received under TUF should be included while computing the book profit u/s. 115JB of the Act. The coordinate bench in assessee’s case for A.Y. 2006-07 to 2011-12 remitted this issue to the file of the ld. CIT(A) to consider the decisions of the Hon'ble Jurisdictional High Court in the case of Pr. CIT vs. Bhagwan Industries Ltd in of 2015, order dated 18.07.2017 and CIT vs. Akshay Textile Trading & , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. Agencies Pvt Ltd 304 ITR 401 (Bom), and also CIT vs Veekaylal Investment Co. (P.) Ltd [2001] 249 ITR 597 (Bom.), where it was held that book profits cannot be tinkered with and in the case of the Special Bench of Hyderabad Tribunal in Rain Commodities Ltd. v. DCIT [2010] 40 SOT 265 that exempt capital gain has to be considered for computing the book profits. On the other hand, the ld. CIT(A) deleted the impugned addition by relying on the decision of the Hon’ble Calcutta High Court in the case of Ankit Metal and Power Ltd. (supra) and Hon'ble Madras High Court in the case of Best Cooperation Ltd. (supra) and held that since it is held to be a capital receipt which cannot be taxed u/s. 2(24) of the Act, no adjustment can be made u/s. 115JB of the Act in respect of the interest subsidy received under TUF scheme while computing the book profit u/s. 115JB of the Act.
The learned Departmental Representative ('ld. DR' for short) for the revenue contended that the Hon'ble Jurisdictional High Court has held this issued against the assessee and not following the jurisdictional High Court decision would be contrary to the view taken by the Hon'ble Apex Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 (SC), where non-consideration of jurisdictional High Court decision would amount to mistake apparent on record. The ld. DR also relied on the Special Bench decision in the case of the Rain Commodities Ltd. (Supra), where it has held that the exempt capital gain should be included while computing book profit u/s. 115JB of the Act. The ld. DR relied on the order of the ld. AO.
The learned Authorised Representative ('ld. AR' for short) for the assessee on the other hand controverted the said fact and relied on a catena of decisions which held that the 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. certain receipts are not to be included while computing book profits. The ld. AR also relied on the decision in assessee’s own case for A.Y. 2012-13 to 2015-16, where the said receipt has been excluded while computing the book profit u/s. 115JB of the Act. The ld. AR also relied on the decision of the Hon’ble Calcutta High Court in the case of Ankit Metal (supra) and in the case of Hon'ble Madras High Court in the case of Best Corporation Ltd. (supra). It is observed that though in A.Y. 2006-07 to 2011-12 in assessee’s case, the Tribunal has remanded this to the ld. CIT(A) to consider the decision of the Hon'ble Jurisdictional High Court, the ld. CIT(A) decided this issue in favour of the assessee. Further, the Tribunal in A.Y. 2012-13 has given a categorical finding that capital receipts or exempt income are to be excluded while computing book profits and for A.Y. 2013-14, the Tribunal has reiterated the view taken in A.Y. 2012- 13. It is pertinent to point out that the Tribunal on identical issue in the case of Reliance Industries Limited vs. DCIT Unit (LTU-2), and 2876/Mum/2019, for A.Y. 2014-15 and 2015-16 has held that the notional sale tax incentive received is to be excluded while computing book profit and has extensively dealt with the issue in hand. The relevant extract of the said decision is cited herein under for ease of reference:
“51. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We find that, as noted by the coordinate bench in the immediately preceding assessment year, the matter was all along decided in favour of the assessee- as evident from the observation that “The assessee submits that this issue is covered in favour of the assessee by the ITAT decision in assessee on case for assessment year 10-11 to 12- 13. We note that identical ground was dealt with by the ITAT in its order as referred above. The tribunal has referred to the decision of ITAT in the case of DCIT vs. M/s. Alok Industries Limited (in to 906/Mum/2019 vide order dated 16.07.2020 and quoted there from. Thereafter, the ITAT has concluded that ―consistent with the view taken by the coordinate benches on an identical issue we direct the assessing officer to exclude the , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. amount of sales tax incentive from the net profit for the purpose of computed book profit under section 115 JB of the act as the same is capital in nature.” Yet, a different view was taken