IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH ‘B’, CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.1428 /Chd/2010
(Assessment Year : 2007 -08)
M/s Bhushan Power & Steel Ltd.,
3, Industrial Area, Phase-I,
Chandigarh.
Vs.
The Addl.C.I.T.,
Range-2,
Chandigarh.
PAN: AAACB9760D
(Appellant)
(Respondent)
Appellant by
:
Shri Ashwani Kumar
Respondent by
:
Shri S.K.Mittal, DR
Date of hearing :
Date of Pronouncement :
08.09.2011
25.11.2011
O R D E R
PER SUSHMA CHOWLA, J.M, :
The appeal filed by the assessee is against the order of the
Commissioner of Income -tax(Appeals), Chandigarh dated 27.08.2010
r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 a g a i n s t t h e o r d e r p a s s e d u / s 1 4 3 ( 3 )
the Income Tax Act, 1961.
2.
The only ground of appeal raised by the assessee reads as under :
“That order passed u/s 250 of the Income Tax Act,
1961 by the Ld. Commissioner of Income Tax (Appeals),
Chandigarh is against law and facts on the file in as mu ch
she was not justified to arbitrary uphold the action of the
Ld. Assessing Officer in treating the amount of sales -tax
subsidy
at
Rs.32,65,57,714/ -
as
Revenue
receipt
as
against claimed by the appellant to be a capital receipt.”
3.
The brief facts of the case are that the assessee is engaged in the
manufacturing
of
various
iron
and
steel
items,
generation
and
2
distribution of power and tr ading of iron and steel products.
The
registered office of the assessee is located at Nehru Place , New Delhi
and the Branch offices are located at Calcutta and Chandigarh.
The
assessee is having various manufacturing units at Chandigarh, Calcutta,
Derabassi, Punjab and Orissa as detailed at page 2 of the Paper Book.
D u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n t h e a s s e s s e e h a d c l a i m e d d e d u c t i o n
of Rs.32,65,57,714/ - on account of sales tax exemption in the nature of
c a p i t a l s u b s i d y.
The explanation of the assessee in this regard was that
i t h a d s e t u p a n e w u n i t a t H o o g l y, D i s t t . K o l k a t t a , w h i c h h a d s t a r t e d
commercial
production
on
13.5.2000.
The
said
unit
was
allowed
r e m i s s i o n o f s a l e s t a x f o r a p e r i o d o f 1 2 ye a r s u p t o 1 0 0 % o f g r o s s
capital investment , as per scheme of West Bengal Govt. , with a view to
encourage entrepreneurs to set up new unit s and also to attract the
exiting units
for expansion
Incentive Scheme 1999.
under the scheme
called West
Bengal
The assessee claimed that in terms of the said
scheme, the eligibility certificate was issued by the Govt. of West
Bengal vide letter No.870 -CI/H/4F-34/96 dated 31.12.1998. The assessee
referred to the preamble of the scheme and CBDT circular No.142 dated
1.1.1974 in respect of the taxability of subsidy and various judicial
pronouncements for the proposition that the West Bengal Govt. had
granted sales tax remission with a view t o promote industries
industrial units in certain backward areas.
to set up
It was also pointed out that
under the scheme of 1999, the quantum of sales tax remission depended
upon whether the unit was located in group B and C.
The assessee also
drew similarity with the sales tax exemption scheme framed by the
Maharashtra Govt. which was considered by the Special Bench of
Mumbai Bench in DCIT Vs. Reliance Industries [88 ITD 273 (SB)(Mum)]
and it was claimed that the West Bengal incentive scheme was on the
same line of the scheme of Govt. of Maharashtra and the facts being
3
mutatis mutandis with that in the case of DCIT Vs. Reliance Industries
(supra) the amount of sales tax remission was claimed to be of capital
nature.
It was also pointed out by the assess ee before the Assessing
Officer that the Special Bench of Mumbai Tribunal in DCIT Vs. Reliance
Industries (supra) had thoroughl y considered the judgment of the Hon'ble
Supreme Court in Sahni Steel & Press Works Ltd. [ 228 ITR 253 (SC)]
had concluded that th e incentive scheme of Maharashtra was different
from the scheme of Andhra Pradesh.
The Assessing Officer
has
reproduced the submissions of the assessee as part of its assessment
order starting from page 2 of the assessment order.
The important
feature of the West Bengal scheme 1999 are referred to at pages 11 and
12
of
the
assessment
order
and
the
points
of
similarity
between
Maharashtra scheme and West Bengal scheme are referred to at pages 12
and 13 of the assessment order. The assessee further pointe d out that in
its case eligibility certificate was issued on 31.12.1999, whereas the
commercial production started on 13.5.2000, pointing out that it became
eligible for incentive even before the commencement of commercial
production. The Assessing Office r vide para 3.2 observed that the issue
h a d b e e n e x a m i n e d i n e a r l i e r ye a r s i n t h e c a s e o f t h e a s s e s s e e i t s e l f .
