DCIT CIR-5(1), KOLKATA, KOLKATA vs. DHUNSERI VENTURES LIMITED, KOLKATA

Aggrieved by the above order, the assessee preferred appeal before the ld. CIT(A) wherein the appeal of the assessee has been partly allowed. The ld. CIT(A) has deleted the addition of Rs.29,54,38,158/- on account of sales tax remission.

Being aggrieved by the said order, the revenue preferred appeal before us by taking the following grounds of appeal:

The ld. AR supports the impugned order thereby submitting that there is nothing in the impugned order to interfere as in the course of assessment, the assessee furnished submission along with the statement by giving details of subsidy received from the Govt. of W.B and submitted the relevant supporting documents. The ld. AR further submits along with such details assessee also furnished submission explaining the purpose of subsidy granted by the State Govt. and as to why it was treated to be in the nature of capital receipt. The ld. AR further submits that subsidy was granted for setting up new industrial unit but the mode of paying the subsidy was by way of remission of sales tax collection. The ld. AR further submit that in the present case, the object of the subsidy was to promote and encourage of setting up new industrial project in the M/s Dhunseri Ventures Ltd State and the subsidy is offered to modify the company to take risk by setting up new industry in less developed place or district. The subsidy in the form of remission of VAT & CST is collected with the primary intention of promoting industrialisation in the State of W.B. The ld. AR further submit that the identical issue arose in the assessment year 2009-10 wherein the Assessing Officer’s predecessors had accepted the sales tax subsidy as revenue receipt liable to tax and on appeal, the predecessors of the ld. CIT(A) admitted the claim of the company by following the decision rendered by the jurisdictional Calcutta High Court in the case of CIT vs. Rasoi Ltd. (335 ITR 438). The ld. AR further submits that the Hon’ble ITAT, Kolkata in the matter of same assessee upheld the order of the ld. CIT(A) by holding the sales tax subsidy to be in the nature of capital receipt not liable to tax. The ld. AR further submits that subsequent year i.e. assessment years 2010-11, 2011-12 and 2012-13, the then Assessing Officer has accepted the claim of the assessee that subsidy was in the nature of capital receipt not liable to tax. The ld. AR further submits that subsidy being in the nature of pure capital receipt having common income element and the order of the ld. CIT(A) is completely based on findings of the Calcutta High Court passed against the same assessee, hence, the order of the ld. CIT(A) needs not to be interfered.

Upon hearing the submissions of the counsels of the respective parties, we have perused the impugned order and find that the assessee was granted incentives under the West Bengal Incentive Scheme, 1999 for setting up new industrial undertaking for manufacturing new units at Haldia, W.B. It is important to mention here that the object of the scheme is that the said incentive was granted for setting up industries in backward areas and to promote industrialisation in the State of W.B. It M/s Dhunseri Ventures Ltd is pertinent to mention here that in the course of proceedings, the assessee has explained the object for which the subsidy was given and it has also been explained that the incentive granted in terms of West Bengal Incentive Scheme for setting up new industrial project. It is important to mention here that the assessee has brought that the identical issue was decided in their own case of the assessee for the assessment year 2009-10 and the Hon’ble ITAT, Kolkata in their decision rendered in has held that the sales tax subsidy received under the West Bengal Incentive Scheme, 1999 for setting up an industry in Haldia was in the nature of capital receipt not liable to tax. The assessee has also pointed out that the then Assessing Officer’s assessment framed for assessment years 2010-11, 2011-12 & 2012-13 has accepted the claim of the assessee that the sales tax subsidy is capital in nature. We have gone through the order passed by the ld. CIT(A) and find that the ld. CIT(A) has not only discussed the documentary evidence rather discussed the judicial pronouncement and thereafter, allowed the appeal of the assessee on this issue. The relevant portion of the ld. CIT(A)’s order is hereinbelow:

