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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri P.M. Jagtap, Vice-(KZ) & Shri A.T. Varkey
ORDER Shri P.M. Jagtap, V.P:
This appeal is preferred by the revenue against the order of the Ld. CIT (Appeals) - 7, Kolkata dated 17-07-20199 and the solitary ground raised therein reads as under:- “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in holding that the amount received by the assessee of Rs. 2,55,27,120/- as Industrial Promotion Assistance from the State Govt is capital in nature as against revenue receipt as treated in the order u/s. 254 by the AO.”
At the outset, it is noted that there is a delay of 16 days on the part of the revenue in filing this appeal before the tribunal. In this regard, the Revenue has filed an application seeking condonation of the said delay and keeping in view of the reasons given therein, which are supported by an affidavit filed by the Assessing Officer (DCIT, Circle-6(1), Kolkata, we are satisfied that there was a sufficient cause for the delay of 16 days on the part of the revenue in filing this appeal before this Tribunal. Even the Ld. Counsel has not raised any objection in this regard. The delay of 16 days on the part of the revenue in filing this appeal is accordingly condoned and this appeal of the revenue is being disposed off on merits.
The assessee in the present case is a company, which is engaged in the business of manufacturing of cement, jute goods etc. The return of income for the year under M/s. Birla Corporation Ltd. AY 2007-08 consideration was filed by it on 29-09-2008 declaring a total income of Rs. 5,35,36,36,781/-. In the said return, Industrial Promotion Allowance of Rs. 2,55,27,120/- received during the A.Y under consideration to one of its unit at Durgapur under West Bengal Investment Scheme, 2000 was offered to tax by the assessee company. During the assessment proceedings, the said amount however, was claimed to be exempt from tax on the ground that it constituted a capital receipt. It was submitted that the 2000 Scheme was formulated by the West Bengal State Government for the promotion of industry in the State and it was applicable in respect of units to be set up and also to expansion of existing units having investment in fixed assets. This stand of the assessee company was not accepted by the AO. According to him, the subsidy received by the assessee company in the form of relaxation of the tax was more for encouragement to entrepreneurs to establish/expand industrial unit in the state of West Bengal rather than towards acquisition of specific capital assets in those industrial units. He held that the incentive was with the object of supplementing trade receipt and profits of the assessee company rather than to assist the assessee in acquiring a capital asset. He also noted that the amount in question had been granted to the assessee company only after commencement of production and the subsidy granted after commencement of production being operational subsidy was of revenue nature. He accordingly disallowed the claim of the assessee for exemption of the amount of subsidy in question. He also held that the said claim of the assessee for exemption was otherwise also not entertainable as the same was not made by the assessee either in the I.T Return or Revised Return as held by the Hon’ble Supreme Court in the case of Goetze (India) Ltd reported in 284 ITR 323 (SC).
The disallowance made by the AO on account of Industrial Promotion Allowance was challenged by the assessee in the appeal filed by the assessee before the Ld. CIT(A) and keeping in view that similar claim of the assessee for exemption on account of Industrial Promotion Assistance was allowed by the Tribunal for the AYs 2008-09 to 2010-11, the Ld. CIT(A) followed the orders of the Tribunal passed in assessee’s own case and directed the AO to allow the claim of the assessee for exemption on account of Industrial Promotion Assistance to be capital in nature. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before this Tribunal.
We have heard the arguments of both the parties and also perused the relevant records. The Ld. Representatives of both the sides have agreed that the solitary issue involved in this appeal filed by the revenue is squarely covered by the various orders of this M/s. Birla Corporation Ltd. AY 2007-08 Tribunal in assessee’s own case on similar issue. In one of such orders passed for the AYs 2008-09 to 2009-10 (ITA Nos. 971/Kol/2012 & Ors, dated 25-08-2017), similar claim of the assessee for exemption on account of Industrial Promotion Assistance was allowed by the Tribunal for the following reasons:-
“4.3. We have heard the rival submissions and perused the materials available on record including the paper book containing the entire West Bengal Incentive Scheme 2000 and eligibility certificate issued by the competent authority approving the expansion of existing unit thereby approving the fact of assessee falling under the category of 'Mega Unit' under the said scheme. We find that Subsidy could be reduced from the cost only if it is found that the cost for acquiring the asset was directly or indirectly met out of the subsidy. In order to apply the proviso, it is necessary to show that the subsidy had been directly or indirectly used to acquire the asset though it may not be possible to exactly quantify the amount directly or indirectly used for acquiring the asset. For the purpose of applying the proviso, also it has to be found that the asset was acquired by directly or indirectly using the subsidy. It is apparent from the provisions of the 2000 Scheme and the certificate of registration and eligibility certificate that the assistance was to be made available after the commencement of commercial production without any financial cap and was to be adjusted against the sales tax liability of the year of claim. The industrial promotion assistance was clearly not used directly or indirectly to acquire the assets nor any part of the cost of the assets was met directly or indirectly from the industrial promotion assistance. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee's own case for Asst Year 20(1'7-08 in & 581/Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as by the revenue were as under:-
Assessee Ground No. 1
That on the facts and circumstances of the case, the learned CIT (Appeals) though holding that sales-tax incentive of Rs. 1238000 allowed by the State Govt. is the nature of capital receipt hut erred ill directing the Assessing Officer (AO) fin reducing the lame from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec 43( 1) of I.T.Act.
