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TMI Blog2017 (3) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... r the benefit of assessees alone. It was further held that making of additional provision in the scheme that the incentives would be available to the eligible industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax. The ratio laid down in the aforesaid decision is squarely applicable to the very same subsidy received under the very same scheme of State of Jammu 1,50,036/- as the Assessee while computing eligible deduction u/s.80IB of the Act has already reduced this sum. We are of the view that it would be just and appropriate to direct the AO to consider the claim of the Assessee in this regard and if the contention of the Assessee is found corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above amounts aggregating to ₹ 4, 89, 06, 857/- are in the nature of Capital Receipts received from Government of Jammu & Kashmir as incentive for setting up Industrial Unit in Jammu----------. Since our Company's Unit is situated in the State of Jammu & Kashmir the Honorable Jammu & Kashmir High Court in the case of Shree Balaji Alloys Vs. Commissioner of Income Tax in Appeal Case N02 of 2010 vide their order dated 31/01/2011 has held that the above amounts are in the nature of Capital Receipts and not subjected to Income Tax ----------." 4. The AO acted on the basis of the revised return of income filed by the Assessee. The question before the AO was whether the claim of the Assessee that the aforesaid subsidy received by the Assessee was capital receipt not chargeable to tax or was it in the nature of revenue receipt and hence income chargeable to tax. The AO was of the view that the subsidy/incentive in question was given to units which already exists and the subsidy was not utilized for acquisition of capital assets and therefore the subsidy/incentive cannot be regarded as capital receipt not chargeable to tax. 5. On appeal by the Assessee, the CIT(A) held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Office Memorandum and statutory notifications issued in this behalf, to the assessee cannot be construed as mere production and trade incentives, as held by the Tribunal. 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 bona fide industrial units so that larger public interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved. The finding of the Tribunal that the incentives were revenue receipt is, accordingly, set aside holding the incentives to be capital receipt in the hands of the assessees." The conclusion of the Hon'ble Court is that: "Excise refund and interest subsidy received by the assessees in pursuance of the incentives announced and sanctioned vide Government of India, Ministry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to the New Industrial Policy. The statement and objects, which had lead to the New Industrial Policy and other concessions for the State of Jammu & Kashmir floated vide Office Memorandum of 14th June, 2002 and the salient features thereof, may, in a nutshell, be stated thus : Considering the request of the Government of Jammu & Kashmir for a special package for development of the industries in the State on the lines for the North East Industrial Policy notified by the Central Government vide Ministry of Industry's OM No. EA/1/2/96-IPD dt. 24th Dec., 1997, discussions were held by the Central Government on strategy and action plan for development of industries and generation of employment in the State of Jammu & Kashmir with various related Ministries on the issues, inter alia of infrastructure development, financial concessions and easy market access, pursuant whereto, the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion), issued its Office Memorandum dt. 14th June, 2002 whereby it was provided that keeping in view the fact that the State of Jammu & Kashmir had lagged behind in industrial development, there was need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, hereby makes amendment in the Central Interest Subsidy Scheme, 2002 notified in the notification of the Government of India in the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion No. 1(11)/2002-NER dt. 22nd Oct., 2002. The definition of the term 'substantial expansion' appearing under para 5(d) of the scheme may be substituted by the following : 'Concessions for substantial expansion should extend to include all new investments by entrepreneurs, which leads to substantial additional employment creation by an existing entrepreneur without insisting on major expansion. However, credit under the industrial policy package should not be merely for paying off old debts or for equipment already in place'." 7. To implement the New Industrial Policy referred to hereinabove, requisite notifications for exemption on excise duty were issued under s. 5A of the Central Excise Act, 1944 prescribing therein the procedure required to be followed by the industrial units before claiming incentives. 8. Para No. 3, appearing in the two notifications i.e. Central Excise Notification Nos. 56 of 2002 and 57 of 2002 dt. 14th Nov., 2002, which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent on or after 14th day of June, 2002.] 4. The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production whichever is later." 10. The Hon'ble Jammu & Kashmir High Court had to deal with the issue whether excise refund and interest subsidy availed of by an assessees under the very same scheme under which the Assessee in the present appeal received excise duty refund and interest subsidy, as to whether the same was capital receipt not chargeable to tax and not revenue receipt which is chargeable to tax. The Hon'ble High Court after referring to the decisions of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. Etc. vs. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC) and CIT vs. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 219 CTR (SC) 105 : (2008) 13 DTR (SC) 1 : (2008) 306 ITR 392 (SC), held as follows: "15. After going through the two judgments, we find the ratio in Sahney Steel case (supra) and approval thereof in Ponni Sugars & Chemicals Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) SCC 564, where the above dictum was reiterated as follows : ".......Sahney Steel & Press Works Ltd. Etc. (supra) was a case which dealt with production subsidy, Ponni Sugars & Chemicals Ltd. (supra) dealt with subsidy linked to loan repayment whereas the present case deals with a subsidy for setting up an industry in the backward area. Therefore, in each case, one has to examine the nature of the subsidy. The judgment of this Court in Sahney Steel & Press Works Ltd. Etc. (supra) was on its own facts; so also, the judgment of this Court in Ponni Sugars & Chemicals Ltd. (supra). The nature of the subsidies in each of the three cases is separate and distinct. There is no straightjacket principle of distinguishing a capital receipt from a revenue receipt. It depends upon the circumstances of each case. As stated above, in Sahney Steel & Press Works Ltd. Etc. (supra), this Court has observed that the production incentive scheme is different from the scheme giving subsidy for setting up industries in backward areas." 