2016 (6) TMI 890 - AT - Income Tax

Capital subsidy received under the Bihar Incentive package - whether not to be deducted from WDV of the plant and machinery? - Held that - Instant appeal is identical to the ground raised in the appeal for assessment years 2008-09 and 2009-10 which was also allowed by learned CIT(A) in the instant assessment year following the afore-stated decisions of the Tribunal in assessee company s own case for the assessment year 2008-09 and 2009-10 hence Respectfully following the decisions of the co-ordinate benches of this Tribunal in assessee company s own case as set out above we hold that the capital subsidy received under the Bihar Incentive Package 2006 is not required to be deducted from WDV of plant and machinery - Decided against revenue Reimbursement of commercial taxes(VAT) on Molasses under Bihar Incentive Package 2006 - Held that - t the reimbursement of commercial taxes (VAT) on purchase of Molasses under Bihar incentive Package 2006 is given to promote establishment of new units and for expansion of capacity of existing units. As per this scheme the distillery is entitled for reimbursement of commercial taxes(VAT) paid on purchase of molasses for production of alcohol and the said benefit will be available for five years from the date of establishment of distillery unit. We do not find any reason to interfere with the order of the learned CIT(A) with respect to this issue also as this scheme of reimbursement of commercial taxes(VAT) on purchase of Molasses under Bihar Incentive Package 2006 is similar to scheme of reimbursement of excise duty under Bihar Incentive Package 2006 and we hold that this is a capital receipt which is not chargeable to tax MAT computation - Held that - Non entitlement to AO to add the capital subsidy and excise duty reimbursements received by the assessee company under Bihar Incentive Package 2006 to the book profit computed u/s. 115JB

Summary

Issues Involved:
1. Whether the capital subsidy received under the Bihar Incentive Package should be deducted from the WDV of the plant and machinery.
2. Whether the subsidy received by way of reimbursement of commercial tax (VAT) is a revenue receipt.
3. Whether the AO is entitled to add the capital subsidy and subsidy received by way of reimbursement of commercial tax (VAT) to the book profits.

Detailed Analysis:

Issue 1: Capital Subsidy and WDV of Plant and Machinery

The Revenue challenged the CIT(A)'s decision that the capital subsidy received under the Bihar Incentive Package should not be deducted from the WDV of the plant and machinery. The Tribunal observed that the Bihar Incentive Package aimed to promote the development of the sugar industry and expansion of existing units. It was noted that the subsidy was not linked directly or indirectly to the acquisition of any asset but was intended to incentivize capital investment and expansion. The Tribunal referenced its previous rulings and the Supreme Court's decision in P.J. Chemicals Ltd., which held that such subsidies should not be deducted from the actual cost for depreciation purposes. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

Issue 2: Nature of Subsidy Received by Way of Reimbursement of Commercial Tax (VAT)

The Revenue contested the CIT(A)'s ruling that the subsidy received as reimbursement of commercial tax (VAT) was not a revenue receipt. The Tribunal reiterated that the character of a subsidy must be determined based on its purpose, not the timing or form of payment. The Bihar Incentive Package aimed to attract capital investment for setting up or expanding industrial units. The Tribunal cited multiple judicial precedents, including the Supreme Court's rulings, to support the view that subsidies intended for capital investment should be treated as capital receipts, not revenue receipts. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

Issue 3: Addition of Subsidy to Book Profits

The Revenue argued that the AO should add the capital subsidy and the subsidy received by way of reimbursement of commercial tax (VAT) to the book profits. The Tribunal referred to the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, which limited the AO's power to adjust book profits to the specific provisions of the Companies Act and the Income Tax Act. The Tribunal noted that since it had already determined the subsidies as capital receipts, they could not be added to the book profits under section 115JB. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal on all grounds, affirming the CIT(A)'s decisions. The capital subsidy under the Bihar Incentive Package should not be deducted from the WDV of plant and machinery. The subsidy received by way of reimbursement of commercial tax (VAT) is a capital receipt, not a revenue receipt. The AO is not entitled to add these subsidies to the book profits under section 115JB. The Tribunal's decision aligns with its previous rulings and established judicial principles. The appeal filed by the Revenue for the assessment year 2011-12 was dismissed.