2017 (3) TMI 1807 - AT - Income Tax

Interest subsidy received by the assessee under TUFS - Revenue or capital receipt - HELD THAT - Identical subsidy under the West Bengal Incentive Scheme 2000 was held to be capital receipt not chargeable to tax by this tribunal in the case of DCIT vs PWC Pvt. Ltd. 2016 (7) TMI 1052 - ITAT KOLKATA . Following the aforesaid decisions we hold that the receipt of subsidy under the West Bengal Incentive Scheme 2000 is a capital receipt not chargeable to tax. Accordingly ground no.1 raised by the revenue is dismissed. Set off of loss being unabsorbed depreciation of 100% EOU eligible for deduction u/s. 10B against profit on non-eligible unit - HELD THAT - Admittedly under the provision of section 10B(8) of the Act the assessee had not claimed the benefit of deduction u/s 10B of the Act and the letter of the Assessee in this regard filed in the course of Assessment proceedings for AY 2005-06. For an assessee who was opted out of the provision of section 10B of the Act, the profits of EOU unit have to be regarded as any other business profits and the computation provision of section 70 to 72 of the Act would be applicable. In such an event the claim of set off as claimed by the assessee deserves to be allowed. Apart from the above in the light of the decision of the Hon ble Supreme Court in the case of Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT provision of section 10B have to be regarded as deduction provision, the provisions of section 70 to 72 of the Act will be applicable. In view of the above we uphold the order of CIT(A) on this issue and dismiss ground no.2 raised by the revenue. Additional depreciation on plant and machinery only in the year of acquisition and installation u/s 32 - CIT(A) allowing assessee's claim of additional depreciation of plant and machinery on original cost in the year subsequent to the year of acquisition and installation - Additional depreciation was rejected by CIT(A) for the reason that additional depreciation is available only in respect of new plant and machinery acquired and installed after 31.03.2005 - only objection of the AO is that the provisions refer to new machinery or plant and therefore the machinery will cease to be a new machinery after the end of the first year in which it is installed or put to us - HELD THAT - In our view this stand taken by the revenue is not supported by the language of statutory provision. The condition imposed by the relevant provisions is that Plant and Machinery must be new at the time of installation to be eligible for additional depreciation u/ s 32(1)(iia) and not new in subsequent years. The expression new machinery is therefore to be construed as referring to the condition that at the time of acquisition or installation the machinery or plant should be new. Going by the legislative history of the relevant provision, we are of the view that the condition for allowing additional depreciation only in the initial assessment year ceased to exist as and from 01.04.2006. The plain language of the section warrants such an interpretation. We therefore uphold the order of CIT(A) and dismiss ground no.3 raised by the revenue. MAT - Deduction on account of profit from sale of fixed asset while computing book profit u/s. 115JB - whether CIT(A) has erred in allowing assessee's claim of deduction ignoring the provision introduced by the Finance Act, 2008 with retrospective effect from 01.04.2001 and thereby has erred in deleting the addition? - HELD THAT - Decision of the Mumbai Bench of the ITAT in the case of Frigsales 2005 (6) TMI 478 - ITAT MUMBAI based on which the CIT(A) held that profit on sale of fixed assets cannot be included as part of book profits for the purpose of Sec.115JB of the Act is applicable to the facts of the present case.

Summary

Issues Involved:

1. Classification of interest subsidy as capital or revenue receipt.
2. Set off of loss from 100% EOU unit against profit from non-eligible unit.
3. Allowance of additional depreciation on plant and machinery in subsequent years.
4. Inclusion of profit from the sale of fixed assets in book profit under Section 115JB.

Detailed Analysis:

1. Classification of Interest Subsidy as Capital or Revenue Receipt:

Facts and Arguments:
- The Assessee received subsidies under the West Bengal Incentive Scheme 2000 (WBIS 2000) and the Technology Upgradation Fund Scheme (TUFS) and claimed them as capital receipts not chargeable to tax.
- The AO contended that the subsidies were revenue receipts since they were given after the commencement of production and were incidental to carrying on the business.
- The Assessee argued that the subsidies were for capital investment and modernization, thus capital in nature.

Judgment:
- The CIT(A) and ITAT held that the subsidies were capital receipts. The purpose of the subsidy was crucial, and since it was for modernization and expansion, it was deemed capital.
- The ITAT cited previous decisions, including the Supreme Court's ruling in Ponni Sugars & Chemicals Ltd., emphasizing the purpose test for determining the nature of subsidies.

2. Set Off of Loss from 100% EOU Unit Against Profit from Non-Eligible Unit:

Facts and Arguments:
- The Assessee had losses in its 100% EOU unit and sought to set off these losses against profits from non-eligible units.
- The AO disallowed the set-off, arguing that losses from an exempt unit (under Section 10B) cannot be set off against profits from non-exempt units.
- The Assessee cited previous Tribunal decisions in its favor, arguing that Section 10B provides for a deduction, not an exemption.

Judgment:
- The CIT(A) and ITAT upheld the Assessee's claim, allowing the set-off. The ITAT referenced the Supreme Court's decision in Yokogawa India Ltd., which clarified that Section 10B provides for a deduction, making the losses eligible for set-off against other business profits.

3. Allowance of Additional Depreciation on Plant and Machinery in Subsequent Years:

Facts and Arguments:
- The Assessee claimed additional depreciation on new machinery in subsequent years after acquisition and installation.
- The AO disallowed the claim, stating that additional depreciation is only allowable in the year of acquisition and installation.
- The Assessee argued that there is no restriction in the statute limiting additional depreciation to the year of acquisition.

Judgment:
- The CIT(A) and ITAT ruled in favor of the Assessee, allowing additional depreciation in subsequent years. The ITAT noted that the legislative history and the plain language of Section 32(1)(iia) support the allowance of additional depreciation beyond the initial year.

4. Inclusion of Profit from Sale of Fixed Assets in Book Profit Under Section 115JB:

Facts and Arguments:
- The Assessee excluded profit from the sale of fixed assets from its book profit calculation under Section 115JB.
- The AO included this profit, arguing it should be part of the book profit.
- The Assessee cited judicial precedents that capital gains exempt under specific provisions should not be included in book profit calculations.

Judgment:
- The CIT(A) and ITAT sided with the Assessee, excluding the profit from the sale of fixed assets from the book profit. The ITAT referenced the Mumbai Tribunal's decision in Frigsales (India) Ltd., which held that exempt income should not form part of the book profit under Section 115JB.

Conclusion:

The ITAT upheld the CIT(A)'s decisions on all four issues, providing detailed reasoning and referencing relevant judicial precedents to support its conclusions. The appeal by the Revenue was dismissed in its entirety.