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." It is further noted that this impugned issue also stands covered in appellant’s favour by the decision rendered by the Hon’ble ITAT Kolkata in appellant’s own case in dated 03.05.2017 wherein also it was held that the subsidy received by the appellant in form of sales tax remission for setting up new industry in the West Bengal was in the capital field and therefore not liable to tax under the deeming provisions of section 115JB of the Act as well. The relevant findings of this Tribunal is noted to be as follows: “9.2 Similarly the impugned receipt of subsidy will not be taxable being capital in nature under the provisions of MAT. Under the Act, M/s Dhunseri Ventures Ltd income is chargeable to tax when it comes within the definition of income as specified u/s 2(24) of the Act. The Hon'ble Supreme Court in the case of Padmaraje R Kadambande Vs CIT reported in 195 ITR 877 (SC) has held that capital receipts are not income within the meaning of section 2(24) of the Act and hence not chargeable to tax. When a receipt cannot be brought to tax under the computation of income under the normal provisions as well as under the deeming provisions of the Act, then such receipt is out of the purview of the provisions of section 115JB of the Act. We find the decisions in support of this proposition that a capital receipt which is not chargeable to tax under any provisions of the Act would not be liable for book profits tax u/s 115JB of the Act which was rendered after considering the decisions of Hyderabad Special Bench in Rain Commodities Rain Commodities Ltd vs DCIT, 41 DTR 449, and the decision of Hon'ble Apex Court in Apollo Tyres Ltd. vs. CIT (2002) reported in 255 ITR 273 (SC). The Hon'ble Kolkata Tribunal also in the case of Binani Industries Ltd., vs DCIT issued in favour of assessee as detailed under : The issue in the above case was raised as under : "The last issue to be decided in this appeal is as to whether, the forfeiture of share warrants amounting to Rs. 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB of the Act just because it has been credited in the profit and loss account as an extraordinary item, in the facts and circumstances of the case. The relevant operative portion of the order reads as under : "28. In view of the foregoing discussions, we find merit in the contentions of the assessee that the profit arising on transfer of capital asset to its wholly owned Indian subsidiary company is liable to be excluded from the Net profit., i.e., the Net profit disclosed in the Profit and Loss account should be reduced by the amount of profit arising on transfer of capital asset and the amount so arrived at shall be taken as "Net profit as shown in the profit and loss account" for the purpose of computation of book profit under Explanation 1 to sec. 115JB of the Act. Alternatively, since the said profit does not fall under the definition of "income" at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of "Book Profit" for the reasons discussed above. In the instant case, the assessee also has duly disclosed the fact of forfeiture of share warrants amounting to Rs. 12,65,75,000/- in its M/s Dhunseri Ventures Ltd notes on accounts vide Note No. 6 to Schedule 11 of Financial Statements for the year ended 31.3.2009. Hence respectfully following the aforesaid decision of the Mumbai Tribunal, the profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, includes notes on accounts thereon and accordingly in order to determine the real profit of the assessee as laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (I) Ltd vs CIT reported in (2011) 330 ITR 363 (SC), adjustment need to be made to the disclosures made in the notes on accounts forming part of the profit and loss account of the assessee and the profits arrived after such adjustment , should be considered for the purpose of computation of book profits u/s 115JB of the Act and thereafter, the Learned AO has to make adjustments for additions / deletions contemplated in Explanation to section 115JB of the Act." In view of the aforesaid facts and respectfully following the various judicial precedents relied upon hereinabove, we find no infirmity in the order passed by the Ld CIT(A) in this regard and accordingly we uphold the same. The ground raised by the Revenue is dismissed.” Respectfully following the decisions of the Hon’ble Supreme Court, Calcutta High Court and the ITAT, Kolkata in appellant’s own case, the incentive received by the appellant in the form of remission of sales tax is held to be capital in nature, not liable to tax u/s 115JB as well. For the above reasons, the AO is accordingly directed to delete the addition of sales tax subsidy of Rs.29,54,38,158/- made to the total income both under normal provisions and book profit u/s 115JB of the Act and accordingly re- compute the assessable income for the relevant year. These grounds are therefore allowed.” 8.1 Going over the discussion made above, we do not find any infirmity in the order of the ld. CIT(A) and the same is upheld.

In the result, the appeal of the revenue is dismissed.