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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI.RI OM PRAKASHRI. KANT & SHRI SANDEEP SINGH KARHAIL
आदेश/ ORDER PER OM PRAKASH KANT (AM): This appeal by the assessee is directed against the order dated 25/11/2021 passed by the Learned Commissioner of Income Tax (Appeals)-53, 2 ITA 185/Mum/2022 Mumbai [ in short, the Ld.CIT(A)] for Assessment Year 2014-15 raising following grounds:- “1. On the facts and circumstances of the case and in law, the CIT(A) erred in holding that the amount received under the Package Scheme of Incentive (PSI) as a revenue receipt.
2. On the facts and circumstances of the case and in law, the CIT(A) erred in holding that the utilization of subsidy received would decide the nature of subsidy as capital receipt or revenue receipt.
3. On the facts and circumstances of the case and in law, the CIT(A) erred in not allowing the deduction under 80IC on the interest income of Rs.38,984 earned on vendor deposits.”
2. Briefly stated, facts of the case are that the assessee filed return of income on 29/11/2014 declaring total income of Rs,35,96,53,730/-. The case was selected for scrutiny assessment and statutory notices under the Income- tax Act, 1961 (in short, ‘the Act) were issued and complied with. The assessment under section 143(3) of the Act was completed on 23/12/2016 wherein the claim of the assessee for incentives received under the Package Scheme of Incentive (PSI-2007) was held by the Assessing Officer as revenue receipt as against the claim of the assessee as capital receipt. The Assessing Officer also disallowed the claim of deduction under section 80IC of the Act.
3. Aggrieved, the assessee filed appeal before the Ld.CIT(A), who partly allowed the appeal. Further aggrieved, the assessee is before the Tribunal by way of raising the grounds as reproduced above. 4. Before us, the assessee has filed a paper book containing pages 1 to 264.
3 ITA 185/Mum/2022
At the outset, the Ld.Counsel of the assessee submitted that Ground No.3 was not pressed by the assessee, therefore, same is dismissed as infructuous.
The grounds No.1 & 2 relate to claim of subsidy under PSI-2007. According to the assessee, said subsidy received of Rs.6.16 crores (being 15% of actual investment of Rs.41.06 crores) was in the nature of capital subsidy as same has been provided for achieving higher and sustainable economic growth with emphasis on balanced regional development and employment generation through greater private and public investment in industrial development. The contentions of the assessee were rejected by the Assessing Officer. According to the Assessing Officer, had it been the capital subsidy, the assessee would have reduced the same out of the written down value (WDV) of the block of assets as required under section 43(1) of the Act. On appeal, the Ld.CIT(A), following the findings of the Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd 306 ITR 392 (SC) and Sahney Steel & Press Works vs Commissioner of Income Tax 228 ITR 253 (SC) upheld the findings of the Assessing Officer by observing as under:- 4.4.10 However, in the case of the present appellant, the Industrial Promotion Subsidy was linked to the investment in the fixed capital. The appellant is free to utilize the subsidy wherever it wants to use. The context of the purpose has to be with respect to the purpose for which the subsidy is given. Merely the establishment of industrial unit in the backward area/less developed area of the State as stated in the Preamble cannot be decide the purpose for which the subsidy is given to the appellant.
As discussed above, the purpose of the subsidy has not been either laid down in the PSI Scheme, 2007 or in the Eligibility Certificate issued to the appellant by the Directorate of Industries. The ITAT, Mumbai while deciding the issue of subsidy received under the PSI Scheme as capital receipt, has relied upon Preamble. The purpose of the payment of Industrial Promotion Subsidy has been taken from the Preamble of the PSI Scheme, 2007. The Preamble is an introduction to a 4 ITA 185/Mum/2022 particular law or a Government Scheme. It communicates the intention of the State and philosophy behind enacting a particular law or bringing a particular scheme. It is always distinct from enacting formulae of law or any Government Scheme. . Therefore, the Preamble cannot be taken as the purpose for which the appellant was given Industrial Promotion Subsidy. Neither the PSI, 2007 nor the Eligibility Certificate has elaborated the purpose for which the subsidy was given to the appellant. The quantum of the subsidy was to be decided on the basis of fixed capital investment made by the appellant, but, that is also not a determining factor to decide the purpose of the subsidy. The appellant is free to use the subsidy at its will for any purpose. Thus, it cannot be said that the subsidy given to the appellant was t only for the setting up of new business or expansion of the new business. The appellant has also not furnished the utilization of the subsidy given by the State Government.
