What did the Tribunal hold?

The Tribunal held that the sales tax subsidy received by the assessee under the 1993 Package Scheme of Incentives was a capital receipt. This decision followed previous rulings in the assessee's own case and the Bombay High Court's decision in CIT Vs. Kirloskar Oil Engines Ltd.

The Revenue appealed against the deletion of an addition made on account of sales tax subsidy. The assessee had treated the sales tax subsidy received under the Maharashtra Government's 1993 Package Scheme of Incentives as a capital receipt.

What were the issues?

Whether sales tax subsidy received under a government incentive scheme is a capital or revenue receipt.

DCIT vs John Deere Equipment Pvt. Ltd… | s.143(3) | ITAT Pune 2018

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

For Appellant: Shri Rajeev Kumar

For Respondent: Shri Nikhil Pathak

Hearing: 27.03.2018Pronounced: 28.03.2018

PER SUSHMA CHOWLA, JM:

The appeal filed by the Revenue is against the order of CIT(A)-7, Pune, dated 30.04.2015 relating to assessment year 2010-11 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).

The Revenue has raised the following ground of appeal:- (1) Whether on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has grossly erred in deleting the addition made on account of Sales Tax subsidy as revenue receipt. 2

The only issue raised in the present appeal by the Revenue is against treatment of Sales Tax Subsidy as capital or revenue receipt.

The learned Authorized Representative for the assessee pointed out that the said issue of sales tax subsidy received by the assessee is whether capital receipt or revenue receipt, arose before the Tribunal in assessee’s own case relating to assessment years 2006-07 and 2007-08 in ITA Nos.1476/PN/2010 and 1686/PN/2011, order dated 20.02.2015. The learned Authorized Representative for the assessee further pointed out that the said ratio was applied by the Tribunal in assessment year 2008-09 in ITA No.02/PN/2013, vide order dated 20.02.2015 and in ITA No.828/PUN/2014, relating to assessment year 2009-10, order dated 17.05.2017. 5. The learned Departmental Representative for the Revenue relied on the order of Assessing Officer.

We have already decided similar issue in assessee’s own case for different assessment years. The latest order of Tribunal relates to assessment year 2009-10, wherein, it was held as under:-

“6. We have heard the rival contentions and perused the record. The assessee had set up a unit at Sanaswadi, near Pune, wherein it was engaged in manufacturing of tractors, aggregates and parts which were sold in the domestic market as well as foreign market. The assessee was a joint venture between Larsen & Toubro Limited (L&T), India and Deere & Co. Both the joint venture partners had an equal stake in the assessee company. During the financial year 2005-06, John Deere India Pvt. Ltd. acquired 48% of L&T’s stake and as a result of which, John Deere Equipment Pvt. Ltd. (JDEPL), the assessee company became wholly owned subsidiary of John Deere India Pvt. Ltd., which was a wholly owned subsidiary of Deere & Co., USA. During the year under consideration, the assessee had claimed deduction of Rs.14,69,36,189/- on account of sales tax incentive. The assessee had received the said incentive for the units set up in notified backward area under the Government of Maharashtra “1993 Package Scheme of Incentives”, under which the persons were eligible for either sales tax and purchase tax exemption or deferment of the sales tax and purchase tax collected over a period of 15 3

years. The assessee initially opted for deferring scheme, as per which, it was authorized for collection of sales tax but payment was to be made after 15 years. Later on in September, 2001, assessee shifted from deferral scheme to exemption scheme. Accordingly, the assessee was entitled to the exemption from sales tax and purchase tax. The assessee treated the sales tax and purchase tax subsidy of Rs.14,69,36,189/- as capital receipt in its return of income. The case of assessee was that as per the scheme of Government of Maharashtra State, subsidy was granted in order to encourage setting up of units in backward areas. The same was available only to certain industries depending upon fulfillment of the conditions. The Assessing Officer on the other hand, had noted that the subsidy was granted in order to increase profitability of the assessee company. The Assessing Officer acknowledged that there was no doubt that the exemption was allowed for setting up of units in backward areas. However, the purpose of capital incentive by way of exemption was clearly to allow the company to run its business more profitably. The Assessing Officer further observed that the incentive was not calculated on the basis of capital employed and also the incentive has not been allowed before setting up of the business. Where the benefit was granted to the assessee to assist him for carrying out the business operations in the backward areas and not to help him in setting up of his business or complete the project, then the said sales tax incentive of Rs.14.69 crores is to be added as income of the assessee. The Assessing Officer placed reliance on the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Ponni Sugars and Chemical Ltd. (2008) 306 ITR 392 (SC). The assessee on the other hand, relied on the ratio laid down by the Mumbai Bench of Tribunal in the case of DCIT Vs. Reliance Industries Ltd. (2004) 88 ITD 273 (Mum), which was confirmed by the Hon’ble Bombay High Court. The Assessing Officer in the final assessment order noted that the apex court in Civil Appeal No.7769/2011 had set aside the order of the Hon’ble High Court and the assessee’s reliance on the same was found to be incorrect.

The issue which arises in the present appeal is in relation to treatment of sales tax / purchase tax subsidy received by the assessee under 1993 Package Scheme of Incentives promulgated by the Government of Maharashtra. The assessee had set up its unit and had received similar subsidy in assessment years 2006-07 to 2008-09. The Tribunal (supra) had allowed the claim of assessee and had held that the said amount of subsidy received by the assessee under 1993 Package Scheme of Incentives promulgated by the Government of Maharashtra was a capital receipt. The Mumbai Bench of Tribunal in DCIT Vs. Reliance Industries Ltd. (supra) had also considered the said claim and have held that the sales tax / purchase tax subsidy received under 1993 Package Scheme of Incentives is a capital receipt. The facts and issue arising in the present appeal are identical to the issue before the Tribunal in assessee’s own case and hence to avoid repetition, we adopt our reasoning given in assessment year 2006-07 for holding that the sales tax / purchase tax subsidy received by the assessee is capital receipt. We find that the said scheme of Government of Maharashtra was considered by the Hon’ble Bombay High Court in CIT Vs. Kirloskar Oil Engines Ltd. (2014) 364 ITR 88 (Bom) and it has been held that the object of assistance under subsidy scheme to enable assessee to set up new unit, was a capital receipt. Following the same parity of reasoning, we hold that the subsidy received by the assessee was capital in nature. Accordingly, grounds of appeal No.1 and 1.1 are thus, allowed.” 4

The issue arising in the present appeal is squarely covered by the orders of Tribunal in assessee’s own case and following the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Kirloskar Oil Engines Ltd. (2014) 364 ITR 88 (Bom), we hold that subsidy received by the assessee was capital in nature. Thus, the ground of appeal raised by the Revenue is dismissed.

In the result, the appeal of Revenue is dismissed.

Order pronounced on this 28th day of March, 2018. (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 28th March, 2018. GCVSR आदेश की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; 2. प्रत्यथी / The Respondent; 3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-7, Pune; The Pr.CIT-6, Pune; 4. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “ए” / DR 5. ‘A’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune

DEPUTY COMMISSIONER OF INCOME-TAX vs. JOHN DEERE EQUIPMENT PVT. LTD., PUNE

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