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2020 (9) TMI 667 - AT - Income TaxSales tax subsidy received as per UP Govt. Scheme - Revenue or capital receipts - HELD THAT - Keeping in perspective the principle laid down in Ponni Sugars 2008 (9) TMI 14 - SUPREME COURT case referred to above, if we examine the U.P. Government subsidy scheme under which the assessee has received the sales tax incentive it is to be noted that the purpose of the subsidy scheme is to attract people to invest and take part in industrialization of certain areas in the State. The subsidy scheme nowhere states that it is for the benefit of generating product purchase from the town I district of U.P. As held by the Hon ble Supreme Court in case of Ponni Sugars (supra), if the object 'scheme, was to enable the assessec to set-up a new unit or to expand the unit then the receipt of subsidy was on capital account. The same is the case with the assessee as the U.P. Government subsidy scheme was for enabling the assessee to expand / modernize Grasim Industries Limited its existing unit. We hold that the sales tax subsidy received by the assessee being a capital receipt is not taxable. This ground is allowed.
Issues Involved:
1. Whether the sales tax subsidy received as per the UP Government Scheme should be treated as capital receipts. Detailed Analysis: Issue 1: Treatment of Sales Tax Subsidy as Capital Receipts The core issue in these appeals is whether the sales tax subsidy received by the assessee under the UP Government Scheme should be treated as capital receipts. The revenue challenged the order of the Ld. Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’], who had ruled in favor of the assessee by treating the sales tax subsidy as capital receipts. Background and Tribunal's Initial Decision: The assessee, engaged in the business of manufacturing Garments, Carbon Black, and Insulators, was assessed by the AO, who passed an order making various additions and disallowances. The assessee claimed that the sales tax incentive/exemption received during the relevant previous year was a capital receipt and not chargeable to tax. This claim was not made in the return of income nor before the Ld. CIT(A), thus constituting a new ground of appeal. The Tribunal initially disposed of the appeal but later adjudicated the additional grounds, modifying its original order. Tribunal's Consideration of Additional Grounds: The Tribunal, in its order, recognized that the additional ground regarding the taxability of sales tax exemption benefit availed by the assessee was raised for the first time. The Tribunal noted that the issue had already been considered in the assessee's case for AY 1995-96. Since the assessee had filed additional evidence, including the sales tax exemption scheme and eligibility certificate, which were not available before the lower authorities, the Tribunal deemed it necessary to reconsider the matter at the level of the Assessing Officer. Assessment Officer's Decision: Pursuant to the Tribunal's order, the AO passed an order holding that the sales tax incentive received by the assessee is a revenue receipt. CIT(A)'s Ruling: Aggrieved by the AO's order, the assessee appealed to the Ld. CIT(A), who allowed the appeal. The Ld. CIT(A) noted that subsequent to the Tribunal's order for AY 1999-2000, the Tribunal in the assessee's own case for AY 1995-96 had held that the sales tax subsidy received under the UP Government scheme was in the nature of capital receipt. The Ld. CIT(A) directed the AO to exclude the sales tax subsidy from the sales turnover in the computation of the assessee's total income. Tribunal's Final Decision: The Tribunal, after considering the rival submissions and material on record, upheld the decision of the Ld. CIT(A). The Tribunal referred to its earlier decision in the assessee's case for AY 1995-96, where it was held that the sales tax subsidy received under the UP Government scheme was a capital receipt. The Tribunal emphasized that the purpose of the subsidy scheme was to attract investment in certain areas of the state by granting sales tax exemption to new and existing units undertaking expansion, diversification, or modernization with significant fixed capital investment. The Tribunal applied the purposive test as laid down by the Hon'ble Supreme Court in Ponni Sugars and Chaphalkar Brothers, concluding that the subsidy aimed at enabling the assessee to expand its unit was a capital receipt and not taxable. Conclusion: The Tribunal dismissed the revenue's appeals, affirming that the sales tax subsidy received by the assessee under the UP Government scheme is a capital receipt and should not be included in the taxable income. The Tribunal's decision is based on the purposive test, the nature of the subsidy scheme, and the precedent set by the Hon'ble Supreme Court's rulings. Order Pronouncement: The order was pronounced in the open court on 16.09.2020, dismissing all the appeals filed by the revenue. This comprehensive analysis covers the key issues and the detailed reasoning behind the Tribunal's judgment, maintaining the legal terminology and significant phrases from the original text.
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