M/S CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITED,RAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1), RAIPUR

आदेश / ORDER

PERPARTHA SARATHI CHAUDHURY, JM :

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This appeal preferred by the assessee emanates from the order of the

Ld. CIT(Appeals)-1, Civil Line, Raipur dated 26.03.2018 for the assessment

year 2014-15 as per following grounds of appeal on record:

“Ground No.1

On the facts and circumstances of the case as well as in law, the learned Commissioner of income Tax (Appeals)-1, Raipur ( “the Ld. CIT(A)” ) has grossly erred in confirming the action of the Learned Assessing Officer (“the Ld. AO”) in making addition of Rs.82,30,00,000/- being Grant/Financial Assistance (“the Grant”) received from the Government of Chhattisgarh ( “the CG Govt.”) by holding it as Revenue Receipt chargeable to as against Capital Receipt claimed by the appellant in its return of income which is highly unjustified , unwarranted , unsustainable , not proper on facts and not in accordance with the provisions of law.

The Ld. CIT(A) has failed to appreciate that the Tara Coal Block has been allotted to the CG Govt. only and the Grant has been received with a specific direction to be utilized for specific purpose of Development of Coal Block and in terms of the provisions of Chhattisgarh Mineral Development Fund Act, 2003 read with Chhattisgarh Mineral Development Fund Rules, 2004, the funds received therein could not have been utilized for other purposes except Development of Tara Coal Block and hence, he ought to have held the grant received as Capital Receipt not chargeable to tax applying the purposive test laid down by the Hon’ble Supreme Court in various judgments. Hence, it is prayed that the addition of Rs.82,30,00,000/- may please be deleted. Ground No. 2

That the appellant craves leave to add, amend, alter or delete all or any of the grounds of appeal at the time of hearing of the appeal.”

received by assessee which is a corporation of Chhattisgarh Government. It

is engaged in the business of exploitation of mines in the state. The

amount in question was provided to the corporation for the purpose of

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opening a mine which was allotted by MOC, Government of India. The

assessee’s contentions all throughout has been that the subsidy/financial

grant received has been shown in the books of account of the assessee as

‘Capital Receipt’ and in the income tax return also, it has been accepted by

the Department starting from assessment year 2006-07 upto the

assessment year 2013-14. The assessments were completed u/s.143(3) of

the Act and some subsidies has been accepted as ‘Capital Receipt’.

However, on the same set of facts and circumstances for assessment year

2014-15, the Department is of the opinion that the said subsidies are

“Revenue Receipt” and accordingly, it has been taxed. The Ld. CIT(Appeals)

has observed and held as follows:

“2.3 Facts being as above, the assesse is a corporation of Chhattisgarh Government. It is engaged in the business of exploitation of mines in the state. The amount in question was provided to the corporation for the purpose of opening a mine which was allotted by MOC, GOI. Once the mine is opened the assessee will have a stream of income attracting income tax. In addition to the existing sources of income, the assessee will have a further source of income. The expenditure in question will thus augment the business of the assessee. Whereas expenditure has been incurred to enhance the business and commerce, it has been held by the Honourable Supreme Court in the case of M/s. Sahney Steel & Press Works Ltd. & Ors (supra.) as a revenue item and the source of this expenditure will be income.

The basic principle to be applied for determination is whether a subsidy payment is to be assist in assessee’s business. If the funds are made available to the assessee to assist it in carrying on its trade or business and the object of the subsidy was to enable the assessee to run the business more profitably then the amount will be revenue receipt. In the case of [1966] 60 ITR 253 (SC) V.S.S.V. Meenakshi Achi Vs. Commissioner of Income Tax in order to encourage rubber production, Malaya Government constituted a fund with amount

