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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
Per N.V.Vasudevan, JM This is an appeal filed by the Revenue against the order dated 30.09.2010 of CIT(A)-I, Kolkata relating to A.Y 2007-08.
Ground No.1 raised by the revenue reads as follows :- “1. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing assessee's claim of interest subsidy as capital receipt and thereby deleting the addition of Rs.1,50,03,609/- without appreciating the fact that the amount is in the nature of revenue receipt .”
The Assessee is a company engaged in the business of manufacture, sale and export of jute. During the previous year the assessee received subsidy of Rs.1,50,03,609/- comprising of a sum of Rs.1,29,87,383/- received from West Bengal Industrial Development Corporation Ltd., on account of subsidy under the West Bengal Incentive Scheme 2000 (WBIS 2000)and Rs.20,16.,226/- received from IFCI Ltd on account of interest subsidy refund under the Technology Up-gradation Fund Scheme (TUFS). These amounts were credited in the profit and loss account under the head “Other
2 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 income”. However, in the computation of total income the Assesee excluded the aforesaid subsidies on the ground that these were capital receipts not chargeable to tax.
The AO called upon the assessee to explain as to how the aforesaid subsidies were capital receipts not chargeable to tax. The assessee explained before the AO that the aforesaid subsidies were capital receipts not chargeable to tax for the following reasons:- 1. Subsidy received under TUFS of Rs.20,16,226/-: “(a) The Assessee explained the objective of TUFS was to meet the challenges of post quota regime which requires industry to become more competitive, cost effective and quality oriented. With this background, Govt. of India launched a Technology Upgradation Fund Scheme (TUFS) for textile and jute industries w.e.f. 01/04/1999 for a period of 5 years i.e. upto 31/03/2004 which was subsequently extended upto 31/03/2007.
(b) The Assessee explained that TUF Scheme aims at meeting part of the capital investment of the eligible undertakings in modernizing the plant and machinery for existing units by way of contribution towards the total capital outlay on eligible assets for new units. The focus of such incentive was to induce the entrepreneur to undertake investment in modernizing plant and machinery and other assets for overall development of the industry. It was essential for the textile industry to have access to timely and adequate capital at internationally comparable rates of interests in order to upgrade its technology level.
(c) The incentive/subsidy under the TUF Scheme was provided with the basic intention of development /modernization of textile industry and to provide financial support for heavy capital outlay required in such modernizations by industries.
(d) W.e.f 01/01/2002 an option was provided to the eligible entrepreneurs to avail the incentive either in the form of Credit Linked Capital Subsidy (CLCS) or by way of 5% interest reimbursement under Technology Upgradation Scheme. This according to the Assessee was Conclusive proof that the incentive under TUF scheme was a capital subsidy which may be availed either under the 12% CLCS scheme or as 5% interest reimbursement. The mode of disbursement shall not change the nature of an incentive from capital to revenue.
3 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 (d) The interest charged in respect of 'SBI Rupee Term Loan' for meeting the objectives of TUFS was given as incentive to the Assessee. According to the Assessee since the said incentives was granted to encourage additional investment for expansion and modernization of the industrial undertaking, the same was in the nature of a capital receipt and is, not chargeable to tax under the provisions of Income Tax Act, 1961 (Act).
Interest Subsidy of Rs.1,29,87,383/- granted under the WBIS 2000:
(a) The Assessee explained the nature of Interest subsidy under West Bengal Incentive Scheme (WBIS), 2000 as one to encourage creation of new capacity by way of setting up or expansion of industries in the backward areas of the state. (b) Interest subsidy under WBIS 2000 was received for industries to be set up in group B and group C areas and not to industries in group A area which means subsidy is basically granted for promotion of industries in backward area and not for running the industry (c) The Assessee drew attention of the AO to para no. 11.2A of WBIS 2000, which provided that additional interest subsidy will be granted if the eligible industrial unit is able to generate direct employment of 200 or more which clearly shows that the basic motive for giving the subsidy was promotion of industry for development of the backward region where there is scarcity of employment opportunity. (d) The Assessee submitted that the object for which the subsidy was given is decisive as to whether its capital or revenue in nature. If the subsidy is given for setting up or expansion of the industry, it will be capital receipt, irrespective of the modality or the source of funds through or from which it is given and if monies are given for assisting the assessee in carrying out the business operations only after, and conditional upon, the commencement of production, it shall be revenue receipt.
In support of the above submission, the assessee referred the following judicial pronouncements: (i) CIT-vs.- Balrampur Chinni Mills Ltd. (1999) 238 ITR 445 (Cal.) (ii) DCIT-vs.- Reliance Industries Ltd. (2004) 88 ITO 273 (Mum.)(SB) (iii) CIT-vs.- Ponni Sugars & Chemicals Ltd. (2008) 174 Taxman 87 (SC) (iv) Kalpana Palace-vs.- CIT (2005) 275 ITR 365 (All) (v) ITO-vs.- Symphony Comfort Systems Ltd. (2006) 101 TT J 224 (Ahd.) (vi) CIT-vs.-Ruby Rubber Works Ltd. (1989) 178 ITR 181 (Ker)(FB)
The AO however rejected the plea of the Assessee for regarding interest subsidies as in the nature of capital receipt not chargeable to tax for the reason that under both the schemes, the assessee is eligible for subsidy only after the commencement of production 3
4 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 and not before setting up of the industry which is a prerequisite for considering a subsidy as a capital receipt. He also held that the judicial pronouncements relied by the assessee are not identical to the issue before the AO. According to the AO, in the cases cited by the Assessee, subsidies were allowed as reimbursement or to assist the setting up of industries or acquiring the assets. According to the AO, in the assessee’s case subsidies were incidental to carrying on of the business and to lessen the burden of the cost of revenue expenditure incidental to operation of the industry. Specifically with regard interest subsidy received under WBIS, 2000, the AO held that the subsidy has been granted for setting up/expansion of industrial unit in backward area and for running the business more efficiently and profitably. The AO also observed that in the case of Sahney Steel & Press Works Ltd. & Others-vs.- CIT (1997) 228 ITR 253, the Apex court held that if payment in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipt. The character of the subsidy in the hands of the recipients whether revenue or capital will have to be determined having regard to the purpose for which the subsidy is given. If the purpose is to help the assessee to set up his business or complete a project, the monies must be treated as having been received for capital purpose. If monies are given only after commencement of business, such subsidies must be treated as assistance for the purpose of trade. According to the AO, the object of the TUFS under which the Assessee received subsidy was to make available sufficient capital at internationally comparable rates of interests. It was therefore amply clear that the subsidy was to be allowed for the period of 5 years and after the commencement of production. Hence, the subsidy has to be regarded as revenue receipt and therefore the deduction of the subsidy amount is not allowed.
