2014 (8) TMI 800 - AT - Income Tax

Nature of receipts Revenue or Capital u/s 28(iv) - Whether the sum received on account of sales tax subsidy is revenue receipt or capital receipt Held that - The assessee was awarded an entitlement certificate under Rule 28C of the Haryana General Sales Tax Rules, 1975 - This certificate entitled the assessee to a tax concession for a period of ten years - Following the decision in Commissioner of Income Tax, Madras Versus Ponni Sugars & Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT - CIT(A) had correctly came to the conclusion that the subsidy viewed from the angle of the provisions of Section 25A of the Haryana General Sales Tax Act, 1973 read with Industrial Policy 1999 of the Government of Haryana, the subsidy receipt in question are part of capital receipt given by the State Government for the purpose of meeting the objectives of Industrial Policy 1999, viz to attract new investment and to ensure growth of existing industries so that they can generate employment in industrial and allied sector by 20% - The entire package of incentives should be read as focusing on providing incentives for investment of industrial sector to achieve effective, meaningful and speedy development of the state - the assessee s retention out of the sales tax collected on sale of finished products from expanded unit is part of capital receipt under the subsidy scheme of the Govt. of Haryana. The subsidy viewed from the angle of provisions of section 25A of the Haryana General Sales Tax Act read with Industrial policy 1999 of the Govt. of Haryana, are part of capital receipt given by the State Govt. for the purpose of meeting the objective of Industrial Policy 1999 to attract investment and to ensure growth of the existing industries so that they can generate employment in industrial and allied sector by 20% It was held that the entire package of incentive and concession should be read as focusing and providing incentive for investment of industrial sector to achieve effective, meaningful and speedy development of the State the AO is directed to allow the claimed sale tax subsidy receipt received by the assessee during the year as capital receipt for the assessment Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the CIT(A)'s order under section 250 of the Act.
2. Classification of sales tax subsidy as revenue receipt or capital receipt under section 28(iv) of the Act.
3. Imposition of interest under sections 234B and 234D.

Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The appellant challenged the order passed by the CIT(A) under section 250 of the Act, claiming it was bad in law and based on incorrect facts and circumstances. However, this ground was general in nature and did not require separate adjudication.

2. Classification of Sales Tax Subsidy:
The core issue was whether the sales tax subsidy amounting to Rs. 2,00,64,000 received by the appellant should be treated as a revenue receipt or a capital receipt. The Assessing Officer (AO) and CIT(A) considered it a revenue receipt taxable under section 28(iv) of the Act. The appellant argued that the subsidy was a capital receipt, citing the purpose of the subsidy scheme, which was to encourage investment in certain areas of Haryana. The appellant referenced several judicial decisions, including the case of Maruti Suzuki India Ltd. vs. ACIT, where a similar subsidy scheme was deemed a capital receipt.

The Tribunal examined the objective of the subsidy, the related rules of the Haryana General Sales Tax Rules 1975, and the Industrial Policy 1999 of Haryana. It was noted that the subsidy aimed to promote industrial development and investment in the state. The Tribunal referenced the Supreme Court's decision in the case of Ponni Sugars & Chemicals Ltd., which emphasized the "purpose test" to determine the nature of the subsidy. The Tribunal concluded that the subsidy was intended to attract new investment and expansion of existing units, thus qualifying as a capital receipt.

3. Imposition of Interest under Sections 234B and 234D:
The appellant contested the imposition of interest under sections 234B and 234D. The Tribunal noted that the charging of interest was consequential and did not require separate adjudication.

Conclusion:
The Tribunal allowed the appeal, directing the AO to treat the sales tax subsidy of Rs. 2,00,64,000 as a capital receipt. The grounds related to the legality of the CIT(A)'s order and the imposition of interest were deemed general or consequential and did not require further adjudication. The order was pronounced on 12th August 2014.