The purpose which has been explained by the Hon'ble Supreme Court in the cases of Ponni Sugar & Chemicals Ltd. (supra) and also Sahney Steel & Press Works Ltd. (228 ITR 253), is the purpose which was specific for the appellant and in respect of the end-use or utilization of such subsidy. This specific aspect or purpose is missing in the case of the Industrial Promotion Subsidy given by the State Government to the appellant. Thus, respectfully following the decisions of Ponni Sugar & Chemicals Ltd. (supra) and Sahney Steel & Press Works Ltd. (supra), the Industrial Promotion subsidy of Rs. 4.01 crs. received by the appellant is held as revenue receipt. The action of the AO of considering the Industrial Promotion Subsidy of Rs. 4.01 crs. as revenue receipt is in accordance with the judicial pronouncements of the Hon'ble Supreme Court in the cases of Ponni Sugar & Chemicals Ltd. and Sahney Steel & Press Works Ltd. (supra). Accordingly, Ground No. 1 of the appeal is dismissed.”
Before us the Ld.Counsel of the assessee submitted that Co-ordinate bench of the Tribunal in various cases has held the subsidy received under the scheme of PSI-2007 as capital in nature. The Ld.Counsel relied on the decision of Tribunal, Mumbai Bench in the case of Mahindra Two Wheelers Ltd in ITA No.519/Mum/2018. The Ld.Counsel also referred to other decisions including decision of the Tribunal, Pune Bench in the case of Klaus Multiparking Systems Pvt Ltd (IT 308/Pun/2017) for A.Ys 2010-11 & 2011-12.
Per contra, the Ld.DR relied on the order of the lower authorities.
5 ITA 185/Mum/2022
We have heard rival submissions of the parties and perused the relevant materials on record. We note that the Tribunal in the case of Mahindra Two Wheelers Ltd (supra) has held the subsidy received under the same scheme, i.e. PSI-2007 which is under reference before us. The relevant finding of the Tribunal(supra) is reproduced as under:- “37. The learned authorised representative submitted the copy of the package incentive scheme 2007 issued by the government of Maharashtra. Referring to the above scheme, she referred to the preamble of the scheme stating that the scheme is put into force to encourage the dispersal of industries to the less developed area of the state. It was also stated that assessee is covered by the scheme. As per serial number 5 of legal paper book. Ld AR has listed down several decisions of the coordinate bench where benefits of package incentive scheme 2007 of government of Maharashtra is held to be capital in nature. In view of this, she submitted that the orders of the lower authorities are not correct in holding that the incentive received by the assessee is a revenue receipt. She further submitted that 'objects and purpose' of the subsidy clearly shows that it is capital receipt and cannot be charged to tax.
The learned CIT DR vehemently supported the orders of the lower authorities. She specifically referred to the direction of the dispute resolution panel wherein the decision of the honourable Bombay High Court in decision of special bench in case of Reliance Indusres Limited , has been sent back by the honourable Supreme Court to the file of the honourable Bombay High Court for deciding it afresh. Therefore, she submitted that this issue has not reached finality. In any case it is submitted that the receipt of sales tax incentive by the assessee is based on / ales made by the assessee and therefore is revenue in nature.
