2020 (6) TMI 100 - AT - Income Tax

Subsidy receipt - Addition of industries promotion assistance IPA received as subsidies by assessee under the West Bengal Incentive Scheme 2000 - capital receipt OR revenue receipt - CIT-A deleted the addition - HELD THAT - We note that the Govt. of West Bengal has decided to grant the subsidy by way of IPA for setting up of large/medium/small scale eligible unit which is prescribed in the WBIS 2000 and the unit has to be set up in either group B or C areas prescribed in the said scheme (WBIS 2000). We note that the assessee had set up a new unit in the Bankura District of West Bengal area which falls in the group C area of the Scheme WBIS 2000. The object of the subsidy in this case in was for setting up of unit in group B or C areas as spelled out in the WBIS scheme 2000 and since the object of the assistance under the subsidy scheme was to enable the assessee to set up unit, the receipt of subsidy was on capital account. We note that the Hon ble Supreme Court in the subsequent decision after considering the Sahaney Steel Press Works Pvt. Ltd. 1997 (9) TMI 3 - SUPREME COURT AND in the case of CIT Vs. Pony Sugars Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT has made it clear that for determining the nature of the incentive/ subsidy, the object for which the subsidy/assistance given will be the deciding factor and the form or the method of the payment through which the subsidy is given is irrelevant. Merely because the amount of subsidy was equivalent to 75% of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sales tax paid. Therefore, since the subsidy was for setting up of large/medium/small scale eligible unit in group B and C areas in the State of West Bengal and the competent authority has issued the eligibility certificate (West Bengal Industrial Development Corporation Ltd.) to the assessee and since the assessee fulfills all the conditions as laid in the WBIS 2000 scheme, the industrial promotion assistance it received was on capital account. In the light of the discussion above and relying on the ratio laid in the decision of the Hon ble Calcutta High Court in M/s. Rasoi Ltd. 2011 (5) TMI 23 - CALCUTTA HIGH COURT we uphold the order of the ld. CIT(A) since the subsidy/IPA was given to the assessee for setting up of mega project/unit in the district of Bankura, West Bengal. - Decided against revenue. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Classification of Industrial Promotion Assistance (IPA) as capital or revenue receipt under the West Bengal Incentive Scheme 2000 (WBIS-2000).
2. Applicability of judicial precedents and relevant case law.

Issue-wise Detailed Analysis:

1. Classification of Industrial Promotion Assistance (IPA) as capital or revenue receipt under the West Bengal Incentive Scheme 2000 (WBIS-2000):

The core issue in the appeal was whether the Industrial Promotion Assistance (IPA) received by the assessee under the WBIS-2000 should be treated as a capital receipt or revenue receipt. The assessee had initially credited the IPA amount as revenue receipt in its Profit & Loss account but later claimed it as a capital receipt in the revised return. The Assessing Officer (AO) treated the IPA as revenue receipt and added it back to the total income. The AO's stance was based on the distinction between subsidies received under WBIS-1994 and WBIS-2000, arguing that the former was deemed capital in nature by the Hon'ble High Court of Calcutta in CIT-vs- Rasoi Limited, but the latter should be treated as revenue receipt since it was for industrial promotion assistance.

The Ld. CIT(A) disagreed with the AO and held that the IPA should be treated as a capital receipt. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the IPA was granted to the assessee for setting up a new industrial unit in Bankura District, West Bengal, under the WBIS-2000. The scheme aimed to promote industrial projects by providing financial assistance equivalent to 75% of the sales tax paid on sales of finished goods, which was to be adjusted against current liabilities. The Tribunal noted that the IPA was intended to enable the assessee to set up the unit and therefore was of capital nature.

2. Applicability of judicial precedents and relevant case law:

The Tribunal referred to several judicial precedents and case laws to support its decision. The Revenue relied on the decision of the Hon'ble High Court of Calcutta in CIT-vs- Rasoi Limited, which dealt with subsidies under WBIS-1994. However, the Tribunal noted that similar issues had been adjudicated in favor of the assessee in other cases involving WBIS-2000, such as DCIT vs. M/s. Shyam Steel Industries Ltd., DCIT vs. M/s. Budge Budge Refineries Ltd., and DCIT vs. M/s. Birla Corporation Ltd. In these cases, the Tribunal had consistently held that subsidies received under WBIS-2000 were capital in nature.

The Tribunal also considered the decision of the Hon'ble Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd., which emphasized that the nature of the subsidy should be determined based on the object for which it was given. The form or method of payment was deemed irrelevant. The Tribunal found that the object of the WBIS-2000 subsidy was to promote industrial projects by providing financial assistance for setting up new units, thus classifying it as capital receipt.

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s order that the IPA received by the assessee under WBIS-2000 was a capital receipt and not a revenue receipt. The Tribunal's decision was based on the consistent judicial precedents and the specific objectives of the WBIS-2000 scheme.

Conclusion:

The appeal by the Revenue was dismissed, and the Tribunal upheld the Ld. CIT(A)'s decision to treat the Industrial Promotion Assistance (IPA) received by the assessee under the West Bengal Incentive Scheme 2000 as a capital receipt. The Tribunal relied on judicial precedents and the specific objectives of the WBIS-2000 scheme to determine the nature of the subsidy.