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2011 (9) TMI 561 - AT - Income TaxSales Tax Subsidy - Capital or Revenue Receipt - Held That - In view of CIT vs.- Ponni Sugars & Chemicals Ltd. (2008 - TMI - 30719 - SUPREME COURT), Nature of subsidy would depend upon purpose for which subsidy is granted. If subsidy is to run business more profitably its revenue in nature if object is to to set up a new unit or expand the existing unit then its on capital account. - sales tax incentive availed by the Assessee is capital receipt and CIT(Appeals) was correct in deleting the addition made by the AO on this account. This ground of the department dismissed. New grounds before High Court - assessee treated the subsidy as capital receipt however he did not reduce the cost of capital assets u/s 43(1) and claimed higher depreciation - Held That - Issue is neither arising from the original ground nor from the additional ground filed by the Revenue. No leave has also been taken from the Tribunal for the same. Hence this new contention cannot be admitted at this stage. MAT - Computation of book profit - Sales Tax Incentive - receipt neither related to a particular year nor can be apportioned over 11 year - amount credited to P&L A/C - Held That - - Hon ble Apex Court in the case of Padmaraje R. Kadambande vs. CIT (1992 -TMI - 5368 - SUPREME Court), has held that Capital Receipts are not income within the definition of Sec 2(24) of the Act and hence are not at all chargeable under the I.T. Act. - A receipt which is neither Profit nor Income and which does not have any element there-of embedded there in, cannot be part of Profit as per Profit & Loss account prepared in terms of Part II of Schedule VI to Companies Act. There was never any intention of the legislature to tax what is not income at all. - Apex Court in Indo Rama Synthetics (I) Ltd -vs- CIT (2011 - TMI - 201411 - Supreme Court of India), has held that inclusion of capital receipt in the computation of MAT would defeat two fundamental principles. In view of Apollo Tyres (2002 - TMI - 6081 - Supreme Court), to fulfill requirement of Schedule VI it needs to be excluded while computing Book Profit u/s 115JB. Capital receipt in the form of Sales Tax incentive needs to be excluded from profit as per P&L Account for the year in computing Book profit u/s 115JB of the Act.. Transfers - long term Capital gain / loss - Held That - In view of Chaturbhuj Dwarkadas Kapadia vs. CIT (2003 - TMI - 12097 - Bombay High Court), even if registration of deed has not taken place, it would be regarded as transfer.
Issues Involved:
1. Treatment of Sales Tax Incentive as Capital Receipt. 2. Exclusion of Sales Tax Incentive in computing Book Profit under Section 115JB. 3. Allowability of Long-Term Capital Loss on Sale of Land. Detailed Analysis: 1. Treatment of Sales Tax Incentive as Capital Receipt: Relevant Facts: The assessee was granted a subsidy in the form of Sales Tax Exemption under the Rajasthan Incentive Scheme of 1998 for substantial expansion of its Beawar Unit. The subsidy was quantified at Rs. 157.28 Crores and was to be availed over 11 years. For the assessment year 2004-05, the assessee availed Rs. 21,92,36,206/- as sales tax exemption and claimed it as a capital receipt. Department's Argument: The Department argued that the sales tax collected from customers is a revenue receipt, citing the Supreme Court decision in Sahney Steel and Press Works Ltd. (1997) 228 ITR 0253 (SC). They contended that the subsidy was to assist in carrying on the business and should be treated as revenue receipt. Assessee's Argument: The assessee contended that the subsidy was for setting up a new unit or expanding the existing unit, thus qualifying as a capital receipt. They relied on the Supreme Court decisions in Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC) and the Special Bench decision in Reliance Industries Ltd. (2004) 88 ITD 273 (Mum) (SB). Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, treating the sales tax incentive as a capital receipt. They emphasized the 'purpose test' established by the Supreme Court, which determines the nature of the subsidy based on its purpose. Since the subsidy was for setting up or expanding the unit, it was deemed a capital receipt. The Tribunal also noted that the facts were identical to the previous year (A.Y. 2003-04), where the same conclusion was reached. 2. Exclusion of Sales Tax Incentive in computing Book Profit under Section 115JB: Department's Argument: The Department argued that the sales tax subsidy should be included in the book profits as per the provisions of Section 115JB, citing the Special Bench decision in Rain Commodities Ltd. Vs. DCIT (2010) 41 DTR (Hyd)(SB) 449. Assessee's Argument: The assessee argued that the issue was covered in their favor by the Tribunal's decision for A.Y. 2003-04. They contended that the sales tax incentive, being a capital receipt, should not be included in the book profits. They also pointed out that the Rajasthan High Court did not admit the Department's appeal on this issue. Tribunal's Decision: The Tribunal rejected the Department's additional ground, holding that the sales tax incentive, being a capital receipt, should be excluded from the book profits under Section 115JB. They relied on the precedent set in the assessee's own case for A.Y. 2003-04 and the Supreme Court's decision in Padmaraje R. Kadambande vs. CIT (1992) 195 ITR 877 (SC). The Tribunal emphasized that capital receipts are not income within the meaning of Section 2(24) and should not be included in the book profits. 3. Allowability of Long-Term Capital Loss on Sale of Land: Department's Argument: The Department contended that the long-term capital loss arising from the sale of land via a Compromise Deed should not be allowed, suggesting the transaction was with a related party. Assessee's Argument: The assessee argued that the only issue raised by the AO was the absence of a registered sale deed, which does not negate the transfer. They cited the Bombay High Court decision in Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 260 ITR 491 (Bom) to support their claim. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, allowing the long-term capital loss. They agreed that the absence of a registered deed does not preclude the recognition of the transfer, following the precedent set by the Bombay High Court. Conclusion: The Tribunal dismissed all three departmental appeals, affirming the CIT(A)'s decisions on all issues. The sales tax incentive was correctly treated as a capital receipt and excluded from book profits under Section 115JB. The long-term capital loss on the sale of land was also rightly allowed.
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