Reference was made to para 10 of the scheme which is reproduced at
page 14 of the assessment order and the Assessing Officer observed that
the approved project was eligible for sales tax incentive subject to the
percentage ceiling in terms of gross value of fixed capital assets of the
approved project and only after the issue of eligibility certificate by the
Sales Tax Authorities. As per para 10.1.7 of the said scheme the amount
of incentive was restricted to maximum of Rs.75 crores irrespective of
the value of fixed capital assets of the project.
The Assessing Officer
was of the view that had the intention of the scheme been to reimburse
or finance the capital investment of the project to the company, there
4
would not have been such a
limit or ceiling of Rs.75 crores .
It is
clearly established beyond doubt that the incentives are given not to
finance
capital
investment
but
to
boost
Company’s project in the initial years ”.
the
profitab ility
of
the
In respect of the reference
of the assessee to circular No.142 of CBDT the Assessing Officer
observed that “the assessee has only referred to para 2 of the above
circular.
Perusal of the complete circular makes it clear that it refers
to the Central Outright grant of subsidy Scheme, 1971 and does not refer
to the schemes under which assessee has got subsidy from West Bengal
Government. Also the circular does not state that any subsidy under the
scheme is to be treated as capital in nature” .
The Assessing Officer
made a reference to the ratio laid down by the Hon'ble Supreme Court in
Sahni Steel & Press Works Ltd. (supra) and observed as under :
“In the case of assessee also, all the above features
are present and the facts of the case are also similar. The
only exception is that in the case of West Bengal Scheme,
the
incentives
are
given
to
encourage
setting
up
of
Industries in particular backward areas whereas as per
the Andhra Pradesh Scheme, in centives were provided to
encourage the setting up of Industries anywhere in the
whole of the State. However, that does of the Act change
the character of subsidies given in view of the fact that
the
incentives
are
given
after
the
commencement
of
production and also that the Company becomes entitled to
get these incentives only after it goes into production. ”
4.
The Assessing Officer held that incentives under the subsidy
scheme are in the nature of ‘Operational subsidies’ to enable the
company to run the business more profitably and hence, the same are
Revenue in nature as pointed out by the Hon'ble Supreme Court in the
case of Sahney Steel and Press Works Limited & Others Vs. CIT (228 ITR
253) by quoting the first proposition of Viscount Simon .
5
5.
Further
reliance
was
placed
on
various
case
laws
for
the
proposition that the sales tax subsidy granted by the Government is
revenue in nature by the Assessing Officer.
The Assessing Officer also
referred to the ratio laid down in CIT Vs. Chhindwara Fuels [245 ITR 9
(Calcutta)] wherein it was held that since the Sales Tax Subsidy was
received after the commencement of production in the unit of the
assessee, the same could not be treated as Capital recei pts and was not
exempt from tax. The Assessing Officer obs erved as under :
“It is very important here to note that this judgment
is given by Hon'ble Calcutta High Court of the State of
West
Bengal
and
the
assessee’
unit
for
which
it
is
claiming Sales Tax Exemption as Capital in nature is also
situated in the Stat e of Wes t Bengal.”
6.
The Assessing Officer also placed reliance on the ratio laid down
b y the Hon'ble Madras High Court in CIT Vs. Ponni Sugars & Chemicals
Ltd. (2003), 260 ITR 605 (Mad). Further reference was made to the ratio
l a i d d o w n b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e c a s e o f
CIT Vs. Abhishek Industries Ltd., Ludhiana .
The Hon'ble Punjab &
H a r ya n a H i g h C o u r t h a v e d e c i d e d t h e i s s u e o f s a l e t a x s u b s i d y a s b e i n g
r e v e n u e r e c e i p t . T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t h a d r e f e r r e d
to the ratio laid down by the Hon'ble Supreme Court in Sahney Steels &
Press Works Ltd. (supra) and the Hon'ble Madras High Court in CIT Vs.
Ponni
Sugars
pronouncements.
&
Chemicals
Ltd.
(supra)
and
other
judicial
In view of the above said, the sales tax subsid y of
R s . 3 2 . 6 5 c r o r e s w a s h e l d t o b e r e v e n u e r e c e i p t o f t h e a s s e s s e e c o m p a n y.
7.
The CIT (Appeals) following the ratio laid down b y the Tribunal in
ITA Nos.744/381/1082 in assessee’s own case relating to assessment
years 2003-04, 2004-05 and 2006-07 confirm ed the addition of Rs.32.65
crores.
6
8.
The assessee is in appeal against the order of the CIT (Appeals).
The learned A.R. for the assessee pointed out that after the ratio laid
down by the Hon'ble Supreme Court in Sahney steels & Press Works Ltd.
(supra) the issue has been considered by the Apex court in Ponni Sugars
& Chemicals Ltd. [306 ITR 392 (SC)] and the issue now stands covered
by the later decision of the Hon'ble Apex court.