On appeal by the assessee the CIT(A) held that the subsidies were capital subsidies not chargeable to tax. As far as subsidy received under TUFS is concerned the CIT(A) observed as follows :- 4
5 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 “On perusal of the objective of the 'The Technology Upgradation Fund Scheme (TUFS)' issued by the Ministry of Textiles, Govt. of India, it is seen that to improve the overall health of the textile industry which contributes significantly to the Indian economy and provides sizable employment opportunity it was decided to provide adequate capital to textile companies at internationally comparable rates so that major modernization programme through technology up gradation could be carried on by them. Hence the interest subsidy was not provided to the Appellant to carry out or support its day to day business operations but was for capital expenditure made in modernizing its existing plant & machinery through technology upgradation so that they could compete with global textile industries and contribute to the Indian economy. The Hon'ble Supreme Court in the case of Ponni Sugars had categorically held that the character of the subsidy is determined with respect to the purpose for which it is granted. The point of time at which the subsidy is paid and its source or mode of disbursement is immaterial. Similar view has also been expressed by the Jurisdictional High Court in the case of Balarampur Chini Mills. The purpose of this test is satisfied in the case of the Appellant as grant of interest subsidy was for the overall development of the textile industry by modernising its existing infrastructure. Hence, the subsidy received by the Appellant is on capital account and not liable to tax. The fact that subsidy was linked to interest and granted subsequent to commencement of production could not change the basic character of the subsidy . This Ground of the appellant is therefore valid and is allowed.”
As far as the subsidy received under West Bengal Incentive Scheme 2000 The CIT(A) was of the view that the aforesaid scheme was to encourage creation of new capacity by way of setting up or expansion of industries in the backward areas of the state and therefore incentive granted under the scheme were to be treated as capital receipts not chargeable to tax.
Aggrieved by the order of CIT(A) the revenue has raised ground no.1 before the Tribunal. We have heard the submissions of the ld. DR, who reiterated the stand of the AO as contained in the order of assessment. The ld. Counsel for the assessee submitted as far as interest subsidy received under TUFS is concerned, the issue has been decided in Assessee’s own case for AY 2006-07 in ITA No.94/Kol/11 order dated 27.7.2016 wherein the very same subsidy was held by the Tribunal to be a capital receipt not 5
6 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 chargeable to tax by following the decision of the Hon’ble Punjab & Haryana High Court in the case of Sh.Sham Lal Bansal (infra) the tribunal held that interest subsidy received under TUFS was a capital receipt not chargeable to tax. It was submitted that the interest subsidy received under WBIS 2000 was also held to be capital receipt not chargeable to tax in Assessee’s own case for: A.Y.2005-06 in ITA No.687/K/10 order dated 15.1.2016 by ITAT Kolkata Bench. It was submitted that the ITAT in the assessee's own case for AY 2007-08 [ITA.828/Kol/12 in appeal arising out of order u/ s 263 has held that State Capital Investment Subsidy received under WBIS 2000 is capital in nature. It was submitted that identical subsidy was held to be capital receipt by ITAT Kolkata in DCIT -vs.- M/s Pricewaterhouse Coopers Pvt. Ltd. ITA No. 2033/Kol/2013 order dated 13.7.2016 wherein it was held that WBIS, 2000 was intended to accelerate industrial development of the state. The incentive given under the scheme was for setting up of industries in West Bengal. Hence interest subsidy received under WBIS 2000 shall be treated as capital receipt. Reference was made to several other decisions of the Hon’ble Apex Court in the case of CIT -vs.- Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392(SC) wherein it has been held that it is the purpose of the incentive which decides its nature and not the modality or the source thereof. Reference was also made to the decision of Jurisdictional High Court in CIT - - Rasoi Ltd. (2011) 335 ITR 438 (Cal) wherein it has been held that subsidy received for expansion of capacities, modernization and improving the marketing capabilities to tide over the crises for promotion of industry in the state is to be treated as capital in nature. Reference was also made to the following other decisions in the case of Shree Halaji Alloys & Ors. -vs.- CIT (2011) 333 ITR 35 (J&K) wherein it has been held that Excise Duty Refund and Subsidy received for the purpose of eradication of unemployment in the state by acceleration of industrial development and removing backwardness of the area that lagged behind in industrial development is to be treated as capital receipt. The said decision has since been confirmed by the Apex Court in CIT -vs.- Shree Balaji
7 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 AlIoys (2016) 138 DTR 36 (SC). It was submitted that similar view was given in following decisions :- - JCIT(OSD) -vs.- M/s. Keventer Agro Ltd (IT A No. 1663- 1665/KoV2011 dtd. 30-06- 2014) - DCIT - vs.- Ankit India Ltd. (ITA. No. 1330/Kol/2010 dtd. 16-11-2010] - DCIT -vs.- Reliance Industries. (2004) 88 ITD 273 (Mum)(SB) - CIT -vs.- Chaphalkar Brothers (2013) 351 ITR 309 (Bom) -CIT -vs.- Birla VXL Ltd. (2013) 90 DTR 376 (Guj) (HC)
We have given a very careful consideration of the rival submissions. As far as the interest subsidy received by the assessee under TUFS is concerned, we find that in assessee’s own case in A.Y.2006-07 in ITA No.94/Kol/2011 this Tribunal following the decision of the Hon’ble Punjab and Haryana High Court in the case of Sham Lal Bansal (supra) held that the this interest subsidy was not taxable. The following observations of the Tribunal are as under :- “7. We have heard the rival submissions and perused the material available on record. As rightly pointed out by the Ld.AR that the issue on hand was covered by the order 02-07-2014 of 'B' BENCH, KOLKATA in I.T.A. No.766/Kol./2010 assessment year: 2005- 2006 and the Tribunal relied on decision of the Hon'ble Punjab & Haryana High Court in the case of CIT -vs.- Sh. Sham Lal Bansal in ITA No. 472 of 2010 and held that the subsidy received for modernising assessee's existing infrastructure is capital in nature. The relevant portion of which is reproduced as under:
“9. We have carefully considered the submissions. We find considerable cogency in the submissions of the Id. Counsel of the assessee. We find that identical issue under the Technology Upgradation Fund Scheme (in short ‘TUFS ‘) of Ministry of Textiles was considered by the Hon’ble Punjab &- Haryana High Court in ITA No. 472 of 2010 vide decision dated 17.01.2011. Hon 'ble High Court has considered and held the issue as under :-
"2. The assessee is engaged in manufacture and sale of woolen garments It received subsidy for repayment of loan taken for building, plant and 7
8 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (FUFS) of Ministry of Textiles, Government of India. The assessee claimed the said subsidy to be capital receipt but the Assessing Officer did not accept the same and added back the same to the income of the assessee holding the same to be revenue receipt. On appeal, the CIT(A) upheld the plea of the assessee, which view has been affirmed by the Tribunal with the following observations :-
"Having regard to the aforesaid, in our view, it is quite clear that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy.
