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TMI Blog2012 (2) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case and in law, the deduction of ₹ 96,63,009.00 as claimed by the appellant u/s 80IA of the I.T. Act 1961 may please be allowed and the order of the ld CIT(A) denying the said exemption be vacated. 2. In the facts and circumstances of the case and in law, it may please be held that an amount of ₹ 56,87,500.00 received by the appellant during the year on transfer of Sales Tax Incentive constitutes the income derived from the business of generation of electricity from the Wind Mill owned and operated by the appellant and consequently the same qualifies for deduction u/s 80IA of the I.T. Act, 1961. 3. The ld AO having held that the Sales Tax Incentive received by the appellant being a trading receipt, the ld CIT(A) ought to have held that an amount of ₹ 56,87,500.00 received by the appellant on transfer of Sales Tax incentive qualifies for deduction u/s 80IA of the I.T. Act, 1961. The said deduction may please be allowed to the appellant as claimed in the return of income. 4. Without prejudice to Grounds of appeal Nos 1 to 3 above and by way of an alternate submission it is submitted that it may please be held that the Sales Tax Incentive rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel for the assessee submitted that the issue involved in Ground Nos (1), (6) & (7) stands covered in favour of the assessee and against the Revenue by the decision of this Bench in the case of Serum International Ltd. Pune v. Addl. CIT Rnge-6, Pune in ITA Nos 290 to 292/PN/10 by order dated 28.9.2011. The learned Departmental Representative, appearing for the Revenue, did not dispute this factual matrix. The relevant portion of the order is reproduced below:- "13. Having been considered the above submissions, we find that the issue raised in Ground No. 1 as to what would be the initial A.Y for the purposes of Section 80IA(5) of the Act has been decided in favour of the assessee by the Pune Bench of the Tribunal in the case of Poonawalla Stud and Agro Farm Pvt. Ltd. Vs. ACIT (Supra). In that case after discussing the issue in detail, the Tribunal has come to the conclusion that the initial 'A.Y' for the purpose of claiming deduction u/s. 80IA was the first year in which the assessee claimed the deduction u/s. 80IA (1) after exercising his option as per the provisions of 80IA (2) of the Act. It was held that the Ld CIT(A) has erred in holding that the initial A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. We thus respectfully following the ratio laid down by the Hon'ble jurisdictional High Court in the case of Commissioner of Central Excise Vs. Vakson Dyeing, Bleaching and Printing Works (Supra) hold that the Tribunal is bound by the decision of the Hon'ble Madras High Court on an identical issue in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra). We thus respectfully following the decision taken by the Hon'ble Madras High Court in that case on an identical issue under almost similar facts, hold that when the assessee exercising the option, only the losses of the year beginning from the initial A.Y. are to be brought forward and not the losses of earlier year which have been already set off against the other income of the assessee. The revenue cannot notionally bring forward any loss of earlier years which has already been set off against any other income of the assessee and set off the same against the current income of the eligible business. We thus set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (supra), the assessee availed of sales-tax benefit of a sum of ₹ 63,74,291/-. The assessee claimed that such amount is a capital receipt not subjected to taxation. On the contrary, as per the Revenue such amount is a revenue receipt chargeable to tax. 9. Before we touch upon the differing stands of the assessee and Revenue on the issue, it would be appropriate to cull out the facts having a bearing on the issue. The appellant is an HUF which is, inter alia, engaged in a range of business activities viz. manufacture and sale of Manickchand Zarda, Pan Masala, construction activities, manufacturing of tiles etc. including generation and sale of power. In the course of its activities, the assessee company set up wind mills in the State of Maharashtra for generation of wind power. The Government of Maharashtra in terms of its policy on wind power generation granted various benefits, including sales-tax benefit. In terms of the procedure for availing sales-tax benefits on non-conventional energy generating projects, such as wind mills, assessee was also entitled to the facility of transferring the sales-tax benefit to the third party. The assessee after obtaining the requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind power plants with MSEB. Banking can be done any time of the day and night. The energy balance at the end of one year shall not be taken into account next year. The balance of energy account will be settled between the MSEB and promoters at the end of the year as per the tariff applicable during that year. (3) Transmission Losses: MSEB shall bear the transmission losses for wind energy transmission for the first three years. Thereafter, transmission losses will be leviable at the rate of 1%. (4) Third Party Sale: Promoters will be permitted to sell exportable power to any two (industrial or commercial) consumers per MW. Wheeling charges for this will be