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Income Tax Appellate Tribunal, “G” BENCH MUMBAI
Before: SHRI C.N.PRASAD,JM & SHRI REJESH KUMAR, AM
PER C.N.PRASAD (J.M.) :
These appeals are filed by the Revenue against the orders of the Ld. CIT(Appeals)-3, Nagpur dated 04.05.2016 for the Assessment Years 2010-11 to 2012-13 arising out of the assessment orders passed u/s 143(3) of the Act.
2 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016
2. The only issue in all these three appeals of the Revenue is that Ld. CIT (Appeals) erred in directing the Assessing Officer to delete the addition made on account of sales tax incentive received by the Assessee under the scheme of Govt. of Maharashtra.
3. Briefly stated the facts are that the Assessee which is engaged in the business of manufacture of refined oils and electricity generation from wind mill filed returns of income for all these three assessment years and the assessments were completed under Section 143(3) by the Assessing Officer. While completing the assessments, the Assessing Officer noticed that in the computation of income filed, the Assessee claimed sales tax incentive received by it from Govt. of Maharashtra as exempt from tax. Assessing Officer required the Assessee to explain as to why the sales tax incentive claim should not be disallowed and a detailed explanation was furnished by the Assessee, submitting that the state Govt. of Maharashtra provided various incentives for setting up of industrial undertaking in the specified zone. The incentives are provided for setting up of industrial undertaking in the specified locations and the scheme provides for various types of incentives considering the location of the industry. The Assessee during these assessment years availed sales tax incentives provided under the scheme and these incentives availed under package schemes of incentives of Government of Maharashtra are capital receipts in the hands of the Assessee and are not chargeable to tax. The contentions of the 3 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 Assessee were rejected by the Assessing Officer and treated the sales tax incentives as not in the nature of capital and is liable to be taxed. Thus, he disallowed the same in all these three assessment years. The Ld. CIT (Appeals) held that the sales tax incentives received by the Assessee is capital receipt following the decision of the Coordinate Bench in Assessee’s own case in ITA Nos.118 to 124/Nag/13 dated 31.07.2015 (wrongly mentioned as ITA No. 125 to 129/Nag/13).
The Ld. Counsel for the Assessee submits that the issue in appeal has already been decided in Assessee’s own case for the earlier assessment years i.e. for the assessment years 2003-04 to 2009-10, by order 31.07.2015 by the Coordinate Bench Tribunal holding that the sales tax incentive received by the Assessee for all these assessment years under the scheme of Maharashtra State Government for setting up of industries is capital receipt and not exigible to tax. A copy of the order is placed on record. He relied on the orders of the Tribunal in Assessee’s own case and pleads for following the said order and dismiss the revenue appeals.
The Ld. DR vehemently supports the orders of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below and the Coordinate Bench decision in Assessee’s own case for assessment years 2003-04 to 2009-10 and find that an identical issue arose while completing the assessments framed under Section 143(3)
4 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 read with Section 153A of the Act. The following grounds were raised in the appeals filed before the Coordinate Bench.
“ The Ld. CIT (A) erred in holding that sales tax incentive availed for setting up of industrial undertaking claimed by assessee as capital receipt at Rs.74,15,531/- can not be allowed in assessment framed u/s 143(3) r.w.s.153A of I.T. Act. 1961.
The Ld. A.O. erred in assessing sales tax incentive availed as revenue receipt and not accepting the claim of assessee for the same being capital receipt at the hands of the assessee.
The Ld. AO.O. ought to have accepted the claim of assessee that sale tax incentive availed at Rs.74,15,531/- under scheme of incentive by Government of Maharashtra is capital receipt and not chargeable to tax.”
The Coordinate Bench after analyzing various case laws on the issue held that the Assessee is entitled for exemption of the Sales Tax incentive as a capital receipt observing as under :
11. Once we have taken a view that a legally admissible claim could be entertained while framing the assessment under section 153A, hence after crossing this bridge now we have to examine that whether the claim of “capital receipt of sale-tax incentive is eligible under the facts and circumstances of the case.
From the side of the assessee, learned A.R. has informed at the outset that the relevant details were duly furnished before the Assessing Officer and apparently he had not expressed any disagreement about the eligibility of the claim. The Assessing Officer has not expressed in the assessment order that the exemption of sales tax incentive was not to be granted on both the grounds that it is not 5 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 to be claimed under section 153A proceedings, as well as, on the other reason that the scheme under which sales-tax incentive was received was not eligible to hold as capital receipt. The Assessing Officer has not questioned the eligibility of the sales tax incentives but only questioned the admissibility of a fresh claim under section 153A. According to the learned A.R. the requisite details in connection with the scheme under which the sales tax incentive was received by the assessee have been furnished and prima facie no doubt had been raised by the Assessing Officer. 12.1. Again before us the assessee has furnished in the paper book the “package scheme of incentive 1993”. We have been informed that this scheme was renewed time and again on those very terms and conditions under which it was first promulgated . As per the preamble in order to achieve dispersal of industries outside Bombay-Thane- Pune Belt and also to attract development in those underdeveloped areas the Government of Maharashtra has pronounced a package of incentives for expansion as well as establishing new units. The implementing agencies for the purpose of implementation of the said scheme were small scale industries, medium scale industries etc. Eligibility Certificate was required to be issued by the implementing agency after commencement of commercial production. Under the scheme, the next step was that the Commissioner of Sales Tax will endorse the “Eligibility Certificate” issued by the implementing agency and shall specify the date of effect of eligibility for the sales tax incentive. The incentive was in the nature of “Special capital incentive for SSI Units”. The scheme has also prescribe the quantum of the sales-tax incentive. The scheme has defined “fixed capital investment” which had few categories such as new fixed assets, shifting of fixed assets or acquisition of second-hand fixed assets. The sales tax incentive is admissible to new/pioneer units and a unit is entitled to exemption from payment of purchase tax on purchase of raw material and sales tax payable by eligibility units to its vendors on its purchase of raw material and sales tax on finished products. The quantum admissible is also subject to certain ceilings prescribed therein.
