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TMI Blog2017 (3) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court ) on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax.. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded 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. Depreciation @ 10% on landscaping & development charges which is capitalized in nature of land: - Assessee has incurred the landscape expenses on the leasehold land situated at Sikkim Unit to level the uneven land for construction of factory building. Since the same has been disallowed as capital in nature, the same should be included in the block of building and the assessee would be entitled for depreciation @10%. The said expenditure has been incurred to level th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Calcutta High Court in the case of Exide Industries Limited vs UOI 292 ITR 470 (Cal) provision for leave encashment which is based on proper estimate is a certain liability and should be allowed as deduction. The AO however after making a reference to the fact that an appeal against the decision of the Hon ble Calcutta High Court in the case of Exide Industries Ltd. (supra) has been preferred before the Hon ble Supreme Court by the Revenue which has been admitted for adjudication, and the fact that in such appeal, the operation of the Hon ble High Court of Calcutta has been stayed, was of the view that deduction on account of provision for leave encashment cannot be allowed as deduction. On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Aggrieved by the order of the CIT(A), the Assessee has raised Gr.No.1 before us. 4. We have heard the rival submissions. The parties before us agreed that in view of the pendency of the constitutional validity of section 43B(f) of the Act before the Hon ble Supreme Court, it would be just and proper to direct the AO to follow the ultimate decision that might be taken in the said proceedings and decide the grievance projecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Assessee and revenue have raised the aforesaid grounds of appeal before the Tribunal. 8. We have considered the rival submissions and find that in the following orders ITAT Kolkata Bench has taken the view that 1% of the dividend income can be disallowed as other expenses disallowable u/s.14-A of the Act for AY prior to AY 2008-09 i.e., prior to introduction of Rule 8D of the Rules: 1. Himtaj Consultants Pvt. Ltd. vs. I.T.O. (ITA No. 721/Ko1l2007- AY. 2004-05) Order dated 27.04.2007. 2. CHNHS Association vs. ACIT(ITA No.74/Kol/2008-AY.2004-05) Order Dated 19.02.2008. 3. I.T.O. vs. M/s S.P.S. Securities (P) Ltd. (ITA NO.123/Kol/2010- AY.2000-01 Order dated 19.08.2010 The Hon ble Calcutta High Court in the case of CIT Vs. M/S.R.R.Sen Brothers Pvt.Ltd. in GA No.3019 of 2012 in ITA No.243 of 2012 dated 4.1.2013 held that computation of 1% of exempt income as disallowance u/s.14A of the Act was proper. In view of the aforesaid decisions, we are of the view that the order of CIT(A) does not call for any interference. The ground of appeal of the Revenue and the Assessee are therefore dismissed. 9. In the result, appeal by the Assessee is treated as partly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m No.14(2)/2002 issued by Government of India for the general information of the public. The factory of the assessee was located in Mamring district in the State of Sikkim which is one of the notified areas as per Annexure-II of Office Memorandum No.,14(2)/2002 and thus the assessee was entitled for excise duty exemption. The said exemption was given to the unit for development of Industries and generation of employment in the State of Sikkim. In this regard relevant extracts of Office Memorandum No. 14(2)/2002 is reproduced below:- Keeping in view the fact that the State of Sikkim lags behind in industrial development. a need has been felt for structured interventionist strategies to accelerate industrial development of the state and boost investor confidence. The new initiatives would provide the required incentives and enabling environment for industrial development. improve availability of capital and increase market access to provide a fillip to the private investment in the state. It was the plea of the assessee that incentive in the form of Excise Duty Exemption and various other incentives have been granted to the State of Sikkim which lagged behind in industrial d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case is to give incentive for industrialization and employment generation in the State of Sikkim which lagged behind in industrial development. The same is evident from the various clauses of Memorandum No. 14(2)/2002 issued by Government of India, Ministry of Commerce Industry, Department of Industrial Policy and Promotion dated 23-12-2002. The object of the assistance was not to enable the businessman to run the business more profitably but encourage a businessman to set up a new unit or expand the existing unit for overall economic development of the state. Hence excise duty exemption granted to the appellant is a capital receipt. The issue is covered favourably by the principles laid down by the Hon 'ble Apex Court in the case of Ponni Sugar Chemicals Ltd (Supra) wherein it has been held that the character of subsidy is to be determined with respect to the purpose for which it is granted. The point of time at which the subsidy is paid and its source or mode is immaterial. The issue is also covered favourably by the decision of Hon'ble Jammu Kashmir High Court in the case of Shree Balaji Alloys Ors. (Supra) wherein it has been held that Excise Duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not enjoy tax free status due to various deductions available under the Income Tax Act. There was never any intention of the legislature to tax what is not income at all. In a recent decision, the Hon'ble Apex Court in the case of Indo Rama Synthetics 0) Ltd -vs- CIT (2011) 330 ITR 363 (SC) has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Thus, inclusion of capital receipt in the computation of MAT would defeat two fundamental principles. Firstly it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been credited to P L a/c and not otherwise. 2.3 The above exclusion or adjustment in computing Book Profit is permissible in terms of decision of Hon'ble Apex Court in the case of Apollo Tyres (2002) 255 ITR 273 (SC) wherein it has been held that the AO has no power to rework the book profit if the profits are computed in accordance with Part II and Part III of Schedule VI t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise notifications issued in this respect governing the refund of excise duty and interest subsidy, as incentives to the industrial units, 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 whereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expansion for the purpose of incentives/subsidies notified as per OM No. 1(13)/2000-NER dt. 14th June, 2002. 2. The Central Government, therefore, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the 14th day of June, 2002, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty five 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. 18. 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court of India in a later decision reported as Mepco Industries Ltd. vs. CIT Anr. (2009) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 305 : 2009 (7) 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 comi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lagging behind in such development and (ii) Generation of employment in the State of Jammu Kashmir. Amendment introduced to the Office Memorandum vide 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 readin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntives 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. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidy in question is a capital receipt not chargeable to tax. 21. The main issue that arises for consideration on the basis of the grievance projected by the Revenue in the aforesaid ground No.2 is as to whether the 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 these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. In rejecting the claim of the Assessee in this regard, the AO held that these sums have been credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. 22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Binani Industries Ltd. ITA No.144/Kol/2013 order dated 2.3.2016 reported in (2016) 178 TTJ 0658 (Kol) : (2016) 137 DTR 0185 (Kol)(Trib) had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon ble Apex Court in case of Indo Rama Synthetics (I) Ltd vs CIT 330 ITR 336 (SC), Apollo Tyres Ltd. 255 ITR 273 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Luknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: 26.We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term income as defined in sec. 2(24) of the Act, but they are not included in tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndscape expenses of ₹ 35,23,301/- incurred on the leasehold land situated at Sikkim Unit to level the uneven land for construction of factory building as revenue expenditure. The AO held that landscaping and development charges are not related to regular repair maintenance but for better utility of land and its development and therefore the said expenditure was capital expenditure. The CIT(A) upheld the view of the AO that landscaping and development charges are capital in nature. He however held the same shall be included in the block of building and entitled for depreciation @ 10%. 29. Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. 30. We have considered the rival submissions. The assessee has incurred the landscape expenses on the leasehold land situated at Sikkim Unit to level the uneven land for construction of factory building. Since the same has been disallowed as capital in nature, the same should be included in the block of building and the assessee would be entitled for depreciation @10%. The said expenditure has been incurred to level the land and make it suitable of construction of factory. Expenditure incurred on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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