in the immediately preceding assessment year, not on merits but by sending the matter back to the CIT(A) for fresh adjudication on the ground that “in the case of DCIT vs. M/s. Alok Industries Limited (supra), in a subsequent decision for A.Ys. 2006- 07 to 2011-12 dated 16.07.2020, this tribunal has adjudicated the same issue and directed that “the learned CIT(A) is directed to consider this issue de novo after taking into account the aforesaid Hon'ble Jurisdictional High Court decisions [i.e. in the case of CIT vs Veekaylal Investment Co. (P.) Ltd., 249 ITR 597 (Bom.]” That approach, however, is contrary to the stand taken by Hon‟ble Madras High Court, in the case of CIT Vs Metal and Chromium Plater Pvt Ltd [(2019) 415 ITR 123 (Mad)] wherein Their Lordships have, inter alia, observed that “The Bombay High Court in the case of Veekaylal Investments (supra) considers the inclusion of capital gain for the purposes of assessment under section 115J. Both judgements are rendered in the context of Section 115J which does not contain a provision analogous to sub-sections (4) of section 115JA or (5) of section 115JB of the Act. Thus while an assessment u/s 115J would be concluded exclusively on the basis of the book profits as adjusted by the items set out in the Explanation thereunder, in an assessment in terms of sections 115JA or JB, the adjusted book profits would be further subjected to the effect of other provisions of the Act that are specifically brought into play by virtue of sub-sections (4) of section 115JA and (5) of section 115JB”. Once a higher court holds that Hon‟ble jurisdictional High Court‟s judgment in the case of Veekaylal Investments (supra), which was delivered in the context of section 115J, does not apply in terms of section 115JB, we cannot be at liberty to be guided by the coordinate bench decision implying otherwise. The very foundation of deviation by the coordinate bench does not, therefore, hold good in law. In any event, this issue is decided on merits in favour of the assessee by Hon‟ble Calcutta High Court in the case of PCIT Vs Ankit Metal & Power Ltd [(2019) 416 ITR 591 (Cal)] wherein Their Lordships have, inter alia, observed that “In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961”. There is no decision contrary thereto by the Hon‟be jurisdictional High Court. While on the issue as to which judicial precedent be followed in such a situation, we find guidance from a rather decision of a coordinate bench, in the case of Siro Clinpharm Pvt Ltd Vs ITO [(2021) 131 taxmann.com 73 (Mum)], wherein, speaking through one of us (i.e. the Vice President), the coordinate bench has observed as follows: 7. ………. We may usefully take note of the observations of Hon'ble Supreme Court in the case of Asstt. CCE v. Dunlop India Ltd. [1985] 154 ITR 172, wherein the Their Lordships quoted, with approval, from the decision of House of Lords , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. to the effect that "We desire to add and as was said in Cassell & Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of courts" which exists in our country, "it is necessary for each lower tier", including the High Court, "to accept loyally the decision of the higher tiers". "It is inevitable in hierarchical system of courts that there are decisions of the Supreme appellate Tribunal which do not attract the unanimous approval of all members of the judiciary... But the judicial system only works if someone is allowed to have the last word, and that last word, once spoken, is loyally accepted" and observed that. . . "the better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system." The principle is thus unambiguous. As a rule, therefore, judicial discipline warrants that the wisdom of a lower tier in the judiciary has to make way for higher wisdom of the tiers above. Unlike the decisions of Hon'ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon'ble non- jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial propriety. In the case of CIT v. Godavaridevi Saraf [1978] 113 ITR 589 (Bom.), Hon'ble jurisdictional High Court took note of a nonjurisdictional High Court and held that the Tribunal, outside the jurisdiction of that Hon'ble High Court and in the absence of a jurisdictional High Court decision to the contrary, could not be faulted for following the same. Their Lordships observed that, "It should not be overlooked that the Income-tax Act is an All-India statute………. Until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land". Of course, these observations were in the context of a provision being held to be unconstitutional, an issue on which the Tribunal could not have adjudicated anyway, as evident from the