Considered in the aforesaid light, in our view, the facts of the instant case are on all fours comparable to those considered by the Hon 'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra) and therefore, a natural corallary is that the nature of the subsidy in question is capital. Therefore, both on the issue of the objective of the scheme and on the utilization of the funds received as subsidy, the subsidy is to be viewed as capital in nature having regard to the judgment of the Hon 'ble Supreme Court in the case of Ponni Sugars & Chemical Ltd. (supra). 11. Reliance placed by the Revenue on the case of Sawhney Steels and Press Works Ltd. & others (supra), in our view, is not appropriate having regard to the aforesaid features of the scheme, which are not in dispute. Moreover, in the case of Sawhney Steel and Press Works Ltd. & others (supra), it was found as a fact that the subsidy was given to meet recurring expenditure and was not for acquiring a capital asset. Whereas in the instant case, admittedly, there is no provision in the scheme to grant subsidy to meet any recurring expenditure and neither such a case has been set up by the Department. The only objections of the Department are that the subsidy has been given after commencement of production and, secondly that it was for repayment of loans. Both these factors do not distract from the nature of the subsidy being treated as capital. as explained by the Hon 'ble Supreme Court in the case of Ponni Sugars Chemicls Ltd. (supra). "
We have heard learned counsel for the appellant.
Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt, as per judgment of the Hon 'ble Supreme Court in Sahney Steel & Press Works Ltd. & Ors. v. CIT (J 997) 228 ITR 253. 8
9 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08
We are unable to accept the submission.
The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12.7.2005 with Small Industry Development Bank of India. The relevant clause of the agreement under which the subsidy was given is as under:-
"Para 8. - to prevent misutilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended 10 the loan amount. "
In view of above, the view taken in Sahney Steel & Press Works Ltd. & 015., could not be applied in the present case, as in said case the subsidy was given for running the business. For determining whether subsidy payment was 'revenue receipt' or 'capital receipt'. character of receipt in the hands of the assessee had to be determined with respect of the purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel & Press Works Ltd. & Ors. itself and reiterated in later judgment in CIT v, Ponni Sugars & Chemicals Ltd. & ors. (2008) 3061TR 392, referred to in the impugned order of the Tribunal.
In view of above. since the matter is covered by judgment of the Hon 'ble Supreme Court in Ponni Sugars & Chemicals Ltd. & ors. against the revenue, no substantial question of law arises ". Thus we find that on identical issue the matter has been decided in favour of the assessee. In these circumstances, we are of the opinion that a held here in above in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence, the 9
10 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 subsidy received in this regard falls into capital field. Hence respectfully following the precedent as above we set aside the order of the Id. CIT(Appeals) and decide the issue in favour of the assessee.
In the present case, we find that the assessee received interest as refund from Central Government, as per the scheme formulated to encourage additional investments in order to become competitive and cost effective and to provide financial support for capital outlay for expansion and modernisation and by following order of ground no-1 raised by the Revenue.”
As far as the subsidy received under the West Bengal Incentive Scheme 2000 is concerned we find that the following is the object of the West Bengal Incentive Scheme 2000 :- “The foreword to the West Bengal Incentive Scheme 2000 reads thus :-
"West Bengal Incentive Scheme 1999 Scheme had an attractive provision of Sales Tax related by way of "remission" of "deferment ". But in pursuance of the National Policy, the State Govt. had to discontinue the Sales Tax related Incentives from 1st January, 2000. However, as there is a strong need for fiscal support for the promotion of industry in the State, the State Govt. -decided to introduce the West Bengal Incentive Scheme, 2000 with different and new features, quite attractive for industries in large, medium, small scale and tourism sectors.
For the purpose of the incentives, districts have been grouped as “A” (Calcutta Municipal Coportation) “B” (Howrah, Hooghly, North 24-Parganas, South 24 Parganas, Burdwan, Nadia & Midnapore districts and “C” (Murshidabad, Birbhum, Purulia, Bankura, Malda, Cooch Behar, North Dinajpur, South Dinajpur, Jalpaiguri and Darjeeling districts).”
Some of the special features of the 2000 Scheme: 1. Capital Investment Subsidy for all categories of units.
Industrial units to get State Capital Investment Subsidy on the investment made in the fixed capital depending on the location: Group B - @ 15% to the limit of Rs.150.00 lakhs Group C - @ 25% to the limit of Rs.250.00 lakhs 2. Interest Subsidy
@ 50% of interest liability to the limit of Rs.100.00 lakhs per year for: 10
11 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08
Group B – 5 years Group C – 7 years ………….
There are several subsidies provided under the WBIS 2000. In the present case we are concerned with the “Interest Subsidy” which is contained in para-2 of the Foreward to the WBIS 2000 referred to above.
The law with regard to circumstances under which subsidy received can be treated as capital receipt not chargeable to tax has been laid down in several judicial pronouncements. The Hon’ble Supreme Court in the case of Ponnisugars Ltd. (supra) has emphasized the need to look into the purpose for which subsidy in question is granted and if the purpose is to enable the assessee to run a business from profitability then the receipt is on revenue account. On the other hand, if the object of assistance under the subsidy scheme is to enable the assessee to set up a new unit or expand the existing unit, then the receipt of the subsidy will be on capital account. The manner in which the subsidy is quantified has been held to be irrelevant and the purpose of the scheme i.e., the purpose test has been held to be the most relevant criteria to decide whether the subsidy is capital subsidy or revenue subsidy.