18. Now coming to the findings of the Tribunal on the issue, we find that the Tribunal has referred to various paras appearing in the two judgments to supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notification of 28th Nov., 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 incentives. The Government's objective, as conveyed by Hon'ble the Prime Minister at Srinagar on 19th April, 2003, was, for creation of one lac employment and self-employment opportunities in Jammu & Kashmir State. 23. To achieve the purpose and objective referred to hereinabove, it was, inter alia, provided in the Central excise notifications that the exemptions contained in the notifications would be available only on production of certificate from general manager of the concerned District Industry Centre to the jurisdictional Dy. CCE or the Asstt. CCE, as the case may be, to the effect that the unit had created required additional regular employment, which would not, however, include employment provided by the industrial units to daily wagers or casual employees engaged in the units. 24. A close reading of the Office Memorandum and the amendment introduced thereto with para No. 3 appearing in the Central Excise Notification Nos. 56 and 57 of 11th Nov., 2002, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bona fide industrial units so that larger public interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum was achieved. 29. The other factors, which had weighed with the Tribunal in determining the incentives as production incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 30. For all what has been said above, the finding of the Tribunal on the first issue that the excise duty refund, interest subsidy and insurance subsidy were production incentives, hence revenue receipt cannot be sustained, being against the law laid down by Hon'ble Supreme Court of India in Sahney Steel (supra) and Ponni Sugars case (supra). 31. The finding of the Tribunal that the incentives were revenue receipt is, accordingly, set aside holding the incentives to be capital receipt in the hands of the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was acted upon by the AO. In these circumstances, we find no merit in Ground No.2 raised by the revenue. 13. In the result, the appeal by the revenue is dismissed. ITA No. 883/Kol/2014 (Assessee's appeal) 14. Ground No.1 raised by the Assessee reads as follows: "1. That the Learned Commissioner of Income Tax (Appeals) -XII, Kolkata was not justified in upholding the action of the Learned Additional CIT Range-12, in denying deduction while computation of Books Profits under section 115JB for Interest Subsidy of ₹ 1,88,90,893/- & Customs Duty Refund ₹ 3,00,15,964/- [Which were claimed by the Appellant Company & upheld by CIT(A)-XII, as Capital Receipts not chargeable to Income Tax under Normal Provisions of the Act] just because these receipts were credited to the Profit & Loss Account by the Appellant Company." 15. The issue that arises for consideration on the basis of the grievance projected by the Assessee in the aforesaid ground of appeal is as to whether the interest subsidy and excise duty refund which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits u/s.115JB of the Act, even though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under sub-section (2), as increased by- certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act. 18. We have already seen that the issue whether subsidies in question can be regarded as income at all is no longer res integra and has been concluded by the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J & K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of income. 19. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plated in Explanation to section 115JB of the Act. 20. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H.Sugar Factory Ltd.(supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture Pvt. Ltd. (supra) which was a case where the question was whether profits arising on tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and allow Gr.No.1 raised by the Assessee. 22. Gr.No.2 raised by the Assessee reads as follows: "02.Commissioner of Income Tax (Appeals) -XII, Kolkata was not justified in not deleting the addition of Lab Subsidy of Rs.l,50,036/- made by Additional CIT Range-12, since the same was already reduced by the Appellant Company while claiming deduction under section 80IB." 23. The facts with regard to the aforesaid ground of appeal are that the Assessee is a Company and as per the provisions of the Companies Act, 1956 it is mandatorily required to follow the Accounting Standards referred to in Section 211 of the Companies Act, 1956. Accordingly the Assessee followed Accounting Standard -12 being Accounting for Government Gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balaji Alloys (Supra), I am of the view that appellant is not entitled for deduction under section 80IB on this subsidy of ₹ 1,50,036/-. Accordingly, the action of the AO is upheld and this ground of the appeal is dismissed." 25. Aggrieved by the order of the CIT(A), the Assessee has raised the aforesaid ground of appeal before the Tribunal. As can be seen from the grounds of appeal of the Assessee, the only grievance projected by the Assessee is that there should not be double exclusion of the sum of ₹ 1,50,036/- as the Assessee while computing eligible deduction u/s.80IB of the Act has already reduced this sum. We are of the view that it would be just and appropriate to direct the AO to consider the claim of the Assessee in this regard and if the contention of the Assessee is found correct, the AO shall give the required relief. 26. Gr.No.3 raised by the Assessee reads as follows: "03.That the Learned Commissioner of Income Tax (Appeals) -XII, Kolkata was not justified in upholding the action of the Learned Additional CIT Range-12 by adding a sum of ₹ 3,48,230/- under section 14A read with Rule 8D." 27. The facts with regard to the aforesaid ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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