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collected as cesses on rubber produced and exported as well as various duties collected from rubber producers and exporters. Assessee being only planters did not pay any duty for rubber exported. During relevant year certain amounts were credited against assessee corresponding to amount of rubber produced by it and payments were made from said amounts to assessee against expenditure incurred on maintenance of plantations. It was decided by the Apex Court that the receipts by the assessee were revenue receipts which were liable to be included in its assessable income. What is not a revenue receipt can be understood by the decision of Kerala H.C in the case of [1989] 46 Taxman 1 (Kerala) Commissioner of Income Tax Vs. Ruby Rubber Works Ltd. In that case replanting subsidy was received from Rubber Board under Replanting Subsidy Scheme of 1967 by Assessee Company. Fact was that during the accounting periods relevant to the assessment years 1971-72 and 1974-75, the assessee company received replanting subsidy from the Rubber Board under the Replanting Subsidy Scheme, 1967. The ITO held that the subsidy amount was not agricultural income and as the business carried on by the assessee was rubber manufacture and any expenditure incurred for the rubber plantation was also a business expenditure, the subsidy received, thus for recouping some of the expenditure was taxable income. On appeal, the AAC held that the avowed object of recouping the cost of planting and replanting rubber trees did not form the character of income and that it was only a capital receipt and so not a taxable receipt at all. On appeal by the revenue, the Tribunal while upholding the AAC’s order observed that what was received by the assessee from the Rubber Board was only by way of reimbursement of expenditure incurred by it in replanting rubber trees. Assessee’s claim is that production of mine had not started and the amount was received for making the mind fit to start production. Therefore the receipt was capital receipt. I find that at what stage an amount is received is not a criteria for deciding the nature of receipt. This issue has been dealt with in the case of [1996] 89 TAXMAN 56 ( Ker.) Commissioner of Income tax Vs. Udaya Pictures (P.) Ltd. The issue was taxability of subsidy received by assessee from Government for producing new regional films is a revenue receipt. The assessee company was engaged in the business of production of cinematographic films. It has received Rs.37,500/- as subsidy from the Kerala Government for producing new regional films. In the return filed the amount was sown as capital receipt. The Assessing Officer agreed with the assessee’s claim and did not include the said amount in the assessee’s total income. The Commissioner, however, invoked the provisions of section 263 and directed the Assessing Officer to include the amount in total income. On appeal, the Tribunal held that the subsidy received by the assesse was not taxable. On reference the Hon’ble Kerala H.C. that in view of the decision of the Kerala High Court in Kesaria Tea Co. Ltd. Vs. CIT

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[1989] 120 ITR 134 and from the material available in the instant case it was crystalline that what was received by the assessee from the Government was not a capital receipt but a subsidy and, therefore, it was income liable to tax.

In the present case the assessee is not the owner of the mine. The mine is owned by the Government of Chhattisgarh and it is not a capital asset of the assessee which has been entrusted to work on it. The facts are similar to M/s. Udaya Pictures (supra.) where subsidy received to make the picture was held to be revenue receipt by the High Court by reversing the decisions of all lower authorities. Therefore, the order of the Assessing Officer is hereby sustained and appeal is dismissed.”

“1. The Appellant herein is a Government Company as defined under the provisions of section 619 of the erstwhile Companies Act, 1956 (section 2(45) of the Companies Act, 2013) formulated, owned & controlled by the Government of Chhattisgarh (hereinafter referred to as "the CG Govt., with 99.99% shares being held by the CG Govt.), for Development of Mining, Marketing & Procurement of Minerals, regulating the Mining Activity In the State of Chhattisgarh, undertaking scientific exploration, commercial exploitation and viable trading of minerals In the State, either singly or In joint venture, to search for major and minor minerals, to acquire mining rights for exploration and exploitation of minerals, development of mines and other ancillary activities. The Appellant Company filed its return of income under the provisions of section 139(1) of the Income Tax Act, 1961 (In short "the Act") for the assessment year under reference on 26th November, 2014 declaring a Total Loss of RS.1,30,20,662/-. Profit & Loss Account was drawn up In accordance with the provisions of Parts II & III of Schedule VI of the Companies Act, 1956 and duly certified by the Statutory Auditors appointed under the Companies Act (Refer Page No.1 to 27 PB).

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say, the appellant was designated as the Implementation Agency/Nodal Agency for carrying out the Mine Development Work. It was further stipulated that the Coal produced from the aforesaid mines are to be used majorly for the purposes of supplying It to another Public Utility Enterprise viz. CSEB to be used for Generation of Electricity In its proposed Bhaithan Thermal Power Station i.e. the final product (electricity) is also to be used for the purpose of benefit of public at large. (Copy of the aforesaid Approval/Allotment Letter at Page No.30 &31 PB).