We have carefully considered the rival contention and perused the orders of the lower authorities. On Perusal of the PSI, 2007 shows that the subsidy has been granted to encourage industrial growth in less developed areas of the State. The quantification of subsidy is linked with the amount of investment made in setting up of the eligible units. Payment of the subsidy is in the form of refund of VAT and CST paid on sale. Assessee claimed before the lower authorities that the subsidy was a capital receipt and, hence, not chargeable to tax which was rejected As held by Hon Supreme court in case of Ponni Sugar (Supra) decisive factor for considering the nature of subsidy as a 'capital' or 'revenue' receipt is the 'purpose' for which the subsidy has been granted and not the manner of its disbursal. Purpose of granting the subsidy, which is nothing but establishment of new industrial units in less developed areas of the State i.e. to develop underdeveloped areas of the state. Further, on identical facts and circumstances the coordinate bench in case of 6 ITA 185/Mum/2022 Mahindra vehicles Manufacturers Limited in ITA number ' 6919/M/2016 for assessment year 2011 - 12) number 7 (page number 9) wherein it has been categorically held to be a capital receipt. Similarly in ITA number 2808/M/2018 for assessment year 2013 - 14 in case of Mahindra vehicles Manufacturers private limited also vide order dated 24/7/2019 earlier order was followed. In view of this, respectfully following the decision of the coordinate bench in assessee's group concern, where on the same scheme it has been held to be a capital receipt, we also hold that subsidy received by the assessee amounting to ? 188,119,155/- is a capital receipt. Accordingly, ground number 4 of the appeal of the assessee is allowed.”
Ground no 6 is with respect to granting carry forward of losses and unabsorbed depreciation. Ld AO is directed to compute the same in accordance with law. Thus Ground no 6 is allowed.”
The finding of the Tribunal in the case of Klaus Multiparking Systems Pvt Ltd (supra) wherein the Tribunal has followed earlier decision of the Tribunal in the case of Innovative Industries Ltd vs DCIT (ITA No. 601/Pune/20143), is reproduced as under:- “16. We find that the Tribunal in the case of Innoventive Industries Ltd. Vs. DCIT (supra) had considered the aforesaid scheme of PSI, 2007 and had relied on decision of the Hon'ble Supreme Court and or, various decisions of Hon'ble High Courts and held as under- : "15. We have heard the submissions made by the representatives of the rival sides and have perused the orders of authorities below. We have also considered various documents placed on record in the form of paper book “Before we proceed to decide the nature of subsidy and the purpose for which the subsidy was received by the assessee, it would be relevant to first refer to the Preamble of Package Scheme ;Incentive, 2007 under which the assessee has received assistance from the State Government. The relevant extract of the Preamble of PSI, 2007 reads as under: "PREAMBLE In order to encourage the dispersal of I:ndustries to the less developed areas of the State, Government has been giving a Package of Incentives to New/Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package Schemes of Incentives. Tin Package Scheme of incentives, introduced in 1564, was amended from time to time. The last amended scheme, commonly known as the 2007 Scheme is operative from the 1st April, 2007. The Slate has declared the new Industrial, Investment, Infrastructure Policy 2006 to ensure sustained Industrial growth through Innovative initiatives for development of key potential sectors and further improving the conducive industrial climate In the State, for providing the global competitive edge to the State's Industry. The policy envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced Regional Development and Employment through Greater Private and Public Investment in industrial development. The Package Scheme of Incentives 2007 outlines the eligibility criteria, quantum of incentives and monitoring discretion for administering the incentives.” 16. .A further perusal of the scheme reveal that the State of Maharashtra been classified into different areas marked as Group A to Group D+, depending upon the development in the specified areas. The Classification of Areas under the scheme is given below:-
7 ITA 185/Mum/2022 “1.3 Classification of Area: For the purpose of the 2007 scheme, the classification of the areas of the State shall be as indicated below: (i) Group A: comprising the developed areas, viz. Mumbai Metropolitan Regional (MMR) and Pune Metropolitan Region (PMR) (ii) Group B : comprising the areas where some development has taken place. (iii) Group C : comprising the areas which are less developed than those covered under Group B. (iv) Group D: comprising the lesser developed area of the State not covered under Group A/GroupB/GroupC. (v) Group D+ : comprising those least developed areas not covered under Group A/GroupB/Group/C/Group D. No industry District : not covered under Group A/B/C/D & D+ (vi) 17. The beneficiary of PSI, 2007 will be issued eligibility certificate by the Implementing agency and the eligibility certificate will be issued with effect from tho date of commencement of commencement of production by the eligible unit. The assesses is classified as Mega Project. The Department of Industries, Government of Maharashtra vide letter dated 30-10-2007 has offered the status of Mega Project to the propose/ of assessee on the basis of employment generation and has offered incentives subject to compliance of PSI,2007.
