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2012 (7) TMI 792 - AT - Income TaxTreatment of sales tax subsidy - CIT(A) treated it as revenue receipts - Held that - As decided in M/s Indo Rama Synthetics (I) Ltd. Versus ACIT (2012 (7) TMI 406 - ITAT, DELHI) the intention of granting sales tax incentive is not to increase the viability of the eligible units but to promote development of further industry and infrastructure in processing/developing the backward area, it would be in the nature of capital receipt not liable to tax - no difference between the sales tax subsidy scheme of 1979 vis-a-vis the sales tax subsidy scheme of 1993 - in favour of assessee. Charging of interest u/s. 234B - Held that - Interest u/s. 234B is not leviable in the instant case as decided in the case of DCIT vs. Uttam Sugar Mills Ltd. 2010 (12) TMI 625 - ITAT, DELHI in view of retrospective amendment made by the Finance Act, 2008 inserting section 115JB(2), Explanation 1(h) which provided that the book profit be increased by the amount of the deferred tax w.e.f. 1.4.2001, interest u/s. 234B and 234C could be levied by the AO on the income computed u/s. 115JB - It is only on account of subsequent retrospective amendment in law that the advance tax paid by the appellant would faIl short as it was not possible for the appellant to foresee the retrospective amendment to take place and pay advance tax on the basis of the amended law - in favour of assessee.
Issues Involved:
1. Treatment of sales tax subsidy as revenue receipts. 2. Charging of interest under section 234B of the Income Tax Act. Detailed Analysis: 1. Treatment of Sales Tax Subsidy as Revenue Receipts: Background: The appeals by the Revenue were against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment years 2005-06 and 2006-07, where the CIT(A) had deleted additions made by the Assessing Officer (AO) treating sales tax subsidies as revenue receipts. Arguments by AO: The AO treated the sales tax subsidies received by the assessee from the Government of Maharashtra as revenue receipts based on several judicial precedents, including: - Sahney Steel & Press Works Ltd. Vs. C.I.T. 228 ITR 253. - Steel Authority of India 257 ITR 241. - Kesoram Industries and Cotton Mills Ltd. 191 ITR 518. The AO's rationale included: - The subsidy was not intended to be a contribution towards capital outlay. - It was aimed at enabling the assessee to carry on its business. - The incentive was available only after the industry had started functioning. - Sales tax is a part of sales and thus a revenue receipt. - Subsidies granted to assist a trader in business are generally payments of a revenue nature. Arguments by Assessee: The assessee contended that the sales tax subsidy should be treated as a capital receipt, not liable to tax, following the decision of the Special Bench of the Tribunal in DCIT vs. Reliance Industries Ltd. 88 ITD 273 (Mumbai). The CIT(A) agreed with this view, noting that the 1993 subsidy scheme was similar in nature and intent to the 1979 scheme considered in the Reliance Industries case. CIT(A)'s Findings: The CIT(A) found that: - The sales tax subsidy received under the 1993 scheme was similar to the 1979 scheme. - Previous decisions, including those in the cases of Reliance Industries Ltd. and Indo Rama Synthetics Ltd., had treated such subsidies as capital receipts. - The Mumbai Tribunal had also held that the 1993 scheme's features were identical to the 1979 scheme. Tribunal's Decision: The Tribunal upheld the CIT(A)'s order, agreeing that the sales tax subsidy was a capital receipt. It noted that the CIT(A)'s decision was consistent with the Special Bench decision in Reliance Industries Ltd. and other relevant precedents. 2. Charging of Interest Under Section 234B: Background: The AO had imposed interest under section 234B of the Income Tax Act on the assessee for defaults in payment of advance tax. Arguments by Assessee: The assessee argued that: - There was no default in payment of advance tax as the advance tax was paid based on the then-prevailing legal position. - The shortfall in advance tax was due to a subsequent retrospective amendment, which could not have been anticipated. - Several judicial precedents supported the view that interest under section 234B should not be charged in such cases. CIT(A)'s Findings: The CIT(A) accepted the assessee's arguments, referencing the ITAT Delhi's decision in DCIT vs. Uttam Sugar Mills Ltd. and other judicial precedents that supported the non-levy of interest under section 234B in cases of retrospective amendments. Tribunal's Decision: The Tribunal upheld the CIT(A)'s order, noting that the issue was covered in favor of the assessee by existing judicial precedents. The Tribunal found no contrary decisions cited by the Departmental Representative. Conclusion: Both appeals filed by the Revenue were dismissed. The sales tax subsidy was treated as a capital receipt, not liable to tax, and interest under section 234B was not chargeable due to the retrospective amendment in law. The Tribunal upheld the CIT(A)'s orders in both respects.
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