That the Financial Assistance has been sanctioned/granted from MDF as per the provisions of CMDFA for the following purposes (indicative only) :

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a) Development of Tara Coal Block - Exploration, Rehabilitation & Re- establishment;

b) Development of Tara Coal Block - Formation of Joint Venture, Permission as per Forest Conservation Act, Rehabilitation & Re- establishment work in respect of the Tara Coal Mines Area;

c) Investment in Share Capital of Joint Venture Company CICL;

d) Development of Tara Coal Block - Deposit of Net Present Value (NPV) with the Forest Department for Diversion of Forest Land & Compensatory Afforestation as per the provisions of Forest Conversation Act, 1980; &

e) Development & Implementation of Tara Coal Project - Award Amount determined in respect of Acquisition ofLand,Lease, Agreements & Compensation for Structure on the aforesaid acquired lands & Deposit of Permission Fees with Forest Department

It is further submitted that the Grant/Financial Assistance has been sanctioned with the stipulation that the expenditure has to be incurred keeping In view the Major Head which clearly is indicative of the fact that the Major Head in which the Financial Assistance has been granted to the appellant is towards incurment of Capital Expenditure only for Mineral Exploration & Development - Mining/Excavation purposes.

8 ITA No.76 /RPR/2018 A.Y.2014-15

Share Capital of CICL etc. and there is no user for the purpose of meeting out any operational or routine expenditure of the appellant corporation which could be termed as revenue expenditure in terms of the provisions of the law.

It is further submitted that the provisions of CMDFA governs the terms of sanction/allotment of fund from MDF to the appellant and further, regulates the utilisation of funds disbursed from MDF. Section3(1) of CMDFA stipulates the constitution of Chhattisgarh Mineral Development Fund which will be formed by earmarking five percent of revenue collected during the preceding financial year. Section 4 of CMDFA stipulates assignment of funds to the Mineral Resources Department, CG Govt. for further allotment to Directorate and Appellant. Further, most importantly, Section 5(b) of CMDFA stipulating and regulating the Utilisation of Funds allotted to the Appellant Corporation reads as "The Fund may be utilised for carrying out the activities of the Corporation such as exploitation of minerals, partnership in Joint Ventures, providing infrastructures in mines and also for other purposes connected with mining activities for functions for promoting mineral based industries in the State in accordance with the State Mineral Policy"

Section 6(1) of CMDFA provides for constitution of Advisory Committee as aforesaid for the purposes of giving directives for proper utilisation of the Fund and allocation from the Fund for various purposes as per Section 5 and most importantly, section 6(2) of CMDFA stipulates that "The Fund shall be regulated and administered by the Department and its utilisation shall be subject to the approval of the Advisory Committed Provided that the Fund shall not be utilized for any purposes other than those for which it is created.

That in terms of formulation of CMDFAr.w. CMDFR,the CG Govt. had been disbursing Public Funds in the shape of Grants/Financial Assistance to the appellant corporation with specific purpose/directive (as per section 5 of CMDFA) of applying the disbursed funds from MDF towards the Development of Tara Coal Block only i.e. for Development of a Capital Asset or for augmenting

9 ITA No.76 /RPR/2018 A.Y.2014-15

the Capital Base/Investment of the CG Govt. i.e. inextricably for setting up of the mines for exploitation & exploration of minerals and which did not have any material bearing or vital link with the factum of commercial production of captioned coal mines and it was explicitly stipulated by the provisions of section 6 of CMDFA that the funds received from MDF shall not be utilized for any purposes other than those for which it is created i.e. to say, the appellant was obligated under the statutory provisions of CMDFAr.w. CMDFRto utilize/spend the funds received from MDF for incurment of expenditure on Capital Account only (Development of Tara Coal Block) and was estopped, in certain terms, to utilize the same for incurring any operational or routine or day-to-day revenue expenditure and further, the Grant was neither granted nor utilized by the appellant towards facilitation of its trade or business nor there was any element of profit nor involvement of any revenue/profit motive in such Grant received by the appellant hence, the Grant would certainly beclassified as a Capital Receipt not chargeable to tax.

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accepts the fact that the Tara Coal Block is still in pre-operative stage by recording an explicit finding that "The amount in question was provided to the corporation for the purpose of opening a mine which was allotted by MO ( GOI. Once the mine is opened .. " but however, ascribes to the reasoning that the whenever the mine would be operational, it will generate a stream of income for the appellant which will be in addition to the existing sources of income and hence, such expenditure incurred by CG Govt would augmentthe business of the and hence, would be a revenue receipt chargeable to tax. Hence, the confirmation of addition by Ld.CIT(A)is highly unjustified, unwarranted, against the settled principles of law and based on incorrect assumption of facts.

