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TMI Blog2015 (7) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of other judgements, which have considered the schemes, Ld . Commissioner observed that primary consideration of Central Government in granting incentives was to generate employment through acceleration of industrial development and thus each incentive can be said to have been designed to achieve public purpose and therefore, it is not by any stretch of imagination constitute as production incentive for the benefit of assessee alone. Therefore, the interest subsidy is in the nature of capital receipt. With regard to 2.5% capital investment subsidy, under Rajasthan Investment Promotion Scheme, 2003, Ld. CIT(A) observed that subsidy was provided for promoting investment in the State of Rajasthan and was linked to capital investment/ and hence the scheme was in the larger public interest, therefore, it constitutes capital receipt and not liable to tax. Similarly, with regard to 5% interest subsidy granted by Ministry of Textiles, Ld. CIT(A) perused the objects of the scheme while coming to the conclusion that it was introduced to promote technological upgradation in the Indian Textile Industry and also noted that the issue is squarely covered by Punjab & Haryana High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it had received interest subsidy under the above schemes which deserve to be capitalised, by applying the purpose test laid down recently by Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. Vs CIT 306 ITR 392 wherein, the Hon'ble Supreme Court observed that the test to determine the character of receipt has to be with respect to the purpose for which the subsidy is given; the point of time at which the subsidy is paid, source thereof and the form of subsidy is not material. The Hon ble Court further observed that if the incentive is utilised for repayment of loan taken by the assessee to set up new unit or for substantial expansion of the existing unit, it has to be treated as capital in nature. It was further clarified that only in cases where the object of subsidy scheme was to enable the assessee to make the business more profitable the receipt, under those circumstances, can be treated as revenue in character. On the other hand if the object was to enable the assessee to set up the unit or for expansion of the unit, any amount given to such assessee by way of assistance, in this regard, should be treated as capital in nature without looking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in granting incentives was to generate employment through acceleration of industrial development and thus each incentive can be said to have been designed to achieve public purpose and therefore, it is not by any stretch of imagination constitute as production incentive for the benefit of assessee alone. Therefore, the interest subsidy is in the nature of capital receipt. 10. With regard to 2.5% capital investment subsidy, under Rajasthan Investment Promotion Scheme, 2003, Ld. CIT(A) observed that subsidy was provided for promoting investment in the State of Rajasthan and was linked to capital investment/ and hence the scheme was in the larger public interest, therefore, it constitutes capital receipt and not liable to tax. 11. Similarly, with regard to 5% interest subsidy granted by Ministry of Textiles, Ld. CIT(A) perused the objects of the scheme while coming to the conclusion that it was introduced to promote technological upgradation in the Indian Textile Industry and also noted that the issue is squarely covered by Punjab Haryana High Court decision in the case of Shyam Lal (supra) wherein it was held that such subsidy received under the said scheme is capital in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On perusal of the said notification, it is noticed that the very first para of the said notification provides that- The Government of India is pleased to make the following scheme of Interest Subsidy on Working Capital Loans for industrial units in the state of Jammu Kashmir with a view to accelerating the industrial development in the state . It is also noticed that subsequently another notification dated 28th November, 2003 was issued, a copy whereof is placed at page 59 of the appellant's paper book. The said notification makes it very clear that the purpose of the subsidy being granted was creation of employment opportunities in the State of Jammu Kashmir. The relevant extracts of the said notification are as under: No.1 (111)/20 I2-NER -In pursuance of the announcement by the Prime Minister on 19th April, 2003 at Srinagar for creation of one lakh employment and self employment opportunities in Jammu Kashmir, the Government of India had set up a Task Force under Cabinet Secretary. The recommendations of Task Force were submitted to the Cabinet. To achieve this object of employment generation, the Cabinet has, inter alia, approved following definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of capital receipt not liable to tax. The Tribunal however, did not agree with the claim of the assessee and held that excise refund and interest subsidy were in the nature of revenue receipts. While, setting aside the decision of the Tribunal and upholding the claim of the assessee, the High Court held that excise refund and interest subsidy were capital receipt not liable to tax. Some of the relevant observations of the High Court are reproduced as under: . 22. Perusal of the Office Memorandum dated 14-6-2002 indicating New Industrial Policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz., (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu and Kashmir. Amendment introduced to the Office Memorandum vide Notification of 28- 11-2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) eloquently demonstrates the Central Government's intention in extending the ince ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to 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. 28. Making of additional provision in the Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bonafide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... potential of the textile industry and the larger benefits of technological upgradation in the textile industry, which was necessary to provide a fresh lease of life to the said industry. The Government recognized that technological upgradation in textile industry would result in capacity expansion and modernization, which would have direct impact on employment generation, exports and globalization of textile trade. In order achieve such objective, TUF scheme was introduced by the Government to provide interest subsidy on loan taken for technological upgradation by the units in the textile industry. In terms of the said scheme, the appellant received interest subsidy of ₹ 25,90,32,252 in respect of various units as per details placed at page 200 of the paper book. The interest subsidy so received was shown as net of interest on term loans paid by the appellant as is evident from Note No.18 given in schedule 22 of the Notes on Accounts forming part of the balance sheet of the appellant for the relevant assessment year. The aforesaid facts, in my view, make it clear that subsidy under the TUF scheme was given for technological upgradation, in order to incentive-wise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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