Further reliance was
placed by the learned A.R. for the assessee on the f ollowing judgments :
9.
i)
CIT Vs. Siya Ram Garg HUF (ITA No.679 of 2010 – (date of
decision14/12/2010)
ii)
CIT Vs. Rasoi Limited [ITA No.258 of 2001 (Cal)-59 DTR 369
( C a l )]
iii)
CIT Vs. M/s Reliance Industries ltd. (Central Excise
Appeal No.1299 of 2008.
The learned A.R. for the assessee also pointed out that the assessee
is in appeal against the order of the Tribunal rejecting the claim of the
a s s e s s e e i n t h e e a r l i e r ye a r , w h i c h i s p e n d i n g b e f o r e t h e J u r i s d i c t i o n a l
High Court.
However, it was pointed out by the learned A.R. for the
assessee that the issue now stands covered by the ratio laid down by the
J u r i s d i c t i o n a l H i g h C o u r t i n C I T V s . S i ya R a m G a r g H U F ( s u p r a ) , w h i c h
had considered the ratio laid down by Sahney Steels & Press Works Ltd.
(supra), Abhishek Industries Ltd. (supra) and had relied upon the r atio in
Ponni Sugars & Chemicals Ltd. (supra) and held that the subsidy given
for setting up of industrial unit in backward area of Haryana was capital
receipt.
10.
The learned D.R. for the Revenue p laced reliance on the order of
t h e T r i b u n a l i n a s s e s s e e ’ s o w n c a s e i n t h e e a r l i e r ye a r s a n d o f t h e A p e x
court in Sahney Steels & Press Works Ltd. (supra) .
11.
We have heard the rival contentions and perused the record. The
issue raised in the present appea l is treatment of incentive granted to the
7
assessee under West Bengal scheme of 1999. Admittedly similar Sales
Tax Subsidy was received by the assessee in Assessment Years 2003 -04
to 2006-07 and the same was held as revenue in nature. The Tribunal in
ITA No. 744 & 381/Chandi/2006 relating to Assessment Years 2003 -04
and
2004-05
vide
order
dated
25/05/2007
and
in
ITA
No.
1 0 8 2 / C h a n d i / 2 0 0 8 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 6 - 0 7 v i d e o r d e r d a t e d
2 4 / 0 9 / 2 0 0 9 r e l a yi n g u p o n t h e r a t i o l a i d b y t h e H o n ’ b l e J u r i s d i c t i o n a l
High Court in M/s Abhishek Industries Ltd.
[286 ITR 1 (P&H)] had
decided the issue against the assessee. The assessee is in appeal against
the orders of Tribunal and the matter is subjudiced
before the Hon’ble
P u n j a b & H a r ya n a H i g h C o u r t .
12.
The contention of the Ld. Authorised Representative before the us
is that the issue is covered in favour of the assessee in view of the
r a t i o l a i d d o w n b y t h e J u r i s d i c t i o n a l H i g h C o u r t i n C I T V s . S i ya R a m
Garg HUF (supra), which had considered the ratio laid down by Sahney
Steels & Press Works Ltd. (supra), Abhishek Industries Ltd. (supra) and
had relied upon the ratio in Ponni Sugars & Chemicals Ltd. (supra) and
held that the subsidy given for setting up of industrial unit in backward
a r e a o f H a r ya n a w a s c a p i t a l r e c e i p t . F u r t h e r c o n t e n t i o n o f t h e L d .
Authorised Representative was that the Hon’ble Calcutta High Court in
CIT Vs Rasoi Limited (supra) had held the incentives g ranted under the
West Bengal Scheme were capital Receipt and that the Sales Tax Subsidy
received was
capital receipt as held b y C IT Vs M/s Reliance Industries
Ltd. (supra).
13.
We find that the issue raised before us is sub -judice before the
H o n ’ b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e a s s e s s e e ’ s o w n c a s e i n t h e
e a r l i e r ye a r s i . e . 2 0 0 3 - 0 4 , 2 0 0 4 - 0 5 a n d 2 0 0 6 - 0 7 . T h e T r i b u n a l ( s u p r a )
has decided the issue against the assessee which is now subject matter of
8
appeal before the Hon’ble High Court . Respectfully following the orders
of this Tribunal in the assessee’s own case, we confirm the order of the
CIT(A) in holding that the Sales Tax Subsid y is revenue in nature. The
ground of appeal raised by the assessee is dismissed.
1 4 . R e s u l t a n t l y, t h e a p p e a l f i l e d b y t h e a s s e s s e e i s d i s m i s s e d .
Order Pronounced in the Open Court on 25th
day of November,
2011.
Sd/(MEHAR SINGH)
ACCOUNTANT MEMBER
Sd/(SUSHMA CHOWLA)
JUDICIAL MEMBER
Dated : 25th November, 2011
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
True Copy
By Order
Assistant Registrar, ITAT, Chandigarh