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c) CIT Vs. Tamil Nadu Tourism Development Corporation Ltd (2016) 288 CTR 444 (MadHC) (Pg. No.131 to 134 PB) d) CIT Vs.India Telephone Industries Ltd (2014) 268 CTR 348 (Del.HC) (Pg. No. 135 to 137 PB) e) CIT Vs.M/s.Chouhan Education Society ITA No.188/2009 (MP HC) (Pg. No. 138 & 139 PB)

f) CIT Vs. Delhi State Industrial & Infrastructure Dev. Corp. Ltd in ITA NO.1207/2011 (Date of Judgment: 06.082012)(Del.HC) g) CIT Vs. The Punjab State E-Governance Society in ITA No. 75 of 2011 ( P & H HC) ( Pg. No. 146 to 150) PB) h) CIT Vs. Karnataka Urban Infrastructure Development & Finance Corporation (2006) 284 ITR 852 ( Kar. HC) ( Pg. No. 151 to 154 PB) i) CIT Vs. Bihar Rajya Pul Nirman Nigam Ltd. (1991) 191 ITR 173 ( Pat. HC) ( Pg. No. 155 to 158 PB) j) CIT Vs. Arunachal Pradesh Forest Ltd. ( 1993) 201 ITR 129 ( Gau. HC) ( Pg. No. 161 to 168 PB)

Even otherwise, presuming but not admitting, in the facts of the present case, the appellant is a wholly owned Government Company, hence, the amounts received from MDF may be considered to be in the nature of financial assistance so as to ensure the survival of the company and in such cases, also the same has to be regarded as a capital receipt. Reliance in support is placed upon the Judgment of the Hon'ble Calcutta High Court in the case of PCIT Vs. State Fisheries Development Corporation Ltd (2018)94 taxmann.com 466 (Cal. HC) (Refer Pg.No. 140 to 145 PB).

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disbursements from MDF remains unaltered) in the assessment year under reference vis-a-vis the preceding assessment years hence, in the absence of any justifiable reason for departure from already taken confirmed view, applying the Rule of Consistency with definiteness in approach and to achieve finality in assessment proceedings, diametrically opposite approach by the Department as has been done by the Ld.AO in the assessment year under reference is impermissible, the claim of the appellant corporation deserves to be accepted and the Financial Assistance received from MDF for Development of Tara Coal Block ought be held as "Capital Receipt" not chargeable to tax. In support, the copies of assessment orders passed under section 143(3) of the I.T.Act in respect of the Assessment Years 2006-07,2007-08,2009 -10,2012-13 & 2013-14 are enclosed (Refer Pg.No.96 to 106 of PB). Reliance in support is further placed uponthe following judicial pronouncements: a) Radhasoami Satsang Vs. CIT (1992) 193 ITR 32 (SC) ( Page No.169 to 174 PB) b) CIT Vs. Excel Industries Ltd. (2013) 358 ITR 295 (SC) ( Pg No. 161 to 168 PB) c) Godrej & Boyce Manufacturing Company Limited Vs. DCIT (2017) 394 ITR 449 (SC) ( pg No. 175 to 177 PB)

In view of the above, the addition of Rs.82,30,00,000/-made by the Ld. AO and that sustained by the Ld.CIT(A), being Financial Assistance received from MDF towards Development of Tara Coal Block, treating the same as Revenue Receipt is highly unjustified, unwarranted, based on incorrect assumption of facts and not in accordance with the provisions of law and it is requested that the same may please be deleted holding the said amount as a "Capital Receipt" not chargeable to tax.”

We have also analyzed the facts and circumstances in this case. We find

that starting from assessment year 2006-07 onwards, the

subsidies/financial grant were received by the assessee and all

throughout the years, assessment were completed u/s.143(3) of the

Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and it has been

13 ITA No.76 /RPR/2018 A.Y.2014-15

accepted as ‘Capital Receipt’. This continues till the assessment year 2013-

on the similar facts and circumstances and on same subsidy/financial

grant received by assessee, has taxed appreciating the same as ‘Revenue

Receipt’ in the hands of the assessee. The Hon’ble Supreme Court of India

in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. reported as 306 ITR

362 and in the case of CIT Vs. Chaphalkar Brothers Pune (2018) reported

as 318 CTR 113 has held that the grants given for specific purposes to be

applied for capital outlays or incurment of capital expenditure would be in

the nature of capital receipts not chargeable to tax and further, that grant

in aid received for specific purposes cannot be treated as income and

would constitute a capital receipt not chargeable to tax.

Further, the Hon’ble Calcutta High Court in the case of PCIT Vs.

State Fisheries Development Corporation Ltd. reported as 94 taxmann.com

466 has held that where the assessee is a wholly owned Government

Company, hence, the amounts received from MDF may be considered to be

in the nature of financial assistance so as to ensure the survival of the

company and in such cases, also the same has to be regarded as a capital

receipt.

