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2022 (4) TMI 1460 - AT - Income TaxNature of receipt - sales tax/entry tax exemption i.e subsidy, incentive, etc, by whatever name called, received by the assessee - revenue or capital receipt - HELD THAT - Assessee had furnished all the requisite documents to justify its claim of exemption that the subsidy received by it are capital receipts not chargeable to tax, before the ld. AO as well as before the ld. CIT(A) and that both the lower authorities had examined the very same documents and had arrived at their respective conscious conclusions. Hence the argument advanced by the ld. Special Counsel for the Revenue that both the lower authorities had not followed the directions of this Tribunal in the first round of proceedings wherein this Tribunal had directed the ld. AO to make thorough examination of the various subsidy / incentive schemes and decide its taxability. is completely devoid of merits. Since the matter has been already examined by both the lower authorities and respective conclusions drawn thereon by them , though contrary to each other, we hold that there is no need for these appeals to be remitted back to the file of ld. AO for denovo adjudication, as prayed by the ld. Special Counsel for the Revenue. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon ble Supreme Court PONNI SUGARS CHEMICALS LTD. 2008 (9) TMI 14 - SUPREME COURT in para 14 of its decision had held that character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. In fact, the Hon ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd 1997 (9) TMI 3 - SUPREME COURT and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. We hold that the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable in the facts and circumstances of the case and accordingly, the alternative ground raised by the Revenue is hereby dismissed. We hold that subsidy / incentive received in the instant case by the assessee for all the years under consideration would have to be construed only as a capital receipt not chargeable to tax and the ld. CIT(A) had rightly granted relief to the assessee in this regard by applying the purpose test. Hence, we do not find any infirmity in the order of the ld. CIT(A) for all the years under consideration. Accordingly, the original grounds as well as the additional grounds raised by the Revenue are dismissed.
Issues Involved:
1. Whether the sales tax/entry tax exemption (subsidy) received by the assessee is a capital receipt not chargeable to tax. Detailed Analysis: 1. Nature of Sales Tax/Entry Tax Exemption: The central issue in these appeals is whether the sales tax/entry tax exemption received by the assessee can be construed as a capital receipt not chargeable to tax. The assessee received various tax exemptions under schemes from the state governments of Maharashtra, Madhya Pradesh, Rajasthan, and Haryana for setting up units in notified areas. 2. Tribunal's First Round of Proceedings: Initially, the Tribunal admitted the additional ground raised by the assessee, which claimed the sales tax exemption as a capital receipt, relying on the Special Bench decision in the case of DCIT v. Reliance Industries Ltd. The Tribunal remitted the issue to the Assessing Officer (AO) for proper examination and verification. 3. Proceedings Before AO in Second Round: During the second round, the AO rejected the assessee's claim, treating the subsidy as a revenue receipt. The AO's reasons included the Supreme Court's setting aside of the Bombay High Court's order in the Reliance Industries case, the determination of sales tax incentive based on sales tax assessment orders, and the claim not being made in the original return of income. 4. Proceedings Before CIT(A) in Second Round: The CIT(A) verified the documentary evidence and relied on the Supreme Court's decision in CIT v. Ponni Sugars & Chemicals Ltd., and the Special Bench decision in Reliance Industries Ltd., to hold that the sales tax incentive/subsidy is a capital receipt. The CIT(A) negated the AO's reliance on the Goetze India Ltd. decision, noting that the issue was admitted by the Tribunal in the first round. 5. Revenue's Arguments: The Revenue argued that the Tribunal erred in admitting the additional grounds raised by the assessee and that the Special Bench decision in Reliance Industries Ltd. was fallacious and perverse. The Revenue also contended that the AO and CIT(A) did not properly examine the subsidy schemes and that the subsidy should be treated as a revenue receipt since it was received after the commencement of business. 6. Assessee's Rebuttal: The assessee provided detailed rebuttals, stating that all relevant documents were submitted to the AO and CIT(A) and that the Tribunal's directions were followed. The assessee argued that the subsidy schemes were for industrial development and not for augmenting profits, thus qualifying as capital receipts. The assessee also cited various judicial precedents, including the Supreme Court's decisions in Ponni Sugars and Chemicals Ltd., and Chapalkar Brothers, to support its claim. 7. Tribunal's Findings: The Tribunal found that the assessee had furnished all requisite documents to justify its claim and that the lower authorities had examined these documents. The Tribunal noted that the subsidy schemes aimed at industrial development and employment generation, not profit augmentation. The Tribunal also held that the decision of the Special Bench in Reliance Industries Ltd. still holds the field and is a binding precedent. 8. Applicability of Explanation 10 to Section 43(1): The Tribunal addressed the Revenue's alternative argument that the subsidy should be reduced from the cost of assets under Explanation 10 to Section 43(1). The Tribunal held that this provision applies only from A.Y. 1999-2000 onwards and that the subsidy in question was not identifiable with any particular asset, thus not attracting Explanation 10. Conclusion: The Tribunal upheld the CIT(A)'s order, confirming that the sales tax/entry tax exemption received by the assessee is a capital receipt not chargeable to tax. The Tribunal dismissed the Revenue's appeals, emphasizing the purpose test and the binding nature of the Special Bench decision in Reliance Industries Ltd.
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