6 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 12.2. This very scheme of Government of Maharashtra was duly considered by special Bench of ITAT, Mumbai in the case of Reliance Industries Ltd. 88 ITD 273 (Mum) (SB), relevant portion reproduced : “The scheme framed by the Government of Maharashtra in 1979 and formulated by its resolution dated 5-1-1980 had been analysed in detail by the Tribunal in its order in the assessee’s case for the earlier assessment year i.e., 1985-86. On an analysis of the scheme, the Tribunal had come to the conclusion that the thrust of the scheme was that the assessee would become entitled for the sales tax incentive even before the commencement of the production, which implied that the object of the incentive was to fund a part of the cost of the setting up of the factory in the notified backward area. The Tribunal had at more than one place stated that the thrust of the Maharashtra Scheme was the industrial development of the backward districts as well as generation of employment thus, establishing a direct nexus with the investment in fixed capital assets. It had been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales tax incentive was not given to the assessee for assessing it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area . The Tribunal was, thus, aware of the distinction between the subsidy given with the object of setting up the industry and the subsidy given after the industry commences production and conditional upon the commencement of production.
7 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 Factually, the Tribunal found that the assessee’s case which fell under the Maharashtra Scheme was a case where the subsidy was given for the purpose of facilitating the assessee to set up an industry in Patalganga, Raigad District, which was a notified area. The actual disbursement took place after the assessee commenced production, but according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. Thus, it was found that the Tribunal did not notice the crucial observations of the Supreme Court in Sahney Steel & Press Works Ltd,’s case (supra) which gave primacy to the object of the subsidy over the fact that it was given after the commencement of production.” 12.3. Finally it was held that the assessee was justified in its claim that the salestax incentives received in terms of the Government scheme constituted the “capital receipt” and therefore, not to be taken into account in computation of total income. Since a view has been taken in respect of this very scheme by the respected Special Bench then we have no reason to take any other view but to follow the view already expressed in this precedent.
Further we have been informed that almost in identical situation, the ITAT, Delhi Bench in the case of Indo Rama Synthetics 33 CCH 526 wherein one of us i.e. learned Accountant Member is the party, has given a verdict that the incentive given for development of backward area by establishing new industries would be in the nature of capital receipt not liable to tax. The notional amount of sales tax subsidy was held as capital receipt not chargeable to tax.
In respect of subsidy in the shape of entertainment duty the Hon’ble Bombay High Court in the case of Chaphalkar Brothers, order dated 8th June, 2011 has opined that the object of the subsidy was to promote construction of multiplex theatre complexes. Such receipt of subsidy was held on “capital account”. In this decision, the decision of Ponni Sugars & Chemicals 306 ITR 392 (SC) and the decision of 8 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 Sahney Steel and Press Works Ltd. 228 ITR 253 (SC) has been discussed. It was opined that the test is that the collector of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy was granted. Likewise in the case of CIT v/s. Kirloskar Oil Engines 364 ITR 88 (Bom.) the said two decisions, namely, Sahney Steel and Press Works (supra) and Ponni Sugara and Chemicals (supra) have been discussed and commented that the Supreme Court had emphasized that collector of receipt in the hands of the assessee had to be determined with respect to purpose for which subsidy was given. If object of subsidy scheme was to enable the assessee to run business more profitability, then receipt was to be considered as on “revenue account”. But if object of assistance under subsidy scheme was to enable the assessee to set up new unit, then receipt of subsidy is to be considered on “capital account”. In the said case it was found by the Hon’ble Bombay High Court that under the incentive package offered by the State Government was for the purpose of setting up a new industry in the State. The assessee had applied for such special capital incentive from SICOM. An observation as well as the final conclusion of the Hon’ble Court is worth to mention as under : “ We are afraid that if the Revenue persists with such stand and as has been turned down repeatedly, that would defeat the very object and purpose of the schemes and packages devised by the States. That would also result in frustrating the entrepreneurs and defeating the purpose of setting up new industries and particularly in backward areas. The Revenue, therefore, should bear in mind that in every such case and whenever the funds or receipts are from the schemes and packages devised by the State, it should note the object and purpose of the same. If that is of the nature specified in the judgments of this Court and equally that of the Honourable Supreme Court, then, the Revenue must act accordingly. We hope that this much is enough so as to dissuade the Revenue from b ringing such matters repeatedly to this Court. Ordinarily and for wasting judicial time and which is precious, we would have imposed heavy 9 M/s Narendra Vegetable Products Pvt. Ltd - 4577/Mum/2016 costs on the Revenue while dismissing this Appeal, but we refrain from doing so by giving last opportunity to the Revenue. This Appeal does not raise any substantial question of law. It is dismissed. No order as to cost.”
Thus under the totality of the facts and circumstances of the case, we are of the view that considering the scheme of the State Government, the assessee is entitled for the exemption of the sales- tax incentive being a capital receipt in the hands of the assessee and that the claim being lawful in nature ought to have been entertained by the Assessing Officer while completing the assessment under section 153A of I.T. Act. Therefore, ground Nos. 2 and 3 are hereby decided in favour of the assessee.”
As there is no change in facts and circumstances in the assessment years 2010-11 to 2011-12 now under consideration respectfully following the said order, we hold that sales tax incentive received by the Assessee is capital receipt not exigible to tax. The grounds raised by the Revenue are dismissed.
In the result, appeals of the Revenue are dismissed.
Order pronounced in the open court on the 30th Day of December 2016.