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as income tax is concerned and the doctrine of res-adjudicata does not

apply to the income tax proceedings.

Court has laid down the principle of statusquo should be maintained by

the Revenue Authority. Therefore, when on the similar facts and

circumstances prevailing in present assessment year as compared with

same facts and circumstances as in the earlier assessment years, then the

decision taken in the earlier years should match with the decision of the

present assessment year. Meaning thereby, decision in the present year

also should be the same which was taken in the earlier assessment year.

Before parting with this issue, it is necessary to deal with the ‘Rule

of Consistency” pleased by the Ld. AR of the assessee. It is well laid down

through catena of the decisions rendered by the Hon’ble Supreme Court of

India and High Court.

The Hon’ble Supreme Court of India in the case of Radhasoami

Satsang Vs. Commissioner of Income Tax, reported as 193 ITR 321 (SC)

has held that res-judicata does not apply to the income tax proceedings.

Again each assessment year being a unit, what is decided in one year may

not apply in the following year but where a fundamental aspect permeating

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through the different assessment years has been found as a fact one way

or the other and parties have allowed that position to be sustained by not

challenging the order, it would not be at all appropriate to allow the

position to be changed in a subsequent year. On these reasoning in the

absence of any material change justifying the Revenue to take a different

view of the matter and if there was not change it was in support of the

assessee.

The Hon’ble Delhi High Court in the case of CIT Vs. Neo Poly Pack

( P.) Ltd. reported as 245 ITR 492 ( Del.) has held that it is true that each

assessment year being independent of each other, the doctrine of res-

adjudicata does not strictly apply to the income tax proceedings, but where

an issue has been considered and decided consistently in a number of

earlier assessment years, in a particular manner for the sake of

consistency, the same view should continue to prevail in the subsequent

assessment years unless there is some material change in facts.

The Co-ordinate Bench of the Tribunal, Mumbai in the case of Shri

Sunil Kumar Ganeriwal Vs. DCIT, in ITA No. 4276/Mum./2008 has held

that the assessee has followed a consistent practice in regard to the nature

of activities, the manner of keeping records and the presentation of shares

as investment at the end of the year, in all the years. The position that the

principle of res-adjudicata is not attracted since each assessment year is

16 ITA No.76 /RPR/2018 A.Y.2014-15

separate in itself. The Tribunal further held that there ought to be

uniformity in treatment and consistency when the facts and circumstances

are identical particularly in the case of the assessee. The Assessing Officer

cannot take a different view for the assessment year under consideration

where the facts and circumstances are identical.

circumstances as existed from assessment year 2006-07 onwards are

same with the present assessment year i.e. assessment year 2014-15. It is

also undisputed that all throughout the years, assessment was completed

u/s.143(3) of the Act and the subsidy has been accepted as ‘Capital

Receipt’. If in this assessment year i.e. 2014-15,the assessment was

something erroneous and prejudicial to the interest of the Revenue then

the Ld. CIT(Appeals) could have resorted to revisionary jurisdiction

u/s.263 of the Act. This is not done in the case of the assessee which

means that Revenue has all throughout accepted that assessment was

completed in the case of the assessee u/s.143(3) of the Act and the facts

that the subsidy received are capital in nature. Then in similar facts and

circumstances in the present assessment year i.e. 2014-15, in absence of

any new material and evidence, taxing subsidy as ‘Revenue Receipt’ by the

Revenue Authority is the exercise which can be termed as arbitrary, un-

judicious, unwarranted and bad in law and therefore, liable to be deleted.

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Therefore, we are of the considered view that on examination of the facts and principle of status quo which has to be maintained as opined by the Hon’ble Supreme Court of India and High Courts in the aforesaid cases, we set aside the order of the Ld. CIT(Appeals) and allow the appeal of the assessee.

In the result, appeal of the assessee is allowed. 8.

Order pronounced on 17th day of January, 2019.

Sd/- Sd/- ANIL CHATURVEDI PARTHASARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER

रायपुर/ RAIPUR ; �दनांक / Dated :17th January, 2019. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT (Appeals)-1, Raipur(CG) 4. The Pr. CIT-1, Raipur (CG) 5.�वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकरअपील�यअ�धकरण, रायपुर/ ITAT, Raipur.

18 ITA No.76 /RPR/2018 A.Y.2014-15

Date 1 Draft dictated on 15.01.2019 Sr.PS/PS 2 Draft placed before author 16.01.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order