Revenue Ground No.2
Thai Ld. CIT(A)- VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subsidy y received by the assessee as revenue income of Rs. 12,38,000/-
The decision rendered thereon by this tribunal is as under:-
7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which M/s. Birla Corporation Ltd. AY 2007-08
the expansion of the unit and subsidy under Rajasthan Sales Tax Scheme. 1998 was received explains the purpose of the scheme as incurring capital expenditure for installation of plant and machinery and for eligible for fixed capital investment. Even the issue of assessee is covered in its favour by Tribunal 's decision in assessee's own case all along from AYs 2002-03 to 2006- 07. It is not brought to our notice by the Revenue that the matter has been decided by Hon'ble Calcutta High Court, despite a query from the Bench. In such circumstances, and taking a consistent view, we hold that the CIT(A) has rightly treated the sales tax subsidy receipt as 'capital in nature'.
In respect to the issue of application of Explanation-10 to Sec. 43(1) of the Act we find from the facts of the case that the Rajasthan Govt. has framed a incentive scheme i.e R.S.T/C.S.T Exemptions Scheme 1998 for encouragement of setting up of industrial project or expansion of existing industrial projects. It is also a fact that the maximum limit of the subsidy was restricted with reference to the value of fixed capital investment in land, building, plant & machinery but no part of the subsidiary was specifically intended to subsidize the cost of the any fixed assets, therefore, it cannot be said that subsidy was to meet a portion of cost of asset. According to us, assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AYs 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as ‘capital’, accepting the contention of the assessee. Even Hon’ble Supreme Court in the case of P.J Chemicals Ltd (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the “ actual cost”. By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon’ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec. 43(1) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided M/s. Birla Corporation Ltd. AY 2007-08
thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. This is again a question of fact. The relatable subsidy to such asset can be reduced from the cost only if it is found that the cost for acquiring that asset was directly or indirectly met out of the subsidy. Likewise in the proviso, it is necessary to show that the subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon’ble Supreme Court in the case of P.J Chemicals Ltd (supra) that asset-wise subsidy alone can be reduced from the actual cost. The above explanation and the proviso therein to explain the law. They are not bringing any new law different from the law considered by Hon’ble Supreme Court in the above cases.
In view of the above facts and circumstances of the case and legal position explained by Hon’ble Supreme Court in the case of P.J Chemicals Ltd (supra), we are of the view that subsidy receipt should not be reduced from the actual cost of the fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue’s appeal is dismissed and that of the assessee is allowed.”
Respectfully following the aforesaid decision of this tribunal supra, we hold that the IPA received by the assessee would have to be construed as a Capital receipt and the same need not be reduced from the cost of assets in terms of explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed.”
The aforesaid decision rendered in assessee’s own case for the AYs 2008-09 and 2009-10 was subsequently followed by the Tribunal to decide the similar issue involved in the appeal in favour of the assessee for the AY 2010-11 vide its order dated 13-09-2017 passed in & 1101/Kol/2014. The solitary issue involved in the appeal of the revenue thus is squarely covered in favour of the assessee by the orders of this Tribunal passed in assessee’s own case for the AYs. 2008-09 and 2009-10 and respectfully following the same, we uphold the impugned order of the Ld. CIT(A) directing the AO to allow the claim of the assessee for exemption on account of Industrial Promotion Assistance (IPA) by treating the same to be capital in nature.
M/s. Birla Corporation Ltd. AY 2007-08
In the result, the appeal of the revenue is dismissed.
Order Pronounced in the Open Court on 29th October, 2020 Sd/- Sd/- A.T. Varkey P.M. Jagtap Judicial Member Vice President (KZ) Dated 29 -10-2020 **PP(Sr.P.S.) Copy of the order forwarded to: Appellant/Department: The DCIT, Cir-6(1), Aaykar Bhawan, 6th Fl., P-7 1. Chowringhee Sq., Kolkata-69. 2 Respondent/Assessee: M/s. Birla Corporation Ltd Birla Building 9/1 R.N Mukherjee Road, Kolkata-
1. 1.
3. CIT, 4. CIT(A), Kolkata.
5. DR, Kolkata Benches, Kolkata True Copy By Order Assistant Registrar ITAT Kolkata
M/s. Birla Corporation Ltd. AY 2007-08