2012 (11) TMI 182 - AT - Income Tax

Deduction u/s 80IB - Whether amount of excise refund and interest subsidy received by the appellants is a capital receipt and, thus, not liable to tax under the provisions of the Act, or revenue receipt and if revenue receipts whether eligible for deduction u/s 80IB Held that - Incentives provided to Industrial establishment are for the purpose of Eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the office memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere production and trade incentives, as held by the Tribunal. Excise Duty refund is to be treated as capital receipt in the hands of the assessee and not liable to be taxed. - In the result, both the appeals of the Revenue are dismissed.

Summary

Issues:
Appeal against CIT(A) orders regarding Excise Duty refund treatment under Section 80IB for assessment years 2005-06 and 2008-09.

Issue 1:
The primary issue revolved around whether Excise Duty refund should be considered a capital or revenue receipt for the purpose of deduction under Section 80IB of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the claim, but the CIT(A) ruled in favor of the assessee, considering it a capital receipt based on a High Court decision. The Tribunal analyzed the case in light of the High Court's decision and upheld the CIT(A) order, following the reasoning that the Excise Duty refund was intended to accelerate industrial development and generate employment, making it a capital receipt exempt from taxation.

Issue 2:
The Tribunal examined the applicability of Section 80IB deduction on the Excise Duty refund and interest subsidy received by the assessee. The High Court's decision highlighted that the incentives were aimed at creating permanent employment opportunities, aligning with the public interest objective of tackling unemployment and accelerating industrial development. Consequently, the Tribunal upheld the CIT(A) order, confirming that the Excise Duty refund should be treated as a capital receipt, thus not taxable, in line with the High Court's ruling.

Judgment Summary:
The appeals by the Revenue against the CIT(A) orders concerning the treatment of Excise Duty refund under Section 80IB for the assessment years 2005-06 and 2008-09 were dismissed by the Appellate Tribunal. The Tribunal upheld the CIT(A) decision, considering the Excise Duty refund as a capital receipt exempt from taxation based on the High Court's ruling. The High Court's analysis emphasized the public interest objective of creating permanent employment opportunities through industrial development, leading to the conclusion that the refund should be treated as a capital receipt. The Tribunal, in alignment with the High Court's judgment, confirmed that the Excise Duty refund was not liable to be taxed, thus denying the Revenue's appeals.