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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
This appeal by the assessee emanates out of the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 30.09.2010 for the assessment year 2006-07.
Ground no-1 of appeal reads as under :-
I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007
“That on the facts and in circumstances of the case, ld. CIT(A) has erred in deleting the addition of Rs.30,74,998/-made in the assessement on account of interest subsidy by considering it as capital receipt without appreciating the fact that the subsidy was granted towards reducing interest burden of the assessee and received after the commencement of business.
Brief facts of the case are that the assessee is a Public Limited Company engaged in manufacturing of Jute & jute allied products and generation of power. During the assessment proceedings the Assessing Officer noted that under the “Technology Upgradation Fund Scheme” in short TUFS, the assessee received subsidy from Central Government of Rs. 30,74,998/- on account of ‘interest refund’. Though the assessee debited the same to Profit & Loss account with the net amount of interest, after adjustment of the abovementioned subsidy of Rs. 30,74,998/-. In computing the assessable income the assessee deducted the said amount on the plea that the subsidy was capital in nature.
4. The Assessing Officer did not agree with the above proposition and rejected the assessee’s claim that subsidy under TUFS should be treated as a scheme of capital subsidy. He opined that the subsidy was revenue in nature and had to be added in the total income of the assessee as a revenue receipt.
5. Assessee preferred an appeal before the CIT(Appeal) wherein he held that a grant of subsidy was for a overall development of the textile industry for modernising its existing infrastructure, thereby,
I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007 he deleted the addition made by AO. Against the above order of CIT(Appeals), the Revenue is in appeal before us.
Ld. Departmental Representative, on the other hand, relied upon the orders of the authorities below and Ld.AR submits that the similar issue was decided by this Tribunal for assessement year 2005-06 in assessee’s own case and placed reliance on the same.
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 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:
We have carefully considered the submissions. We find considerable cogency in the submissions of the ld. 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 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 machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (TUFS) 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:-
I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007
“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 corollary 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).
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 Steels 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 Chemicals Ltd. (supra).”
3. 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 (1997) 228 ITR 253.
We are unable to accept the submission.
6. 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 4
I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007 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 as 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 to the loan amount.”
7. In view of above, the view taken in Sahney Steel & Press Works Ltd. & Ors., 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 to 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) 306 ITR 392, referred to in the impugned order of the Tribunal.
8. 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 as held hereinabove 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 subsidy received in this regard falls into capital field. Hence respectfully following the precedent as above we set aside the order of the ld. 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 Coordinate Bench, we dismiss the ground no-1 raised by the Revenue.
I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007
9. Ground no-2 raised by the Revenue reads as under :- That on the facts and in circumstances of the case, ld. CIT(A) has erred in allowing unabsorbed depreciation of Rs.71,61,090/- and business of Rs.48,83,095/- pertains to 100% EOU Unit (100% exemption u/s10B) against the taxable income of the assessee from other unit.
10. In this case, the assessee during the year under consideration had three different units of income as under:-
Sl. No. Unit Profit before taxation (1) DTA Rs.8,59,19,380/- (2) 100% EOU Rs.1,20,44,185/- (Loss) (3) Power Plant Rs.1,00,55,470/- Rs.6,38,19,725/-
11. The above-stated loss of EOU was arrived at after charging of the depreciation of Rs.52,47,722/-. The commercial production at the EOU started in the previous year relevant to the AY 2004-05. In that year also, the assessee suffered loss. In the computation of income, the assessee set off the loss from EOU with the profit of other units. The Assessing Officer disallowed unabsorbed depreciation of Rs.71,61,090/- and business loss of Rs.48,83,095/- for the textile unit of the assessee on the ground that these losses relate to a unit whose profits are exempt under section 10B and hence, such losses cannot be adjusted against profit of taxable units.
I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007
The Assessee preferred an appeal before the CIT(Appeal) wherein he held that the losses of the unit to which Sec 10B applies, can be set off with the taxable income of other units, thereby, he allowed unabsorbed depreciation of Rs.71,61,090/- and business of Rs.48,83,095/- pertains to 100% EOU Unit and deleted the addition made by AO. Against the above order of CIT(Appeals), the Revenue is in appeal before us.
Ld. Departmental Representative, on the other hand, relied upon the orders of the authorities below and Ld.AR submits that the similar issue was decided by this Tribunal for assessment year 2005-06 in assessee’s own case and placed reliance on the same.
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. We find that the CIT-A relied on the order dated 28.03.2008 of this Tribunal for assessment year 2004-05 and allowed allowed unabsorbed depreciation of Rs.71,61,090/- and business of Rs.48,83,095/- pertains to 100% EOU Unit. The relevant portion of which is reproduced as under:
We have heard the rival contentions and perused the materials available on record. We find that it is clear that identical issue has been decided in favour of the assessee by the Tribunal in earlier years. It is not the case that Hon’ble Jurisdictional High Court has reversed the order of the Tribunal. In these circumstances, we do not find any I.T.A. No.: 94/KOL./2011 Assessment year: 2006-2007
infirmity in the order of ld. CIT(Appeals). Hence, we uphold the same.
In the present case, the Coordinate Bench observed that the similar issues have been decided in favour of assessee by this Tribunal in earlier years and no order as such brought to our notice that the Hon’ble Jurisdictional High Court has reversed the order of the Tribunal. In view of the same, we find no merit in the order of CIT(Appeals) and accordingly, ground no-2 raised by the Revenue is dismissed.