The assessee has entered into Memorandum of Understanding with the Government of Maharashtra on 15-10-2008 (placed on record at page 110 of the paper book). The relevant extract of the terms and conditions specified in Memorandum of Understanding for claiming benefit under the scheme are as under:-
1. 1. ADAPL shall invest approximately Rs.117 crores in the new project at villages Sanaswadi, Tal.Shirur,Dist.Pune & will offer employment to 310 persons.
2. GoM will offer following benefits / incentives granted hereunder available with regard to the eligible investments for expansion and shall be payable to ADAPL on ADAPL complying with the requirements under PSI 2007. 2.1 Electricity Duty exemption for the period of 7 years from the date of commencement of commercial production. 2.2 100% exemption from payment of Stamp Duty.
2.3 Industrial Promotion Subsidy (IPS) equivalent to 75% of "ELIGIBLE INVESTMENTS (as defined in PSI 2007 )" made w.e.f 28"1 March, 2007 and made with such a period stipulated in the ." Package Scheme of Incentives 2007. The IPS will however be limited to 75% of ADAPL's eligible investments less the amount of benefits availed at Sr.No.2.1 & 2.2 as per the period prescribed therein or to the extent of taxes paid to the State Government within a period of 7 years whichever is lower.
The IPS mentioned at 2.3 will be admissible only after the company employs 500 number of persons on regular basis within one year from the date of commencement of commercial production at the proposed project and at least 75% of these employees are local persons."
A bare perusal of the Preamble to PSI, 2007 shows that the incentives are offered by the State Government to the entrepreneurs for making investment and setting up of new industries in the lesser developed areas of the State of Maharashtra. The scheme envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced regional development and employment generation through greater private and public investment in industrial development. In other words, through this scheme the State Government intends to attract investments in those area which are less developed so as to create a balanced development in the Slate and generate even employment opportunities throughout the State. Thus the prime motive behind PSI, 2007 is setting up of new industries.
A perusal of the terms and conditions of the Memorandum of Understanding reveal that the incentive/benefits under the scheme are offered to the assesses subject to the compliance of certain conditions. The benefits are in the form of exemption from payment of Electricity Duty, 100% exemption from payment of Stamp Duty on purchase of land etc., the Industrial Promotion Subsidy is given to the extent of 75% of eligible investment made during prescribed period (limit of 75% of the eligible investment shall be reduced by the amount of benefits offered in the form of electricity duty and exemption of stamp duty) or to the extent of taxes paid to the State Government within a period of 7 years, whichever is lower. A close perusal of the above condition would make it unambiguously clear that it is not the choice of the beneficiary under the scheme to select the mode of subsidy. The beneficiary is entitled to subsidy subject to the limit of 75% of eligible investments as reduced by the amount of benefits availed on account of Electricity Duty and Stamp Duty exemption or the taxes paid to the State 8 ITA 185/Mum/2022 Government within a period of 7 years, whichever is lower. In the present case, the assesses has received Industrial Promotion Subsidy in the form of refund of sales tax paid to the State Government. The latter mode of payment of Industrial Promotion Subsidy is possible only when the beneficiary under the schema has commenced production and its products are available in the market for sale. Until and unless the production starts and the products are sold in the market, there cannot be refund of sales tax. In the background of the above narrated facts, it would be wrong to conclude that since the assesses has received subsidy as refund of sales tax, therefore, it is a trade receipt. The assesses has received subsidy in the form of refund of sales lax for setting up of Mega Project in classified Area C of the State of Maharashtra and upon providing employment to more than 500 persons, as specified under the scheme.
