2011 (11) TMI 884 - AT - Income Tax

Summary

Issues:
1. Taxability of central excise receipt, sales tax incentives, and VAT on purchases granted by the State Government as capital receipt.
2. Claiming capital receipts without filing a revised return.
3. Reliance on previous decisions and failure to examine the real character of the subsidy.
4. Substance of the arrangement vs. its form or recital.

Analysis:

Issue 1:
The appeal questioned the taxability of central excise receipt, sales tax incentives, and VAT on purchases granted by the State Government as capital receipt not chargeable to tax. The CIT(A) held in favor of the assessee, following the ITAT's decision in the assessee's own case for the assessment year 2006-07. The Tribunal confirmed the CIT(A)'s order, emphasizing that the receipts were of a capital nature. The revenue's argument, based on the decision in Goetze India Ltd, was dismissed, and the order of the CIT(A) was upheld.

Issue 2:
The revenue contended that the assessee did not claim the amounts as capital receipts through filing a revised return, but merely by writing a letter. However, the assessee argued that the grounds raised in the appeal were covered in their favor by the Tribunal's decision in the assessment year 2006-07. The Tribunal noted the identical nature of facts in both assessment years and supported the CIT(A)'s decision based on the previous order. The claim that no revised return was filed did not affect the outcome in this case.

Issue 3:
The CIT(A) relied on the ITAT's decision in the assessee's case for the assessment year 2006-07 and did not examine the real character of the subsidy granted by the State Government. The revenue argued against this reliance, citing the judgment of the Supreme Court in Sahaney Steel & Press Works Ltd. However, the Tribunal found that the CIT(A) had appropriately followed the previous decision, which considered the nature of the receipts and their capital status, leading to the confirmation of the CIT(A)'s order.

Issue 4:
The revenue challenged the application of the ITAT's decision without examining the substance of the arrangement regarding the incentive scheme of the State Government. The Tribunal reiterated the importance of ascertaining the substance of the arrangement over its form or recital. By upholding the CIT(A)'s order, the Tribunal confirmed that the capital nature of the receipts was the determining factor, regardless of the form of the incentive scheme.

In conclusion, the appeal filed by the revenue challenging the taxability of certain receipts as capital was dismissed, with the Tribunal confirming the CIT(A)'s order based on the capital nature of the receipts established in previous decisions.