2018 (9) TMI 1957 - AT - Income Tax

Deduction u/s.80IA - assessee treated Sales Tax Benefit received from the Government as income derived from generation of power and accordingly, claimed deduction u/s.80IA - HELD THAT - As decided in Dy.CIT Vs. Indo Enterprises Pvt. Ltd 2017 (12) TMI 1758 - ITAT PUNE and M/S. PATANKAR WIND FARM PVT. LTD. VERSUS THE DY. COMMISSIONER OF INCOME TAX 2015 (5) TMI 147 - ITAT PUNE assessee is not eligible for claiming benefit of deduction u/s.80IA(4) in respect of Sales Tax Benefit received from the State Government. - Decided against assessee.

Issues Involved:
1. Eligibility of 'Sales Tax Benefit' for deduction under section 80IA of the Income Tax Act, 1961.
2. Nature of the 'Sales Tax Benefit' as capital or revenue receipt.
3. Admissibility of additional ground regarding the nature of 'Sales Tax Benefit' as capital receipt.

Issue-wise Detailed Analysis:

1. Eligibility of 'Sales Tax Benefit' for Deduction under Section 80IA:
The assessee claimed deduction under section 80IA for 'Sales Tax Benefit' received from the State Government for setting up a Windmill. The Assessing Officer rejected this claim, and the Commissioner of Income Tax (Appeals) upheld the rejection, relying on a prior decision in the case of Patankar Wind Farm Pvt. Ltd. The Tribunal noted that the issue was identical to those in earlier cases, including Indo Enterprises Pvt. Ltd. and Patankar Wind Farm Pvt. Ltd., where it was held that 'Sales Tax Benefit' is not eligible for deduction under section 80IA(4). The Tribunal concluded that the 'Sales Tax Benefit' does not reduce the cost of production and is not an operational subsidy. Therefore, it is not linked to the profits of the industrial undertaking and is not deductible under section 80IA.

2. Nature of the 'Sales Tax Benefit' as Capital or Revenue Receipt:
The assessee argued that the 'Sales Tax Benefit' was a capital receipt, citing the Supreme Court's decision in CIT v. Chaphalkar Brothers, which determined that the purpose of the subsidy determines its nature. However, the Tribunal found that the 'Sales Tax Benefit' in this case was revenue in nature. It referenced the decision in Rasiklal M. Dhariwal (HUF) v. Dy. Commissioner of Income Tax, which concluded that such benefits are intended to support operational efficiency and profitability rather than creating new assets. The Tribunal emphasized that the subsidy does not have a direct nexus with the manufacturing activity and is not restricted to any specific use, thus classifying it as a revenue receipt.

3. Admissibility of Additional Ground Regarding the Nature of 'Sales Tax Benefit':
The assessee raised an additional ground, arguing that the 'Sales Tax Benefit' should be considered a capital receipt not liable to income tax. The Tribunal admitted the additional ground but ultimately rejected the argument. It noted that the Supreme Court's decision in CIT v. Meghalaya Steels Ltd. was specific to subsidies like transport, power, and interest subsidies, which reduce the cost of production. The Tribunal held that the 'Sales Tax Benefit' in question does not fall under this category and is not an operational subsidy. Therefore, it remains a revenue receipt and is not eligible for deduction under section 80IA.

Conclusion:
The Tribunal dismissed all three appeals for the assessment years 2006-07 to 2008-09, upholding the decisions of the lower authorities. The 'Sales Tax Benefit' received by the assessee was deemed a revenue receipt and not eligible for deduction under section 80IA of the Income Tax Act, 1961. The Tribunal's decision was consistent with prior rulings on similar issues, emphasizing the nature and purpose of the subsidy in determining its tax treatment.

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