21 One of the objection by the CIT(A) in rejecting the claim of assesses is that the assesses has failed to complied with only one of the two criterias laid down under the PSI, 2007 for claiming benefit of Industrial Promotion Subsidy, i.e. employment criteria. The other condition of minimum investment is not fulfilled. According to Memorandum of Understanding, the assessee was required to invest approximately Rs. 117 cores and offer employment to 510 persons. A perusal of the eligibility certificate dated 17-03-2009 at page 112 of the paper book shows that as against expected investment of Rs.117 crores the assessee had made investment of Rs.94.53 crores between 28-03-2007 to 05-12-2008. The assesses had started commercial production on 01-12-2008. The total period of investment available with the assessee is from 28-03-2007 to 27-03-2012. Thus, there was still time available with the assessee to make further investment. The assessee vide letters dated 28-03-2007 and 31-11-2011 had requested the Government to consider the level of investment at Rs.562 crores instead of Rs. 117 crores and to provide employment to around 1937 persons instead of 510 persons at industrial unit set up by the assessee at Village Sanaswadi, Taluka Shirur, District Pune. The Department of Industries, Energy and Labour, Government of Maharashtra vide letter at page 132 of the paper book has agreed to apply the incentives on the additional investment of Rs.445 crores, i.e. investment upto Rs. 562 crores. The period for granting Industrial Promotion Subsidy was also Increased from 7 years, to 9 years. Thus, it is unambiguously clear that the assessee had reached the level of investment and had even gone much beyond initial level of investment of investment of Rs.117 crores. Therefore, the said objection raised by he CIT(A) in rejecting the claim of the assessee is unwarranted.
To be eligible to claim, the benefit of scheme the assessee was required to obtain eligibility certificate. In the present case, the eligibility certificate was issued with effect from the date of commencement of commercial production by the assessed. Thus, the assessee was eligible to claim the benefit of Industrial Promotion Subsidy for the period of 7 years starting from the date of production, i.e. 01- 12-2008 to 30-12-2015. Accordingly, the period relevant to the assessment year 2009-10 was the first year in which the assesses could have claimed the benefit of subsidy, The relevant extract of the eligibility certificate is reproduced herein below:
Particulars Capital cost (Rs.in Maximum Admissible Actual lacs) Fixed Capital Investment accepted investment made from 28.03. 2007 to 5.12.2008 Land & Site Dev. 520.00 520.00 Building 1884.00 1884.00 Plant & 8813.80 8180.82 Machinery Electricals 1282.00 139.14 Others 1001.00 649.73 Total 11700.00 9453.69 Date of start of 01.12.2008 Commercial Production Validity period of EC 7 years : from 01.12.20087 to 30.11.2015 & Period for ED Exemption 9 ITA 185/Mum/2022 Date of effect of the 01.12.2008 EC Period for investment From 28.03.2007 to 27.03.2012 Entitlement of : (1) Electricity Duty exemption for the period of 7 years from the dale of commencement of commercial production (from 01.12.2008 to 30.11.2015).
(2) 100% exemption from payment of Stamp Duty.
(3) Industrial Promotion Subsidy (IPS) equivalent to 75% of your Eligible Investments i.e. Rs. 11700.00 lacs to be made w.e.f. 28.03.2007.
Limited to 75% of your eligible investments less the amount of benefits availed at Sr. 1 & 2 above as per the period prescribed therein OR 2. To the extent of taxes paid to the State Government within a period of 7 years, whichever is lower.
The afore stated incentives shall be sanctioned and released upon submission of land use conversion to industrial purpose permission and building plan approvals from competent authority on or before 02.03.201 O.- It is evident from the eligibility certificate issued by Directorate of Industries, Government of Maharashtra that the assesses has received benefit of subsidy for Mega Project after qualifying all the conditions set out in PSI, 2007.
The Hon'ble Supreme Court of India in the case of Ponni Sugars and Chemicals Ltd. (supra) has laid down certain principles to determine the nature of subsidy, they are :
(a) The object of subsidy scheme – If the scheme was to enable the assessee to run the business more profitably then the receipt is on Revenue account. If the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand existing unit then the receipt of subsidy is on capital account.
(b) The form or mechanism through which the subsidy is given is irrelevant. The purpose for which the amount received as subsidy is utilized.
(c) The purpose for which the amount received as subsidy is utilized. The underlying factor which determined the nature of subsidy is the purpose for which the subsidy is given. The mode of payment of subsidy does not determine the nature of subsidy.