leviable at the rate of 2%. (5) Evacuation Arrangement: MSEB shall initially bear the expenditure for erection of high tension sub-station and transmission infrastructure. MEDA shall recover 50% of this expenditure from wind power project promoters and will give it to MSEB. Developers shall bear the cost of transmission lines from the sub-station to the project and all other related equipment. (6) Approach Roads: MEDA shall bear the cost of construction of roads to the project sites. MEDA would be entitle to Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd transmission infrastructure, bearing the cost of construction of roads to project sites, reimbursement of entry tax/octroi to the promoters, capital subsidy upto 30% of the fixed capital investment (limited to ₹ 20 lakhs), and sales-tax benefits. Since the primary dispute before us is in relation to the sales-tax benefits available under the Scheme, it would be in the fitness of things that we may look at it in slight detail. The Scheme intended that investments in plant and machinery, new building, land development, technical development and design in a wind power project would constitute qualifying investment and a promoter shall be entitled to sales-tax benefits upto the amount of such qualifying investment. Such sales-tax benefit was to be given in six equal instalments over a period of six years, th i.e. 1/6 of the qualifying investment amount every year on the condition that the plant successfully operates every year with a minimum of 12% plant load factor. In terms of such broad framework of the sales-tax benefit, the State Government issued separate detailed instructions about the modus operandi to avail such benefits, by way of Government Resolution dated 1.10.199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o correspond to 100% availability of transmission lines and the sales tax benefit will be increased proportionately. The availability of the transmission lines during the months from May to September of that financial year will be decided by Maharashtra Energy Development Agency (MEDA), Pune. 3. Sales tax benefit will be available for the promoters from the date of obtaining or 'Entitlement Certificate', for a period of continuous 6 years. And for every year, th such benefit will be limited to 1/6 of the qualifying investment. However, in any one year, Plant Load Factor of 12% is not achieved then that years' sales tax benefit will get cancelled and that unit will have to lose sales tax benefit for that year forever. Any two years' sales tax benefit will not be allowed to deduct together to claim in one year. To avail the sales tax benefits the period will be counted for continuous 6 (six) st st years. The financial year period will be from 1 April to 31 March. 4. The facility of transferring the sales tax benefit to the third party The promoters of the project, if sell electricity to the third party, for such third party, transferring of sales tax benefit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he project. For that purpose "Entitlement Certificate" will be given by Energy Department of Government of Maharashtra and "Eligibility Certificate" will be issued by Maharashtra energy Development Agency. 7. If the promoters do not abide by terms and conditions of Maharashtra Energy Development Agency and Sales tax Department, then the Director of Maharashtra Energy Development Agency and Commissioner of Sales Tax reserve the right to cancel the 'Entitlement Certificate" and the "Eligibility Certificate". 8. Sales tax benefit can be availed on the finished product as well as on the raw materials used and its procedure shall be as per Package Scheme of Incentive (PSI), 1993 and amendment thereon from time to time. 9. The promoter will not be eligible for sales tax benefit for use of second hand machinery and on old wind electric generator. If such cases are noticed, then the Director, Maharashtra Energy Development Agency has right to cancel "Entitlement certificate" and "Eligible Certificate". 10. The sites approved by Ministry of Non-conventional Energy Sources, Government of India, New Delhi will be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e promoter will not be eligible for sales-tax benefit for use of second hand machinery and on old wind electric generator. The policy further provided that there was no restriction for expansion of project. However, the minimum capacity of wind mill generation was stated to be 200 Kw. In terms of the aforesaid Scheme, the assessee obtained the "Entitlement Certificate" and transferred the sales-tax benefit to a third party. The assessee availed the sales-tax benefit for its wind power project installed at village Kushi (Vankusawade) Tal. Satara, Dist. Satara and such benefit amounting to ₹ 63,74,291/- pertaining to the year under consideration has been claimed as a capital receipt. Factually speaking, on the aspect of the assessee having received the said amount in terms of the Scheme of the State Government as sales-tax benefit under the aforesaid Government Resolutions, is not in dispute. 