Applying the aforesaid test and looking into the purpose of the scheme we have no doubt in our mind the subsidy in question is a capital subsidy. The question whether Sales tax subsidy under a scheme under which the Assessee has received sales tax remission was considered by this tribunal in the case of Keventor Agro Ltd. (2014) 40 CCH 425 (Kol-ITAT) and it was held as follows:
“26.We have heard rival submissions and gone through facts and circumstances of the case. We find that the CIT(A) has considered the legal aspect as to whether the sales tax remission was a revenue or capital receipt in the hands of the assessee. He found that the sales tax remission given under West Bengal Incentive Scheme 1993 and 1999 was not for assisting the assessee in carrying 11
12 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 out its business operation but incurred the promotion of industries in the State of West Bengal and consequently, following the decision of Hon’ble Supreme Court in the case of Sahaney Steel & Press Works Ltd. Vs. CIT 228 ITR 253 holding the sales tax remission as capital receipt. Ld. counsel also drew our attention to the fact that the sales tax remission under West Bengal Incentive Scheme, 1993/1999 was revenue or capital has already been examined and decided by ITAT, Kolkata Bench in the following appeals: “1. In the case of ITO, Ward-1(3) Kol Vs. M/s. DuroPlast India Pvt. Ltd. in ITA No. 1983, 1984, 1985/Kol/2008 dated 16.01.2009 for Asstt. Years 1999-2000 to 2001-02. 2. In the case of DCIT, Cir-12, Kol Vs. M/s. Teesta Agro Industries Ltd. in ITA No. 1237/Kol/2010, ITA No. 1053/Kol/2010 & ITA No. 1753/Kol/2010 dated 07.01.2011 for Asstt. Years 2003-04, 2006-07 & 2007-08 respectively.” We find that the West Bengal Incentive Scheme 1993 and 1999 categorically encouraged the promotion of industries in the State of West Bengal and in such circumstances the issue i clearly covered by the decision of Hon’ble Supreme Court in the case of Sahaney Steel & Pres Works Ltd., supra. The issue is also covered by the Tribunal’s decision as noted above Accordingly, we confirm the order of CIT(A) and this issue of revenue’s appeals for both th years is dismissed.” 13. The Hon’ble Calcutta High Court in case of CIT Vs. Rasoi Ltd. [335 ITR 438] has in a similar case of receipt of subsidy held as follows: "In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent. of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sales tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT reported in [1961] 42 ITR 392 (SC) " AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature. " 14. Identical subsidy under the West Bengal Incentive Scheme 2000 was held to be capital receipt not chargeable to tax by this tribunal in the case of DCIT vs PWC Pvt. Ltd. (supra). Following the aforesaid decisions we hold that the receipt of subsidy under 12
13 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 the West Bengal Incentive Scheme 2000 is a capital receipt not chargeable to tax. Accordingly ground no.1 raised by the revenue is dismissed.
Ground No.2 raised by the revenue reads as follows : “2. That on the facts and in the circumstances of the case, Ld. ClT(A) has erred in allowing assessee's claim of set off of loss being unabsorbed depreciation of Rs.22,28,363/- of 100% EOU eligible for deduction u/s. 10B against profit on non- eligible unit and thereby deleting the addition of identical amount without appreciating the fact that such loss of 100% EOU eligible for the benefit of Sec. 10B is not allowable to be set off against the taxable profit of non-eligible unit.”
The assessee, during the relevant previous relevant to AY 07-08, had three different units and income from these units was as under: Unit Profit before Taxation i)DTA Rs.6,72,34,193/- ii) 100% EOU Rs. 22,28,363/- (Loss) iii) Power Plant Rs. 29,63,360/- (Loss) TOTAL Rs. 6,20,42,470/-
The above stated loss of EOU has been arrived at after charging of the depreciation of Rs. 1,27,77,456/-. The commercial production at the EOU started in the previous year relevant to AY. 2004-05. Accordingly, the assessee became eligible for exemption u/s 10B for Textile Unit. The assessee suffered loss in the said unit from AY 2004-05. The assessee in the return of income for AY 2004-05 or any other AY thereafter, had not claimed any deduction/exemption u/s 10B, since there was loss in the said unit. In the computation of Total Income the assessee set off book losses of the above units with the profit earned by the DTA unit.
According to the AO, income from the EOU was subject to deduction u/s 10B of Chapter-III of the Act, which deals with the income which do not form part of total 13
14 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 income. He was therefore of the view that set off of losses of 100% EOU will not enter the computation of total income at all as it was an exemption provision under chapter-III of the Act which deals with income which do not form part of the total income under the Act. Thus the loss of 100% EOU will not enter the computation of total income at all and the profit of the DTA unit should be brought to tax without setting off the loss of the 100% EOU. The plea of the Assessee however was that the issue whether loss of EOU unit whose total income is exempt can be set off against profit of the non-exempt non-10B unit, has been settled by the Hon'ble Kolkata Tribunal in favour of the assessee in its own case vide order dated 28-03-2008 for AY. 2004-05 in ITA No. 1658/Kol/2007, wherein the Hon'ble Tribunal held that the said losses of EOU unit needs to be adjusted with the income of other units.
The AO however held that the claim of the assessee cannot be accepted as the Revenue has not accepted the stand of the Tribunal and preferred an appeal before the Hon'ble Calcutta High Court u/s 260A of the Act. Thus, following the stand taken in earlier years, unabsorbed depreciation amounting to Rs. 22,28,363/- relating to EOU Unit was not allowed to be set off with the profit of the other businesses in the current year also.
On appeal by the assessee, the CIT(A) following the order in assessee’s own case in A.Y.2006-07 held that the set off of unabsorbed depreciation of 100% EOU with the profits of non EOU unit should be allowed. Aggrieved by the order of CIT(A) the revenue has preferred ground no.2 before the Tribunal.