In the case of Shree Balaji Alloys and Others vs. CIT (supra), the Hon’ble High Court of Jammu & Kashmir had occasion to deal with the issue determining the nature of subsidy, i.e. whether Capital or Revenue. In the said case the subsidy was received by the assessee under the scheme with twin objects, viz. (i) acceleration of industrial development in the State of Jammu & Kashmir, and (ii) generation of Employment in the State. The subsidy was received by the assessee in the form of excise refund and interest, etc. The Tribunal decided the issue in favour of the Revenue by holding the subsidy received by the assessee as Revenue receipt on the following grounds:- “(i) The excise refund an interest subsidy had not been given to the appellants to establish industrial units promoting the industry stood already established. (ii) The incentives were not available unless and until commercial production had commenced. (iii) The incentive were recurring in nature, in that, those were limited to a period of 10 years from the date of commencement of commercial production. (iv) The incentives in the form of excise duty refund and interest subsidy were not given to the assessee for purchasing capital asset or for purpose of machinery. (v) The incentives were given for market accessibility and to run the business profitably.
10 ITA 185/Mum/2022 The Hon’ble High Court after thoroughly examining the salient features of the New Industrial Policy under which the subsidy was extended to the assessee and also the ratio of judgements rendered by the Hon’ble Apex Court in the case of Sahney Steel and Press Works Ltd (supra) and approval thereof in Ponni Sugars and Chemicals Ltd (supra) has held as under:- “16) Perusal of the judgements in Sahney Steel and Press Works Ltd (supra) and Ponni Sugars and Chemicals Ltd (supra), therefore, reveals that the apex Court had applied the above quoted dictum to determine the purpose, which the two schemes had intended to achieve by the incentive subsidies, permissible under the schemes in question in these cases. It was, therefore, in the context of respective subsidy incentive schemes in the two cases, that the subsidy in Sahney Steel and Press Works Ltd was held to be revenue receipt whereas the subsidy in Ponni Sugars & Chemicals Ltd (supra) was held as capital receipt.
17) We are supported in taking this view by the observations made by the Hon’ble Supreme Court of India in a later decision reported as Mepoo Industries Ltd vs CIT & Anr.(2008) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 308; 2009 (7) SCC 564, where the above dictum was reiterated as follows:- “………….Sahney Steel and Press Works Ltd (supra) was a case which dealt with production subsidy, Ponni Sugars & Chemicals Ltd (supra) dealt with subsidy linked to loan repayment whereas the present case deals with a subsidy for setting up an industry in the backward area. Therefore, in each case, one has to examine the nature of the subsidy. The judgement of this Court in Sahney Steel and Press Works Ltd Etc.(supra) was on its own facts; so also, the judgement of this Court in Ponni Sugars & Chemicals Ltd (supra). The nature of the subsidies in each of the three cases is separate and distinct. There is no straight jacket principle of distinguishing a capital receipt from a revenue receipt.
It depends upon the circumstances of each case. As stated above, in Sahney Steel & Press Works Ltd. Etc. (supra), this Court has observed that the production incentive scheme is different from the scheme giving subsidy for setting up industries in backward areas."
18) Now coming to the findings of the Tribunal on the issue, we find that the Tribunal has referred to various paras appearing in the two judgments to support its view that the receipts in the hands of the assessees were production incentives and thus revenue receipt and not capital receipt. This, however, appears to have been done without appreciating that the observations made in those paras were in the context of the schemes as such, which the apex Court was considering to find the intent and purpose of the incentives under those schemes, and not the law laid down as such; 19) The Tribunal has relied upon five factors to hold the incentives in question as Production Incentives but without dealing with that part of the Scheme, whereby unemployment in the State had been intended to be eradicated creating atmosphere for accelerated industrial development to provide employment opportunities to deal with the social problem of unemployment. This in our view is lop-sided interpretation of the New Industrial Policy and Concessions formulated by the Central Government for the State of Jammu and Kashmir vide Office Memorandum of June 14, 2002.
