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Facts
The Revenue filed four appeals against the orders of the CIT(A) concerning assessment years 2011-12 to 2014-15. The appeals involved common issues, primarily regarding the taxability of fertilizer subsidies and incentives received under the Status Holder Incentive Scrips (SHIS) scheme.
Held
The Tribunal held that the fertilizer subsidy and SHIS incentives are capital receipts and not taxable. It also held that amendments to the definition of income are prospective and not applicable to the years in question. The Tribunal rejected the Revenue's grounds of appeal.
Key Issues
Whether fertilizer subsidies and export incentives are capital receipts and excludible from taxable income and book profits. Applicability of retrospective amendment to Section 2(24) of the Income Tax Act.
Sections Cited
80IA, 2(24), 115JB
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Income Tax Appellate Tribunal, MUMBAI “A” BENCH : MUMBAI
Before: SHRI B.R. BASKARAN & SHRI RAJ KUMAR CHAUHAN
All the four appeals filed by the Revenue are directed against the orders passed by the Ld.CIT(A)-51, Mumbai and they relate to the assessment years 2011-12 to 2014-15. Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience. 2. The assessee company is engaged in the business of manufacture and sale of Dye intermediate, organic and inorganic chemicals.
2 Aarti Industries Limited, batch 3. We shall first take up the appeal filed for AY 2011-12. The Ld A.R submitted that this is this is second round of proceedings. He submitted that, in the first round before Tribunal, the assessee had raised two additional grounds, viz., (a) deduction u/s 80IA of the Act in respect of power generation undertaking and (b) non-taxability of fertilizer subsidy received by the assessee claiming the same as capital in nature. He submitted that the Tribunal, vide its order dated 31.7.2020 passed in and subsequently in the order dated 08-03- 2021 passed in M A No.256/Mum/2020, admitted the above said additional grounds and restored both the issues to the file of the AO. In the set aside proceedings, the AO allowed the claim of deduction u/s 80IA in respect of power generation undertaking. However, he held that the fertiliser subsidy (Nutrient Based Subsidy (NBS)) received by the assessee constituted revenue receipts and not capital receipts. Accordingly, he rejected the claim of the assessee. The Ld A.R submitted that the Ld CIT(A) accepted the claim of the assessee and directed the AO to delete the assessment of fertilizer subsidy. Hence the revenue has filed this appeal.
In Ground No.1 and 2, the revenue has raised a contention that the Tribunal was not right in admitting additional grounds raised
through a letter. It is contended that the assessee could have raised the new claims only through revised return of income, as per the decision rendered by Hon’ble Supreme Court in the case of Goetze India Ltd (284 ITR 323)(SC). 4.1. We noticed earlier that both the additional grounds have been admitted by the earlier Bench of the Tribunal and the AO himself has allowed the claim for deduction u/s 80IA of the Act raised as an additional ground. Hence, the revenue was not right in law in 3. Aarti Industries Limited, batch contesting the decision of the earlier bench in the current proceedings, that too, after giving effect to the earlier order of the Tribunal. In any case, the Hon’ble Supreme Court itself has stated in the order of Goetze India Ltd that the said order will not impinge the power of the Tribunal to admit additional claims. Accordingly, we do not find any merit in the grounds raised by the revenue on this issue. Accordingly, we reject them.
5. In Ground No.3, it is stated that the definition of income given in sec.2(24) of the Act has been amended by the Finance Act, 2015 w.e.f 01-04-2016 by including “assistance in the form of a subsidy by the Central Government” in the inclusive definition of the word “income”. The Ld D.R submitted that the above said amendment shall have retrospective operation. 5.1. We do not find any merit in the contentions of the Revenue. The well settled proposition is that any amendment imposing liability upon the assessee shall always be prospective and it cannot be retrospective. Further, the above said amendment has been specifically held to be operative w.e.f. 01-04-2016. Hence the above said amendment made in sec.2(24) of the Act cannot be applied to the years prior AY.2016-17. Accordingly, we reject this ground also.