12. In order to examine the taxability of such amount, it would be appropriate to refer to the propositions based on the case laws referred to us. In the case of Sahney Steels (supra), the question before the Hon'ble Supreme Court was whether the subsidy received by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose is to help the assessee to set up its business or complete a project as in Seaham Harbour Dock Co.'s case (1931) 16 TC 333 (HL), the monies must e treated as having been received for a capital purpose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistant for the purpose of the trade.............." "In the case before us, the subsidies have not been granted for production or for bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant............... One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to util ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immaterial considerations. In a case where the subsidy/incentive under a Scheme is granted to encourage setting up of new industries the same is liable to be characterized as a capital receipt, while an incentive/subsidy granted in the course of trade for the purpose of carrying on the business of the assessee, the same is liable to be regarded as a revenue receipt. 16. In this background, we may now revert back and examine the Scheme under which the assessee has availed of the sales-tax benefit. In the present case, as noted earlier, the State Government vide its Resolution dated 12.3.1998 modified its existing policy for the purposes of promoting wind energy generation in the State of Maharashtra. This policy has been formulated in the background of the fact that the earlier policy of the State Government on generation through non conventional sources in January, 1996 did not achieve the desired results. In the said policy, nine different incentives have been laid out, which have been extracted by us in earlier part of this order. The dispute before us is in relation to the sales-tax benefits. The Preamble of the policy itself reflects the area which is sought to be addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such restriction or obligation on the part of the assessee to utilize the incentives availed. In fact, on this aspect the instant scheme is akin to the scheme noted by the Hon'ble Supreme Court in the case of Sahney Steels (supra) wherein the assessee was found free to use the money in its business entirely as it liked. In the present case also, the assessee is not obliged to spend the money for any particular purpose. Thus, applying the purpose test to the facts of the present case and keeping in mind the objects behind the payment of incentive subsidy, we are satisfied that the sales-tax benefits received by the assessee under the instant Scheme are in the course of carrying on its trade more profitably and therefore such receipt cannot be characterized as capital in nature. Thus, the assessee fails on this Ground." 6. Though the learned Counsel for the assessee stated that similar issue has been adjudicated by the Tribunal in the case of Rashiklal M Dharavi (HUF) (supra) against the assessee, however, it was pointed out that while adjudicating the issue, the Tribunal has not considered the preamble of the Government Resolution dated 1.10.1999 (supra) and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, it was explained that the assessee was an investment company and also carries on business of promoters and builders and the said director had undertaken the tour to USA to explore the opportunities in foreign market for acquisition of properties in India owned by NRIs and also to find buyers for the proposed ownership schemes. Thus, it was submitted that the tour was undertaken in connection with the business activities of the assessee and therefore, the expenditure incurred for the same was allowable as a business expenditure. However, the Assessing Officer rejected the claim of the assessee. By placing reliance on the decision of the Hon'ble Bombay High Court in the case of Cooper Engineering Ltd v.CIT 135 ITR 597 (Bom), the Assessing Officer held that the expenditure of ₹ 2,18,712/- incurred by the assessee was not for the purpose of business, and was disallowed under section 37(1) of the Act. In appeal, the Commissioner of Income-tax (Appeals) upheld the disallowance made by the Assessing Officer. According to the Commissioner of Income-tax (Appeals), the assessee could not establish the requisite nexus to establish that the expenditure in question was wholly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the expenditure has been incurred for purpose of business. Having considered the orders of the authorities below, in our view, while the insistence on evidence by Revenue cannot be faulted, so however, at the same time, nature and level of expenditure claimed by the assessee is also required to be appreciated. The expenditure on foreign travel is not an expenditure which is alien to carrying on of a business by any business entity and in the present case also, the bona fides of the claim cannot be faulted. No doubt, in the absence of appropriate substantiation from the side of the assessee, certain amount of disallowance is definitely merited and not the entire amount of expenses of ₹ 2,18,712/- stated to have been incurred by one of its directors. Therefore, considering the entirety of facts and circumstances, we deem it fit and proper to restrict the disallowance to 50% of the expenditure claimed and accordingly, we set-aside the order of the Commissioner of income-tax (Appeals) and direct the Assessing Officer to retain an addition of ₹ 1,09,356/- being 50% of the total disallowance of ₹ 2,18,712/- made by the lower authorities. Thus, on this Ground the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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