We have heard the rival submissions. The learned DR relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A) and further brought to our notice that identical claim has been favorabIy decided by Hon'ble ITAT in assessee's own case for:- 14
15 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 A.Y. 2004-05 - IT A No. 1658/ K/ 07 A.Y. 2005-06 - ITA o. 766/K/10 A.Y. 2006-07 - ITA o. 94/ K/ll He also brought to our notice that the Revenue’s appeal appeal filed before the Hon'ble High Court for AY 2004-05 has since been dismissed vide order dated 12-07-2016 in ITA No.595 of 2008. His further submission was that the benefit granted U/S 10B is "Deduction" and not an "Exemption" Vide Finance Act 2000, the legislature has intentionally redrafted Sec. 10B w.e.f 01-04-2001 to replace the phrase 'shall not be included in the total income of the assessee' by insertion of word 'deduction' wherever required. Our attention was also drawn to CBDT Circular No. 794 dated 09-08-2000, wherein it has been clarified that Sec. 10A/10B as amended vide Finance Act 2000 w.e.f 01-04-2001 provides for 'deduction' in respect of profits and gains derived by an undertaking from export of articles or things. Our attention was also drawn to a decision of the Hon’ble Apex court in CIT -vs.- Yokogawa India Limited (2017) 77 taxmann.com 41 (SC) wherein it has been held that Section l0A, as amended, embodies a clear legislative intent to alter the nature of Sec. l0A from one providing for exemption to one providing for deductions. Reference was also made to decision of Hon’ble Bombay High Court in the case of Hindustan Unilever Ltd -vs.- DCIT (2010) 325 ITR 102 (Bom) wherein it has been held that Sec. 10B as it now stands is not a provision in the nature of 'exemption' but provides for 'deduction'. Hence the loss sustained by the said unit can be set off against the profit of the non eligible unit. Similar view has also been taken in the case of:- - CIT -vs.- Galaxy Surfactants Ltd. (2012) 343 ITR 108 (Bom) - CIT vs Patni Computers Systems Ltd : ITA No. 2177 of 2010 (Bom) -M/s. Bharat Resins Ltd. -vs.- ACIT (2012) 50 SOT 298 (Ahm) -DCIT vs Brijlaxmi Infotech Limited: IT A No. 732/Ahd/2010 (Ahd) - Mindtree Consulting (P) Ltd. -vs.- DCIT (2006) 102 TTJ 691 (Bang.) - Mindteck (India) Ltd. vs ITO: 151 ITD 251 (Bang) - HoneyweIl International (India) (P) Ltd. -vs.- DCIT (2007) 108 TTJ 924 (Del) - DCIT vs Birla Soft Ltd : [2014] 32 ITR{T) 117 (Del) 15
16 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 - Sonata Software Ltd vs ACIT : IT A No. 8032/Mum/2011 (Mum) - Sandoz (P.) Ltd vs DCIT : [2013]145 ITD 551 (Mum) - Navin Bharat Industries vs ACIT : 90 ITD 1 (Mum) - Sovika Infotek Ltd vs ITa: 23 SOT 271 (Mum) - Patni Computers Systems Ltd vs DCIT : 135 ITD 398 (Pune)
Attention was also drawn to CBDT vide Circular No. 279/Misc/M-116/2012-ITJ dated 16-07-2013, has clarified that income/ loss from various sources i.e. eligible and non eligible units under the same head of income are to be aggregated in accordance with the provisions of Sec. 70.
The learned counsel for the Assessee also brought to our notice that in the revised return of income filed for AY 2005-06, the Assessee withdrew the claim for deduction u/s.10B of the Act in exercise of an option given to the Assessee u/s.10(8) of the Act which provides as follows: “(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.”
It was submitted that the provisions of Sec.10B(8) of the Act, in so far as it relates to filing of declaration before the due date for filing return of income u/s.139(1) of the Act was only directory and such declaration filed later is also valid in law and in this regard attention was drawn to certain decisions, the main decision among them being that of the ITAT Delhi bench in the case of Moser Baer India Ltd. Vs. JCIT 108 ITD 80 (Del) affirmed by Delhi High Court in ITA No.950/2007.
We have considered the rival submissions and are of the view that order of CIT(A) on this issue does not call for any interference. Admittedly under the provision of section 10B(8) of the Act the assessee had not claimed the benefit of deduction u/s 10B
17 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 of the Act and the letter of the Assessee in this regard filed in the course of Assessment proceedings for AY 2005-06 is at page 150 to 152 of the Assessee’s paper book. For an assessee who was opted out of the provision of section 10B of the Act, the profits of EOU unit have to be regarded as any other business profits and the computation provision of section 70 to 72 of the Act would be applicable. In such an event the claim of set off as claimed by the assessee deserves to be allowed. Apart from the above in the light of the decision of the Hon’ble Supreme Court in the case of Yokogawa India Ltd. (supra) provision of section 10B have to be regarded as deduction provision, the provisions of section 70 to 72 of the Act will be applicable. In view of the above we uphold the order of CIT(A) on this issue and dismiss ground no.2 raised by the revenue.
Ground No.3 raised by the revenue reads as follows :- “3. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law by allowing assessee's claim of additional depreciation of plant and machinery on original cost in the year subsequent to the year of acquisition and installation and thereby has erred in deleting the addition of Rs.54,21,617/- without appreciating the fact that such additional depreciation is allowable on plant and machinery only in the year of acquisition and installation.”
This ground of appeal relates to the claim of the Assessee for additional depreciation u/s.32(1)(iia) of the Act. The undisputed facts are that the original cost of the new machinery purchased and installed by the Assessee after 31.3.2005 but before 1.4.2006 in the 100% EOU and DTA unit Rs.29,77,470 and Rs.2,41,30,615. The WDV of these machineries as on 1.4.2006 was Rs.24,51,920/- and Rs.1,81,50,266/- respectively. The Assessee availed of additional depreciation @ 20% on the original cost of the machinery at Rs.5,95,494/- and Rs.48,26,123/- respectively in AY 2006-07. In AY 2007-08 also the Assessee claimed additional depreciation at 20% of the original cost viz., Rs.5,95,494 and Rs.48,26,123 respectively in all depreciation totaling Rs. 54,21,617/-.