6. In Ground No.4, the Revenue is contending that the fertilizer subsidy received by the assessee is taxable. 6.1. We heard the parties on this issue and perused the record.We notice that the Ld.CIT(A) has followed the decision rendered by the Co- ordinate Bench in the case of ACIT vs. M/s. Shree Pushkar Chemicals [2021] 133 taxmann.com 371 (Mum.Trib). In the above said case, the Co-ordinate Bench has held that fertilizer subsidy received under NBS Scheme is to be treated as capital in nature. The operative portion of the order passed by the Tribunal is extracted below:-
4 Aarti Industries Limited, batch “15. Considered the rival submissions and perused the material on record in the light of the decisions relied upon by the parties. We notice that the learned Departmental Representative tried to submit before us that the subsidy given to the manufacturers under NBS Scheme was to give concession to the farmers and reduce the MRP in order to bring down the manufacturing cost. Whole scheme was designed to increase the fertilizer production and utilization among the farmers by making available at the affordable price to the farmers.Since it is linked to reduction of price in manufacturing, this subsidy can only be classified under revenue not capital. However, we notice that the purpose of introduction of NBS scheme and modification of various Govt. schemes over the period is due to the fact that (refer impact of concession scheme) the growth of fertilizer industry was stagnated with virtually no investments over the years in urea sector, this industry had no incentive to invest on modernization and for increasing efficiency. The industry had no incentive to focus on farmers leading to poor farm extension services. The policy was introduced to reduce the burden on subsidy outgo in the hands of the Government which increased exponentially over the years. This policy is introduced considering all the issues relating to agriculture productivity, balanced fertilization and growth of indigenous fertilizer industry, competitiveness among the fertilizer companies and to overcome the deficiency of concession scheme. Therefore, it is clear that this scheme is introduced with the object of passing the benefit to the farmers at the same time, there is no fresh investment and innovations were not coming to the industry due to low profitability in this industry. In order to attract the new investments, to increase the productivity and to reduce the manufacturing cost by bringing new innovation in the industry in order to achieve ultimate reduction in the price of the fertilizers. Therefore, the scheme was mainly to attract the investment in the industry and the purpose test is that the attraction of new players in the industry and also attracts the existing players to bring new investment. How the benefit of scheme is passed on to the industry matters. Sometime, Govt. introduces direct concession in the investments or introduces mechanism in relation to the ultimate achievement of the objects of the scheme. In this scheme, the ultimate object is to make available the required fertilizers and at appropriate price to the farmers, this can be achieved only by bringing new investments in the industry. It is only the mechanism to paass on the capital subsidy to the companies, who bring in new investments and innovation. The subsidy calculated and MRP are under constant monitoring of the Ministry. Therefore, we are inclined to accept the adoption of purpose test by the learned CIT(A) in this case and the subsidy can be classified as capital in nature. In our considered opinion, a receipt that is held to be a capital in nature and not chargeable to tax under the normal provisions of the Act. Hence the same lies outside the purview of Act. When a receipt is not in the nature of income, it cannot form part of taxable profit. Consequently, in view of the aforesaid discussion as enumerated by the learned CIT(A) in detail, in our opinion, the order of the learned CIT(A) on the issue in dispute is well reasoned and we do not find any legal infirmity in the 5 Aarti Industries Limited, batch order passed by him which is hereby upheld. Thus, the ground of the appeal no.2, raised by the Revenue is also dismissed.” 6.2. Since the Ld.CIT(A) has followed by the decision rendered by the Co-ordinate Bench on an identical issue, we do not find any infirmity in the order of the Ld.CIT(A). Accordingly, we uphold the same.
Ground No.5 and 6 urged by the Revenue is challenging the decision of the Ld.CIT(A) in excluding the fertilizer subsidy for computing book profit u/s. 115JB of the Act. 7.1. We heard the parties on this issue and perused the record.We notice that the Ld.CIT(A) has followed the decision rendered by the Hon’ble Bombay High Court in the case of CIT vs. Harinagar Sugar Mills Ltd., [ITA No. 1132 of 2014, dt. 04-01-2017] and also the decision rendered by the Mumbai Bench of ITAT in the case of Alok Industries Ltd., vs. DCIT, dt. 21-05-2018 and held that the capital receipts should not be included for the purpose of computing book profits u/s. 115JB of the Act. Since the Ld.CIT(A) has followed the binding decision rendered by the Hon’ble Bombay High Court in the case of CIT vs. Harinagar Sugar Mills Ltd., (supra), we do not find any reason to interfere with the order passed by him on this issue.
We shall now take up the appeal filed for AY. 2012-13 to 2014-15. In these three years, the Revenue is challenging the decision of the Ld.CIT(A) in excluding the incentives received under Status Holder Incentive Scrips (SHIS) and fertilizersubsidy received under NBS Scheme, treating both of them as capital receipts.
In all the three years, the Revenue is placing reliance on the amendment made to the definition of income by Finance Act, 2015 w.e.f. 01-04-2016. While adjudicating the appeal of the assessee for AY. 2011-12, in an earlier paragraph, we have held that the above said amendment cannot be applied retrospectively for the assessment years 6 Aarti Industries Limited, batch prior to AYs. 2016-17. Accordingly, we reject this ground of the Revenue in all the three years.
With regard to the fertilizer subsidy, we have upheld the decision of the Ld.CIT(A) in treating it as capital receipt in AY. 2011-12,since the Ld CIT(A) has held so by following the decision rendered by the Co-ordinate Bench in the case of ACIT vs. M/s. Shree Pushkar Chemicals (supra). Following the decision rendered by us in AY. 2011- 12, we uphold the decision rendered by the Ld.CIT(A) on this issue in all these three years.
