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2011 (3) TMI 1619 - AT - Income TaxClaim for sales-tax Benefits - nature of receipt - capital or revenue - The appellant is an HUF which is, inter alia, engaged in a range of business activities viz. manufacture and sale including generation and sale of power. In the course of its activities, the assessee company set up wind mills in the State of Maharashtra for generation of wind power. The Government of Maharashtra in terms of its policy on wind power generation granted various benefits, including sales-tax benefit. assessee was also entitled to the facility of transferring the sales-tax benefit to the third party. The assessee after obtaining the requisite permission from the State Government transferred the sales-tax benefit entitlements to a third party and the consideration thereof amounting to ₹ 63,74,291/- was claimed as a capital receipt. HELD THAT - In the present case, it is not the timing of the subsidy alone but the grant is linked to achieving operational efficiencies and that too for only six continuous years. If a unit which is otherwise eligible for incentive, does not achieve the plant load factor of 12% or above, it would not be entitled to receive the sales tax benefit. Therefore, it could not be said that the sales-tax benefit is available merely on commencement of generation. in our considered opinion, though the object of the Scheme is to promote generation of energy through non conventional sources but the same is sought to be achieved by the Government in the form of supporting the units to perform more efficiently and profitably. Thus, applying the purpose test to the facts of the present case and keeping in mind the objects behind the payment of incentive subsidy, we are satisfied that the sales-tax benefits received by the assessee under the instant Scheme are in the course of carrying on its trade more profitably and therefore such receipt cannot be characterized as capital in nature. Thus, the assessee fails on this Ground.
Issues Involved:
1. Taxability of the amount received on the transfer of sales-tax eligibility. 2. Classification of the sales-tax benefit as either a capital receipt or a revenue receipt. Issue-wise Detailed Analysis: 1. Taxability of the Amount Received on Transfer of Sales-tax Eligibility: The primary issue in both appeals was whether the amount received by the assessee on transferring the sales-tax eligibility should be taxed. The assessee, an HUF engaged in various business activities including wind power generation, received a sales-tax benefit from the Government of Maharashtra. This benefit was transferred to a third party for a consideration of Rs. 63,74,291/-. The assessee claimed this amount as a capital receipt, arguing it was not taxable. The Assessing Officer (AO) disagreed, stating that the subsidy received was not on capital account. The AO noted that the sales-tax incentive was granted only when the wind-mill had been successfully run in the preceding year at a minimum plant load factor of 12%, indicating that the dominant purpose of the subsidy was operational efficiency, not merely setting up the wind-mill. The AO relied on the Supreme Court decision in Sahney Steel & Press Works Ltd. to treat the subsidy as revenue in nature and added the amount to the assessee's income for the assessment year 2003-04. Upon appeal, the Commissioner of Income-tax (Appeals) upheld the AO's decision, drawing parallels with the Sahney Steel case where subsidies given after commencement of production were deemed revenue receipts. 2. Classification of the Sales-tax Benefit: The assessee contended that the sales-tax benefit was a capital receipt, citing various judicial precedents, including CIT v. P.J. Chemicals, Reliance Industries Ltd., and Ponni Sugars & Chemicals Ltd. The argument was that the sales-tax incentive was for promoting investment in wind power generation and should be considered capital in nature. The Tribunal examined the Government Resolutions and the purpose of the sales-tax benefit. The Preamble of the Resolution dated 12.03.1998 aimed to promote wind energy generation to meet the increasing electricity demand. The sales-tax benefit was linked to the qualifying investment in plant and machinery, new building, land development, etc., and was available over six years, conditional on achieving a minimum plant load factor. The Tribunal noted that while the subsidy was linked to the investment, it was also contingent on operational performance, with benefits varying based on plant load factor. This indicated that the subsidy was intended to support the business operations and profitability of the wind-mill, rather than merely assisting in its setup. The Tribunal found that the sales-tax benefit was not restricted to any specific use, allowing the assessee to use it freely in its business. Applying the purpose test from the Supreme Court decisions in Sahney Steel and Ponni Sugars, the Tribunal concluded that the sales-tax benefit was a revenue receipt. The subsidy was aimed at making the business operations more profitable, not for setting up the wind-mill project. Consequently, the Tribunal upheld the lower authorities' decision to treat the sales-tax benefit as taxable revenue. Conclusion: The Tribunal dismissed the appeals, affirming that the sales-tax benefit received by the assessee was a revenue receipt, taxable under the Income-tax Act, 1961. The decision emphasized the purpose of the subsidy, operational efficiency requirements, and the unrestricted use of the benefit in determining its nature. The judgment was pronounced on March 31, 2011.
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