18 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 26. According to the AO, the deduction u/s.32(1)(iia) of the Act is granted only to “new” plant and machinery and once depreciation is granted in the 1st year in which the machinery is installed or put to use, the machinery ceases to be a new machinery and therefore additional depreciation cannot be allowed. The plea of the Assessee however was that Section 32(1)(iia) of the Act merely provides that further to the normal depreciation at the prescribed rates, an additional depreciation shall be allowed to the assessee at the rate of 20% on new plant and machinery acquired and installed after 31.03.2005. However, the period the period during which such additional depreciation shall be allowed is not specified in the Act. Thus, one may conclude that the allowance of additional depreciation shall not only be restricted to the initial year but continue to second and subsequent years.
The claim for additional depreciation was however rejected by the CIT(A) for the reason that additional depreciation is available only in respect of new plant and machinery acquired and installed after 31.03.2005. The word 'new' is not defined in the Act. According to the Shorter Oxford Dictionary the word 'new' means "not existing before; now made, or brought into existence, for the first time". The AO held that the assets on which additional depreciation was claimed by the assessee is neither "new" nor brought into existence in the hands of the assessee in the relevant previous year. It is already used in earlier years and is already depreciated and, therefore, old in the hands of the assessee in the previous year. He held that the qualification that the asset should be new was basic qualification for entitlement of additional depreciation as laid down in the provisions of Sec.32(1)(iia) of the Act and that conditions was not satisfied in the case of the Assessee. The AO accordingly disallowed the claim of the Assessee for additional depreciation. 28. Before we set out the conclusions of the CIT(A) on this issue, it would be worthwhile to examine the history of scheme of allowance by way of additional depreciation in the Act. 18
19 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 “Sec.32 Depreciation. (1)In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assess ee and used for the purposes of the business or profession, the following deductions shall be allowed— (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Section 32(1)(iia) of the Act was originally introduced by the finance (no.2) Act, 1980 w.e.f. 1.4.1981 reads thus (the sub-section existed upto 31.3.1988 and was deleted thereafter): “(iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980 but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) {exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then in respect of that previous year :” Sec.32(1)(iia) of the Act as reinserted by finance (No.2) Act, 2002 w.e.f. 1.4.2003, reads thus:
20 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 “(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that such further deduction of fifteen per cent shall be allowed to— (A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or (B) any industrial undertaking existing before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than *[ten per cent ]: *Subs. for “twenty-five per cent” by Finance (No. 2) Act, 2004, (w.e.f. 1-4- 2005).” Sec.32(1)(iia) as substituted by Finance Act, 2005, (w.e.f. 1-4-2006) reads as follows: “(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):” 29. It can be seen from the provisions of Sec.32(1)(iia) as it existed from 1.4.1981 to 31.3.1988 and reinserted subsequently from 1.4.2003 that the benefit for claiming additional depreciation was restricted only to the initial assessment year. However the provisions of Sec.32(1)(iia) as substituted by the finance Act, 2005 w.e.f. 1-4-2006, the benefit for claiming additional depreciation was not so restricted to only to the intital assessment year. From AY 1981-82 to 87-88, the claim for additional depreciation was restricted to previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year.
21 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 From AY 2003-04 till 2005-06, the claim for additional depreciation was restricted to previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or if any industrial undertaking existed before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent. From AY 2006-07, there is no restriction with regard to the year in which such additional depreciation should be allowed and also there is no restriction with regard to the additional depreciation being allowed only on the written down value and therefore the additional depreciation even in the second and subsequent years have to be allowed on the original cost of the Asset. These are evident from a plain reading and literal construction of the relevant statutory provisions.
The CIT(A) after considering the aforesaid scheme and history of the provisions of Sec.32(1)(iia) of the Act, deleted the addition made by AO observing as follows :- “I have considered the submissions of the Ld. A/R and find substance in the contention of the Appellant. On a conjoint reading of the provisions of section 32(1)(iia) inserted by Finance (No. 2) Act, 1980 and reinserted by Finance Act, 2002 it is evident that the said sections specifically restricted the allowability of additional depreciation in the year of installation of P&M. However, in the section 32( 1 )(iia) amended vide Finance Act, 2005 Legislature had omitted the proviso wherein it was provided that such depreciation could be claimed only in the initial assessment year. This being a specific omission it could be construed that the intent of the Legislature was not to restrict the allowance of additional depreciation to the year in which the assets are installed but also in the second and subsequent years provided that the aggregate depreciation does not exceed the cost of the asset. It is settled law that a fiscal statute has to be interpreted the basis of the language used therein and not interpreted out of context the same as held by Apex Court in the case of Orissa State Warehousing Corporation, Mohammad Ali Khan and Madurai Mills Co. Ltd. (Referred to by the Appellant.) Further, it is also imperative to state that Section 32(1)(iia) is a beneficial provision enacted with the view to provide benefit to the assessee. The same is also evident from the Explanatory Notes to the Finance Act, 2005 wherein it has been clarified that in order to encourage investment the provisions of sec. 32(1)(iia) have been amended. In so far as the language used in the provision in concerned one has 21
22 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 to construe the language beneficially and in favour of the assessee as held by the Jurisdictional High Court in the case of Indian Jute Mill Association in 134 ITR 68. There is little merit in the contention of the AO that the asset is not new in the second year. In my view for claiming additional depreciation the assessee has to acquire and install the plant & machinery after 31-03-2005 and the same should be new in the year of installation. There is no requirement that the assets should be new in the year of claim of additional depreciation. For the reasons aforesaid I am of the view that in terms of provisions of Section 32(1)(iia), additional depreciation is available in AY 2006-07 and subsequent years in respect of all new plant & machinery acquired and installed after 31-03-2005 subject to overall criteria that total depreciation does not exceed the actual cost. Hence Ground No. 4 is decided in favour of the Appellant.”
Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee submitted that fiscal statute shall be interpreted on the basis of the language used therein and not de hors the same. It was argued that Clause (iia) to Sec. 32(1) was first introduced vide Finance (No. 2) Act, 1980 w.e.f. 01-04-81 and was applicable till AY 1987-88. The clause was subsequently re-introduced vide Finance Act, 2002 w.e.f. 01-04-03. On perusal of clause (iia) to Sec. 32(1) as existed during the aforesaid period, it could be seen that the legislature conferred the benefit of additional depreciation only in the first AY when the asset was installed and first put to use. However vide Finance Act, 2005, clause (iia) to Sec. 32(1) was amended w.e.f. 01-04-06 wherein the condition of claiming additional depreciation only in the initial AY was deleted. It was submitted that since the specific condition for claim of additional depreciation in one year has been done away with, it should be construed as the intention of the legislature to allow additional depreciation in subsequent years as well. Reliance was placed on the following decisions wherein it has been held that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. Even if there is a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation :- - Orissa State Warehousing Corporation -vs.- CIT (1999) 237 ITR 589 (SC 22
23 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 - Prakash Nath Khanna and Another -vs.- CIT (2004) 266 ITR 1 (SC) - Smt. Tarulata Shyam & Othrs -vs.- CIT (1977) 108 ITR 345 (SC) - Padmasundara Rao vs. State of Tamil Nadu: 255 ITR 147 (SC) Apart from the above, it was also pointed out that DTC Bill 2013 has proposed expressly that additional depreciation would be allowed in the FY in which the P&M is used for the first time and those provisions are not made with retrospective effect. It was argued that the legislature has consciously not restricted the allowance of additional depreciation on the original cost for AY 2006-07 till AY 2013-14 to one year only and therefore the additional depreciation should be allowed on the original cost of the asset for the second and subsequent years as well. It was submitted that the condition imposed by the relevant provisions was that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years.
We have given very careful consideration to the rival submissions and are of the view that the provision of section 32(1)(iia) as amended w.e.f. 01.04.2006 by the Finance Act 2005, there is no restriction that the additional depreciation will be allowed only in one year or that it would be allowed only on the written down value. The law as it prevailed prior to the said amendment imposed such a condition that additional depreciation will be allowed only in the year of installation of machinery or plant or the year in which it is first put to use or the year in which the concerned undertaking begins to manufacture or produce any article or thing or achieves substantial expansion by way of increase in installed capacity by 25%. The only objection of the AO is that the provisions refer to “new machinery or plant” and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to use. In our view this stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 23
24 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 32(1)(iia) and not new in subsequent years. The expression “new machinery” is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01.04.2006. The plain language of the section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground no.3 raised by the revenue.
Ground No.4 raised by the revenue reads as follows :- “4. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in allowing assessee's claim of deduction of Rs.31,68,895/- on account of profit from sale of fixed asset while computing book profit u/s. 115JB ignoring the provision introduced by the Finance Act, 2008 with retrospective effect from 01.04.2001 and thereby has erred in deleting the addition of Rs.31 ,68,895/-.”
Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April,2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent. The Assessee being a company the provisions of Sec.115JB of the Act were applicable. It is also not in dispute that the income tax payable on the total income as computed under the Act in respect of the previous year relevant to AY 2007-08 was less than 10% of its book profits and therefore book profit should be deemed to be the total income of the Assessee and tax payable by the Assessee on such total income shall be 10% of such total income. Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the 24
25 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its accounts that are laid before the company at its annual general meeting in accordance with provisions of Sec.210 of the Companies Act. Explanation below Sec.115JB of the Act provides that for the purposes of section 115JB of the Act, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by— certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act.
The assessee while computing its book profit u/s 115JB of the Act excluded profit on sale of fixed assets of Rs.31,68,895/-. This amount admittedly was credited in the profit and loss account. According to the AO, the aforesaid sum had to be included as part of the book profits u/s 115JB of the Act as it is not one of the item of income which has to be excluded from the net profit as per profit and loss account, set out in the explanation below Sec.115JB(2) of the Act.
On appeal by the assessee the CIT(A) held as follows :- “In this regard the Appellant has placed reliance on the decision of Mumbai Tribunal in :the case of Frigsales (India) Ltd. 4 SOT 376 (Mum) wherein it had been held that capital gain on sale of depreciable asset exempt u/s 50 cannot be taxed as income under the provisions of section 115JA. The appellant has also placed reliance on the decision of Suraj Jewellary 21 SOT 79 (Mum.) wherein it was held that even where for computing MAT profit u/s 115JB of the Act, the business profit shown in the Profit and Loss Account is to be adopted, in case the said profit includes certain receipts which are not in the nature of income, the same are to excluded before making any calculation on this account. 25
26 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08
The Appellant has also placed reliance on the decision of the Jurisdictional ITAT in the case of Sutlej Cotton Mills Ltd. 45 ITD 22 (Cal.)(SB) wherein it was held that the Profit & Loss Account of a company is concerned with items of income & expenditure and therefore, any profit by realisation of capital asset will not be an item of income. Hence, it was held that 'book profit' under section 115J was intended to be confined to business profit & profits from realisation of any asset should not be included in computing book profit. A similar view has also been expressed in the case of Oswal Agro Mills Ltd. 51 ITD 447 (Del) and Northern India Theatres (P) Ltd. 133 CTR 326 (Del).
I have considered the submission made by the Appellant. I find that the facts in the case of the Appellant are comparable with the facts in the case of Frigsales (India) Ltd and Sutlej Cotton Mills Ltd as relied upon by the Appellant. Following the decision of the Jurisdictional Special Bench and. Mumbai ITAT, the appellant succeeds on this issue.”