The next issue contested by the Revenue in all the three years is related to the subsidy received under SHIS Scheme. We notice that this issue is covered by the decision rendered by the Co-ordinate Bench in the case of Vinati Organics Limited (ITA No. 1667 to 1669/Mum/2021, dt. 28-04-2022), wherein it was held as under:- “7....... So far as the export incentive claim is concerned, the assessee was entitled the incentive under status holder incentive claim (SHIS), Incremental Export Incentivisation Scheme (IEIS) and Market Linked Focus Products Scheme (MLFPS). As regards SHIS, the incentive was given with the objective to promote investment in technology upgradation and was granted @ 1% of FOB value of Export. The investment in technology is clearly a capital expenditure. So far as the incremental incentive scheme is concerned, the incentive was linked with incremental export if a particular year, export sale was more than certain percentage of export in the preceding year, the assessee becomes entitled for this incentive. The said incentive was connected to expenses of investment in new plant and machinery, hence, the incentive is capital in nature. With regard to, Market Linked Focus Product Scheme (MLEPS) is concerned, the incentive was granted in order to export of products of high export intensity employment potential and is incentivized at 2% of FOB value of exports. This incentive was linked to employment generation by the company connected to the export of goods and mercantile. It is linked with capital in nature. The CIT(A)has placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT VS. Ponni Sugars& Chemicals Ltd. (2008) 306 ITR 392 (SC), Eastman Exports Global Clothing Pvt. Ltd. in ITA.No.47/MDS/2016 dated 17.05.2016 and Sutlej Textiles & Industries Ltd. (ITA. No. 5142/Del/2013) and M/s. Gloster Jute Mills Ltd. Vs. Addl. CIT in ITA.No. 687/Kol/2010. These issues have duly been examined and discussed by CIT(A) in his order. The copy of scheme has also been filed by Id. Representative of the 7 Aarti Industries Limited, batch assessee for examination. It is necessary to advert the contents on record: - 3.14... 3.15... 3.16 Status Holders Incentive Scrip (SHIS) 3.16.1 With an objective to promote investment in upgradation of technology of some specified sectors as dated in Para 3.16.4 below, Status Holders shall be entitled to incentive scrip @ 1% of FOB value of exports made during 2009-10, 2010-11 and during 2011-12, of these specified sectors, in the form of duty credit. The Status Holders of the additional sectors listed in the Para 3.10.8 of HBPvi 2009-14 (RE-2010) shall be eligible for this Status Holders Incentive Scrip on exports made during 2010-11 and 2011-12 This shall be over and above any duty credit scrip claimed /availed under this chapter. 3.16.2 Status Holders availing Technology Upgradation Fund Scheme (TUFS) benefits (under Ministry of Textiles) during a particular year shall not be eligible for Status Holders Incentive Scrip for exports of that year. 3.16.3 The Status Holders Incentive Scrip shall be with Actual User Condition and shall be used for exports of capital goods (as defined in FTP) relating to the sectors specified in Para 3.16.4 below. 3.16.4 The Status Holders of the following Sectors shall be eligible for thisStatus Holders Incentive Scrip - (1) Leather Sector (excluding finished leather); (2) Textiles and Jute Sector; (3) Handicrafts; (4) Engineering Sector (excluding Iron & Steel, Non-ferrous Metals in primary or intermediate forms, Automobiles & two wheelers, nuclear reactors & parts and Ships, Boats and Floating Structures); (5) Plastics, and (6) Basic Chemicals (excluding Pharma Products). The Status Holders of the additional sectors listed in the Para 3.10.8 of HBPv1 2009-14 (RE 2010)shall be eligible for this Status Holders Incentive Scrip an exports made during 2010-11 and 2011-12."
8. The scheme is self-explanatory. There is nothing on record to which it can be assumed that the same is not in existence. No reason has been explained to which it can be assumed that the CIT(A) has granted the relief wrongly and illegally. The facts are not distinguishable at this stage. In view of the facts and circumstances and the law considered by the CIT(A), we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this 8 Aarti Industries Limited, batch appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.” 11.1. The Ld.AR also submitted that the Co-ordinate Bench has held in the assessee’s sister concern’s case, named, Aarti Drugs Ltd., (ITA No. 2503/Mum/2021, dt. 20-01-2023) that the incentive received under SHIS Scheme is capital in nature. 11.2. Following the above said decisions, we uphold the order passed by the Ld.CIT(A) on this issue.
In all the three years, the Revenue is challenging the decision of Ld.CIT(A) in directing the AO to exclude both the subsidies while computing book profit u/s. 115JB of the Act. The decision rendered by us on an identical issue in AY. 2011-12 (supra) will be applicable to these years also. In AY 2011-12, we have followed the decision rendered by Hon’ble Bombay High Court in the case of Harinagar Sugar Mills Ltd (supra) and held that the capital receipts should not be included while computing book profit u/s 115JB of the Act.Accordingly, following the decision rendered in an identical issue in AY. 2011-12, we uphold the order passed by the Ld.CIT(A) on this issue in all these three years.
In the result, all the four appeals filed by the Revenue are dismissed.