20) Therefore, in view of the clear legal position adumbrated by the Hon'ble Supreme Court of India on the issue in question, that to determine the nature and intent of the incentives as to whether thoso were Revenue Receipts or Capital Receipts, the purpose underlying the incentives was the determinative test, there may not be any necessity of referring to the judgments of other High Courts of the Country rolled upon by the appellants' learned counsel, some of which had been considered by the Hon'ble Supreme Court of India in the above referred cases.
21) Thus, finding that the New Industrial Policy and other concessions for the State of Jammu and Kashmir has not been correctly appreciated by the Appellate Tribunal, we 11 ITA 185/Mum/2022 proceed to examine the true intent and purpose underlying the Policy and the Concessions contemplated by the Office Memorandum of June 14, 2002 and statutory notifications issued in this behalf.
22) Perusal of the Office Memorandum dated 14.06.2002 indicating New Industrial Policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu and Kashmir. Amendment introduced to the Office Memorandum vide Notification of November 28,2003 of the Government of India, Ministry of Commerce and industry (Department of industrial Policy and Promotion) eloquently demonstrates the Central Government’s intention in extending the incentives. The Government's objective, as conveyed by Hon'ble the Prime Minister at Srinagar on April 19, 2003, was, for creation of one lac employment and self employment opportunities in Jammu and Kashmir State.
23) To achieve the purpose and objective referred In herein above,itl was, inter alia, provided in the Central Excise Notifications that the exemptions contained in the Notifications would be available only on production of Certificate from General Manager of the concerned District Industry Centre to the jurisdictional Deputy Commissioner of the Central Excise or the Assistant Commissioner of Central Excise,, as the case may be, to the affect that the unit had created Required Additional Regular Employment, which would not, however, include employment provided by the industrial units to Daily wagers or Casual employees engaged in the Units.
24) A close reading of the Office Memorandum and the amendment introduced thereto with para No.3 appearing in the Central Excise Notification Nos.56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of employment, so contemplated, was not only casual or temporary, but was on the other hand, of permanent or temporary, but was on the other hand, of permanent nature.
25) Considered thus, the paramount consideration of the Contra/ Government in providing the incentives to the Now industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment In the State, additionally creating opportunities for self employment, hence a purpose in Public Interest.
26. In this view of the matter, the incentives provided to the industrial units, in terms of the New Industrial Policy, for accelerated industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir were in fact, in the nature of creation of New Assets of Industrial Atmosphere end Environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve Public Purpose, cannot by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessee alone.
27. Thus, looking to the purpose, of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the Public Interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellant- assessees cannot be construed as mere Production and Trade Incentives, as held by the Tribunal.
28) Making of additional provision in the Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been Intended to ensure 12 ITA 185/Mum/2022 that the incentives were made available only to the bonafide Industrial Units . so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved.
29) The other factors, which had weighed with the Tribunal in determining the Incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30) For all what has been said above, the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence Revenue Receipt, cannot be sustained, being against the law laid down by Hon'ble Supreme Court of India in Sahnev Steel and Ponni Sugars cases (supra). 31) The finding of the Tribunal that the incentives were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the assesses."
In the instant case also the Government of Maharashtm through PS/, 2007 intends to achieve industrialization with twin objects of (1) Balanced Regional Development, and (b) Employment Generation. Thus, the ratio laid down in the case of Shree Balaji Alloys Vs. CIT (supra) would apply in the present case.
We find that the Special Bench of Tribunal in the case of DCIT Vs. Reliance Industries Ltd., in a case where the assessee had received the incentive/subsidy in the form of exemption from liability to payment of sales tax for setting up of industries in notified areas under 1979 scheme of Government of Maharashtra has held that sales tax incentives received by the assessee from the Government of Maharashtra is Capital receipt not chargeable to tax.