The ld. DR placed reliance on the order of AO. The ld. Counsel for the assessee relied on the order of the CIT(A) and reiterated submissions made before CIT(A). We have considered the rival submissions and are of the view that the decision of the Mumbai Bench of the ITAT in the case of Frigsales (supra) based on which the CIT(A) held that profit on sale of fixed assets cannot be included as part of book profits for the purpose of Sec.115JB of the Act is applicable to the facts of the present case. The Mumbai Bench on an identical issue after considering the decision of the Hon’ble supreme Court in the case of Apollo Tyres (infra) held as follows:
“3.2 Before us, the learned Departmental Representative supported order of the AO, while the learned Authorised Representative of the assessee supported the order of the learned CIT(A). The issue before us is that whether the capital gain to be included in the computation of profit under s. 115JA of the Act or not. The case of the assessee is that due to the sale of capital assets, the assessee has earned profit to the tune of Rs. 83,26,670. The assessee claimed exemption on these capital gains under the provisions of s. 50 of the IT Act. The AO computed the capital gains under the provisions of s. 115JA while including this amount of Rs. 83,26,670. According to the AO, this amount forms part of the book profits determined under the provisions of Part II and Part III of Schedule VI of the Companies Act, 1956. Thus, according to the AO thought this amount is exempted under the provisions of s. 50, the same is taxable under the provisions 26
27 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 of s. 115JA. The learned CIT(A) did not agree with the findings of the AO and after referring to the provisions of sub-s. (4) of s. 115JA he deleted the addition made by the AO under the Act, any receipt in the nature of income alone is taxable. Sec. 115JA is also part of the Act. No doubt, it starts with a non obstante clause and overrides the other provisions of the Act but that is only confined to determination of total income. It only substitutes total income based on book profits but it does not enlarge the scope of taxable income or total income which is chargeable to tax. A receipt, which is not in the nature of income, cannot be taxed as income under s. 115JA. When the accounts are prepared in accordance with Part-II and Part-III of Sch. VI of the Companies Act while making adjustments as per the provisions of s. 115JA, to compute book profits, the amounts which are not taxable or exempt are excluded, because such amounts do not really reflect a receipt in the nature of income and, therefore, such amounts cannot form part of the profit reflecting real working results. For example, if the assessee receives an amount for a non-competent covenant which have been held by the Courts to constitute a capital receipt and not income. Similarly, considering the case of mutual association-company, where amounts contributed by members are not treated as income of association. On such receipts, tax is not payable at all. However, while computing the book profits such types of receipts do not form part of the book profits, though they are reflected in the P&L a/c. The company includes such receipts as part of the P&L a/c to reflect only working results of the company as per requirement stipulated in the schedule but it does not mean that such receipts are taxable, because they have been included in the book profits. On the same analogy, the assessee has included the exempted income in the P&L a/c for reflecting the correct working results of the company. The capital gains, in this case, are exempt under s. 50 of the Act and this fact has not been disputed by the Department. Therefore, these capital gains are not in the nature of income and they cannot be taxed as income under the provisions of s. 115JA of the Act. It is a settled legal position that s. 115J is self-contained code. This is applicable only to the provisions of s. 115JA. But in s. 115JA a new sub- s. (4) has been brought out on the statute which was not there is s. 115J. Sub-s. (4) of s. 115JA now starts that "save as otherwise provided all other provisions of the Act shall apply". Thus, sub-s. (4) has been introduced first time in s. 115JA. Now other provisions of the Act will continue to operate in view of sub-s. (4). Therefore, the exempt income under s. 50 of the Act would remain exempted as per the provisions of sub-s. (4). The operation of non obstante clause is now limited only to determine the book profits and the book profits so determined has to be taxed taking into consideration the other provisions of the Act. In other words, s. 115JA is a part of the Act now and the exemption allowed by one provision of the Act cannot be taken away by another provision of the Act. In the present case, if the exemption allowed under s. 50 of the Act is taken away while taxing, the book profits under s. 115JA, it will make the provision of s. 50 of the 27
28 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 Act as redundant. This interpretation is not justified. The ratio of Apollo Tyres vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) is distinguishable because the same has been rendered in the context of provisions of s. 115J which is independent code, while s. 115JA is not an independent code and the Legislature in their wisdom has brought sub-s. (4) of s. 115JA on the statute to make s. 115JA also a part of the Act. Regarding relevance of the decision relied on by the Revenue in the case of Indo Marine Agencies (Kerala) (P) Ltd. vs. Asstt. CIT (supra) and CIT vs. Veekaylal Investment Co. (P) Ltd. (supra). These cases were rendered as per the provisions of s. 115J which is self-contained code. As has been held in a number of cases, whereas s. 115JA is not self-contained code. Sub-s. (4) has been inserted first time and it has made s. 115JA also a part of the Act. Therefore, exemptions allowed under one provision of the Act, cannot be taken away by another provision of the Act. In the above cases, there is a capital gain which was taxable under s. 45 of the Act. So, the Hon’ble Courts decided that once income under s. 45 is includible in the taxable income, why the same income should not be included in the book profits determined under s. 115JA of the Act. But in the present case, the capital gains earned by the assessee are exempt under s. 50 of the Act and they will not form part of the taxable income. Therefore, this exempted income should not be a part of the capital gains. Sec. 115JA only stipulates total income based on book profits, but does not enlarge the scope of the income. In other words, a receipt which is not in the nature of income cannot be taxed as income under s. 115JA. Similar view has been taken by the Bombay Bench 'B’ of the Tribunal in the case of Rolta India Ltd. vs. Jt. CIT (IT Appeal No. 20 (Mum) of 2001), for the asst. yr. 1997-98, which has been authored by Hon’ble AM who is one of the members of this constitution. Relying on the provisions of sub-s. (4) of s. 115JA, the Tribunal has observed that s. 115J is distinguishable from the present section. Relevant portion of the same is reproduced hereunder : "From the above we find that the judgment in the case of Kwality Biscuits (supra) is based on this consideration that the provisions of s. 115J are to be applied for computation of income for the purpose of this section and not for other sections. But in the present case, we find that we are dealing with s. 115JA and it is specified in sub-s. (4) of this section that 'save otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.’ There was no similar provision in s. 115J and therefore, this judgment cannot be made applicable to the present case. This observation of Their Lordships. 'When deeming fiction is brought under the statute it is to be carried for its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made application’. Rather goes against the assessee because in 28
29 ITA No.95/Kol/2011 M/s. Gloster Jute Mills Ltd. A.Yr.2007-08 the s. 115JA, other provisions of the Act are specifically made applicable to the assessee being a company and hence the deeming fiction has to be carried to its logical conclusion in the present case as held in this judgment. Under these facts and circumstances, we do not find any infirmity in the order of learned CIT(A) and decline to interfere with the same on this point. This ground of the assessee fails." In view of the above discussion, we are not inclined to interfere in the finding of the learned CIT(A). The same is upheld.” 38. We therefore do not find any grounds to interfere with the order of the CIT(A) on this issue and accordingly confirm the order of the CIT(A). Ground No.4 raised by the revenue is also dismissed.
In the result, appeal by the Revenue is dismissed. Order pronounced in the Court on 01.03.2017.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 01.03.2017. [RG PS] Copy of the order forwarded to:
M/s. Gloster Jute Mills Ltd., 21, Strand Road, Kolkata-700001. 2. D.C.I.T. Cirle-1, Kolkata. 3. CIT(A)-XX, Kolkata 4. CIT- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.