observation "Actually, the question of authoritative or persuasive decision does not arise in the present case because a Tribunal constituted under the Act has no jurisdiction to go into the question of constitutionality of the provisions of that statute" but nevertheless the respect for the higher judicial forum was unambiguous. In Tej International (P.) Ltd. v. Dy. CIT [2001] 118 Taxman 59 (Delhi) (Mag.), a coordinate bench has, on this issue, observed that "In the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above and, therefore, one a authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position…". . There can, however, be exceptions to this situation on account of a variety of reasons, and these exceptions come into play only when the views are of non-jurisdictional High Court which, do not, legally speaking, bind the lower tiers of judiciary. In our considered view, so far as the precedence value of a nonjurisdictional High Court's judgment is concerned, the position has been very well summed up by a coordinate bench decision, in the case of Bank of India (supra), wherein, speaking through one of us (i.e. the Vice President), the coordinate bench has observed as follows:
, 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. While dealing with judicial precedents from non-jurisdictional High Courts, we may usefully take of observations of Hon'ble jurisdictional High Court in the case of CIT v. Thana Electricity Co. Ltd [(1994) 206 ITR 727 (Bom)], to the effect "The decision of one High Court is neither binding precedent for another High Court nor for the courts or the Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect". Unlike the decisions of Hon'ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon'ble non-jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial propriety-factors which are inherently subjective in nature. Quite clearly, therefore, the applicability of the non-jurisdictional High Court is never absolute, without exceptions and as a matter of course. That is the principle implicit in Hon'ble Supreme Court's judgment in the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd. [(2008) 305 ITR 227 (SC)] wherein Their Lordships have upheld the plea that "nonconsideration of a decision of Jurisdictional Court or of the Supreme Court can be said to be a mistake apparent from the record". The decisions of Hon'ble non- jurisdictional High Courts are thus placed at a level certainly below the Hon'ble High Court, and it's a conscious call that is required to be taken with respect to the question whether, on the facts of a particular situation, the non-jurisdictional High Court is required to be followed. The decisions of non-jurisdictional High Courts do not, therefore, constitute a binding judicial precedent in all situations. To a forum like us, following a jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non-jurisdictional High Court is a call of judicial propriety which is never absolute, as it is inherently required to be blended with many other important considerations within the framework of law, or something which cannot be, in deserving cases, deviated from. [Emphasis, by underlining, supplied by us] 8. No specific reasons for not following the non-jurisdictional High Court decision in Redington's case (supra) have been pointed out to us. It is not even the case of the assessee, and rightly so, that the issue decided by Hon'ble Madras High Court is not the same as we are called upon to decide in this case, that there are conflicting decisions of Hon'ble non-jurisdictional High Court on the issue or that there are any other good and sufficient reasons for not following this judicial precedent. There is nothing more than Bank of India decision (supra) to justify our taking a decision at variance with the decision of a non-jurisdictional High Court, but then this decision by the coordinate bench is on its own unique facts and it recognizes the fundamental principle that it is more of an exception that the decisions of the non-jurisdictional High Court are not followed. At one place, , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. this decision, inter alia, states that "To a forum like us, following a jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non-jurisdictional High Court is a call of judicial propriety…..