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2022 (2) TMI 533 - HC - Income TaxSubsidy granted in terms of the West Bengal Incentive Scheme 2000 - Taxation in the assessment years under consideration - Tribunal dismissed the appeal of the revenue holding, that the subsidy cannot be the subject matter of taxation in the years under appeal as the same got released/sanctioned only in the financial year 2009-2010 - HELD THAT - Subsidy is immaterial and the main eligibility condition of the scheme has to be looked into and if the same is taken note of it is evidently clear from the scheme that the subsidy was for the purpose of encouraging establishment of large, medium and small scale industrial units in the State of West Bengal. As pointed out by the Hob ble Supreme Court the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit and, therefore, the receipt of the subsidy was on capital account. The test to be applied is the object for which the subsidy/assistance is given under the incentive scheme and the form or mechanism through which the subsidy is given would be irrelevant. The decision in Ponni Sugars and Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT was taken note of and this court has granted relief to the assessee in Rasoi Ltd. 2011 (5) TMI 23 - CALCUTTA HIGH COURT . Subsequently in the case of Principal Commissioner of Income Tax-I, Kolkata Vs. Shyam Steel Industries Ltd. 2018 (5) TMI 702 - CALCUTTA HIGH COURT following the decision in Ponni Sugars and Chemicals Ltd. it was pointed out that the scheme in the said case being available only to new units and units which have undergone an expansion, the real purpose of the incentive has to be seen as capital subsidy and has to be recorded as such, as capital receipt and not a revenue receipt. That apart we also take note of the communication sent by the Joint Secretary to the Government of West Bengal, Commerce and Industries Department to the Managing Director, West Bengal Industrial Development Corporation dated 23rd March, 2007 wherein it has been stated that the State Government has approved the package for the assessee for setting up an Edible Oil Refinery Plant and Captive Power Generation unit and the reimbursement of 75% of the sales tax paid has been termed as Industrial Promotion Assistance. Thus, we have no hesitation to hold that the Tribunal had rightly rejected the appeal filed by the revenue and granted relief to the assessee. Invoking Section 41(1) - Tribunal rightly held that the said provision could be invoked only when assessee had claimed deduction in earlier year at the time of creation of liability and if the said liability ceases to exist then the provision of Section 41(1) of the Act could not be invoked. Taking note of the facts of the assessee s case the Tribunal has held assessee has not claimed any deduction in the earlier year towards the sales tax portion of the subsidy and hence the provision of Section 41(1) of the Act cannot be invoked in the facts of the assessee s case. The findings rendered by the Tribunal clearly point out the correct legal position. - Decided against revenue.
Issues:
1. Taxability of subsidy granted under West Bengal Incentive Scheme 2000. 2. Applicability of Sahney Steel case in determining taxability of subsidy. Analysis: Issue 1: Taxability of Subsidy The appeal by the revenue challenged the order of the Income Tax Appellate Tribunal regarding the taxability of the subsidy granted to the assessee under the West Bengal Incentive Scheme 2000 for the assessment years 2007-2008 and 2008-2009. The Tribunal found that the subsidy was intended to accelerate industrial development in the state by reimbursing 75% of Sales Tax/VAT paid by the assessee, focusing on the purpose test to determine taxability. The Tribunal referred to relevant case laws, including Ponni Sugars and Chemicals Ltd., and Commissioner of Income Tax Vs. Rasoi Ltd., to support its decision. It emphasized that the object of the subsidy scheme was to encourage the establishment of industrial units, indicating a capital account nature of the subsidy. The Court upheld the Tribunal's decision, emphasizing the irrelevance of the form of subsidy and the importance of the scheme's eligibility conditions in determining taxability. Issue 2: Applicability of Sahney Steel Case The revenue contended that the Tribunal should have followed the decision in Sahney Steel and Press Works Limited case, arguing that the subsidy should be treated as income under Section 41(1) of the Income Tax Act. However, the Court noted that the Sahney Steel case was explained in Ponni Sugars and Chemicals Ltd., emphasizing that the purpose for which the subsidy is given determines its nature. The Court highlighted that if the subsidy's object was to set up a new unit or expand an existing one, it should be treated as a capital receipt. The Court also considered a communication from the Government of West Bengal, confirming the subsidy as Industrial Promotion Assistance for setting up an Edible Oil Refinery Plant. Additionally, the Court clarified that Section 41(1) of the Act could not be invoked as the assessee did not claim deduction in earlier years related to the sales tax portion of the subsidy. In conclusion, the Court dismissed the revenue's appeal, affirming the Tribunal's decision on the taxability of the subsidy and the inapplicability of Section 41(1) of the Act in the present case. The substantial questions of law were answered against the revenue, leading to the dismissal of the appeal and connected application. *(T.S. SIVAGNANAM, J.)* *(HIRANMAY BHATTACHARYYA, J.)*
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