The Hon'ble Bombay High Court in the case of CIT Vs. Chaphalkar Brothers after considering the ratios laid down in the case of Sahney Sleel and Press Works Ltd. (supra) and Ponni Sugars and Chemicals Ltd. (supra) has held that the purpose for which the subsidy was given is relevant factor to determine whether the same is capital or revenue receipt. If the object was to enable the assesses to set up a new unit then receipt of subsidy would be on capital account. In the aforesaid case, the State Government had granted subsidy in the form of exemption from Entertainment Duty on Construction of multiplex theatres. The Hon'bie High Court held that the fact that the subsidy was not meant for repayment of loan taken for construction of multiplexes cannot be a ground to hold that subsidy receipt was on revenue account. The relevant extract of the findings of the Hon'ble Jurisdictional High Court are as under: "5. Since the object of subsidy was to promote construction of multiplex theatre complexes, in our opinion, receipt of subsidy would be on capital account. The fact that the subsidy was not meant for repaying the loan taken for construction of multiplexes cannot be a ground to hold that subsidy receipt was on revenue account because, if the object of the scheme was to promote cinema houses by constructing multiplex theatres, then irrespective of the fact that the multiplexes have been constructed out of own funds or borrowed funds, the receipt of subsidy would be on capital account. In the light of the aforesaid objects of the Scheme framed by the State Government, the decision of the Income Tax Appellate Tribunal that the amount of subsidy received by the assesses is on order as to costs."
The L,d. Departmental Representative has placed reliance on the decision of Coordinate Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT (supra). In the said case, the State Government for the purpose of promotion of wind energy generation in. the State of Maharashtra had granted certain benefits to the persons who had set up Windmill. The policy to grant further incentives to windmill owners was formulated in the background of the fact that earlier policy of the State Government on generation through non-conventional sources did not achieve the desired results. In the subsequent policy the sales tax benefits were granted to the windmill operators to. mitigate the problems faced by the-promoters of wind energy generation. In the background of these facts the creation or bringing into existence a new asset. The Tribunal 13 ITA 185/Mum/2022 hold that the object of the scheme was to promote generation of energy through non-conventional sources and the same is sought to be achieved by the Government in the form of supporting the units to perform more efficiently and profitably. Thus, in view of the above facts the Tribunal held that the incentives received by the assessees in the form of sales tax benefits were Revenue receipt as it has nothing to do with setting up of the windmill.
The facts of the aforesaid case are entirely at variance with that of the case in-hand. In the present case, the incentive in the form of refund of sales tax is on account of setting up of now industrial unit with twin objective of balance development of regions and generation of employment. As per the scheme there are two modes of payment of Industrial Promotion Subsidy. The subsidy to the extent of 75% of the eligible investments as reduced by the benefit of electricity duty exemption and stamp duty exemption or to the extent o! taxes paid to the State Government within a period of 7 years, whichever is lower. It is not the choice of the assesses to opt for either of the two modes The beneficiary under the Scheme will receive the subsidy alter comparative analysis of both the modes, whichever is lower.
The assesses is eligible to claim the incentive subject to the compliance of certain conditions mentioned in the PSI 2007 scheme., subject to the maximum limit as specified in the scheme. Since the assessee Is eligible to qualify in the latter part of the scheme, the assessee is receiving incentive / subsidy in the form of refund of sales tax from the State Government. As far as the purpose of subsidy is concerned, it is quite evident that it is for setting up of new Mega Project in the classified area. Hence, the decision of Coordinate Bench of the Tribunal in the case of Rasiklal M Dhariwal (HUF) vs DCIT(supra) would not apply in the facts and circumstances of the case.
Thus, in the facts of the case and in the light of various decisions discussed above, we hold that the incentive received by the assessee under the PSI, 2007 scheme in the form of refund of sales tax Is Capital receipt, not liable to tax."
The issue arising before us is identical to the issue before the Tribunal in Innoventive Industries Ltd. Vs. DCIT (supra) and the assessee had received incentive / subsidy from the State Government for setting up the project in the classified area, Hence, we hold that subsidy received by the assessee under PSI, 2007 Is capital receipt In the hands of assesses, Accordingly, we delete the addition of f 26,37,000/-. The grounds of appeal
raised by the assessee are thus, allowed.”
11. Respectfully, following the Co-ordinate Bench decision (supra), we direct the Assessing Officer to treat the subsidy received under PSI-2007 as revenue receipt and delete the addition. The grounds raised by the assessee are accordingly allowed.
13. In the result, appeal of the assessee is allowed.
Order pronounced in the on this 31st day of October, 2022 under Rule 34(4) of IT(AT) Rules, 1963.