- which can…be, in deserving cases, deviated from". Implicit in this observation is the fact that not following non-jurisdictional High Court decision is more of an exception than the rule. There have to be very strong and good reasons not to follow even non jurisdictional High Court decisions. It is not, therefore, open to us in the present situation, as has been contended by the learned counsel, to simply disregard this judicial precedent from Hon'ble Madras High Court, and follow the decision of the coordinate bench, in assessee's own case, in favour of the assessee. The fact that the decisions in assessee's own cases were authored by one of us, the claim that these decisions elaborately deal with certain aspects which may or may not have been examined by Hon'ble High Court and the apprehension that it may not have been argued on certain important facets, are wholly irrelevant. Once Their Lordships of a higher judicial forum express their esteemed views on any subject, the views expressed by us, in the past, on that issue, have to make way for the higher wisdom of Their Lordships. As for the facets not argued nor not considered, even if any, as is laid down by the apex Court in the case of Ambika Prasad Mishra v. State of UP AIR 1980 SC 1762 : [1980] 3 SCC 719 (p. 1764 of AIR 1980 SC) "Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned...." Similarly, in the case of Kesho Ram & Co. v. Union of India [1989] 3 SCC 151, it was stated by the Supreme Court thus: "The binding effect of a decision of this Court (as indeed any superior court) does not depend upon whether a particular argument was considered or not, provided the point with the reference to which the argument is advanced subsequently was actually decided in the earlier decision". The more we ponder upon the correct course to be adopted in such matters as is before us, the more we are convinced with respect to the binding nature of decisions of even Hon'ble non-jurisdictional High Courts, unless there are specific good reasons not to do so. The doubts, if at all, and somewhat nightmarish doubts at that, arise about the manner in which Bank of India decision (supra) could be interpreted so as to destabilize the well settled norms of judicial discipline, but neither do we need to perpetuate an error, even if there be any, nor do we need to examine to that aspect any deeper at this stage. There is, thus, no legally sustainable justification, on the facts of this case, to disregard the views expressed by Hon'ble Madras High Court in Redington's case (supra). Given the important judicial developments by way of a binding legal precedent, directly on the issue, even if from a non-jurisdictional High Court, we cannot simply treat this issue as covered by decisions of the coordinate bench, and thus disregard the esteemed views expressed by a higher judicial forum.
In any event, even with respect to the earlier assessment years, this issue was decided, in favour of the assessee, in the assessee‟s own case. The only reason for taking a deviation, in the immediately preceding assessment year, was the applicability of Veekaylal Investment decision (supra) but that reasoning has now been specifically disapproved by Hon‟ble Madras High Court holding that the said decision does not , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. apply in the case of section 115JB- as in this case. In view of these discussions, as also bearing in mind the entirety of the case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter on this count as well.”
From the above, it is evident that the view taken by the Hon'ble Calcutta High Court in the case of Ankit Metal (supra) and also Hon'ble Madras High Court in the case of CIT v. Metal & Chromium Plater (P.) Ltd. [2019] 415 ITR 123, which has distinguished the decision of the jurisdictional High Court in the case of CIT vs Veekaylal Investment Co. (P.) Ltd (supra), is said to be in context of Section 115J and not Section 115JB of the Act, which is the present issue before us.
The above observation of the Tribunal on similar issue has dealt with this issue elaborately and in order to take a consistent view and in the absence of the any other contrary decisions, we are inclined to hold that there is no infirmity in the order of the ld. CIT(A) in deleting the impugned addition on the interest subsidy received in TUF scheme while computing the book profit u/s. 115JB of the Act. We therefore dismiss the grounds of appeal
raised by the revenue.
14. In the result, the appeal filed by the revenue is dismissed.
& 727/Mum/2025; A.Y. 2007-08 and 2008-09 15. The findings recorded in (A.Y.: 2006-07) will apply mutatis mutandis to these appeals also.
In the result, the appeals filed by revenue are hereby dismissed. Order Pronounced under Rule 34(4) of the ITAT Rules by placing result on the notice board on 30.05.2025 , 725 & 727/Mum/20258 (A.Y. 2006-07 to 2008-09) Alok Industries Ltd. Sd/- Sd/- (OM PRAKASH KANT) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 30.05.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,