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TMI Blog2018 (1) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... her education cess - Held that:- Hon’ble Supreme Court in case of SRD Nutrients Private limited (2017 (11) TMI 655 - SUPREME COURT OF INDIA) where education cess and higher education cess have been held to partake the character of excise duty, the legal proposition so laid down by the Hon’ble Supreme court will apply with equal force in the context of income tax, and following our decision in case of Chambal Fertilizers (supra) wherein we have held that across all tax legislation – direct taxes as well as indirect taxes on goods and services, the nature and character of education cess and higher education cess is clearly tax and nothing else, we are of the considered view that the assessee’s claim of deduction on account of education cess (EC) & secondary and higher education cess (SHEC) on income tax & dividend distribution tax amounting to ₹ 1,42,79,859/-, as eligible revenue expense u/s 37 of the Act is not permissible in view of the provisions of section 40(a)(ii) of the Act. MAT computation - exclusion of profit on sale of investments and profit on sale of fixed assets while computing book profit u/s 115JB - Held that:- This issue has since been covered against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 1,42,79,859/-. iii) That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and erred in confirming the disallowance made by the AO on account of profit on sale of investment amounting to ₹ 1,76,22,643/- profit on sale of fixed assets amounting to ₹ 1,18,52,588/- while computing book profit u/s 115JB of the Act. ITA No. 181/JP/2016 (Ground of Revenue s appeal): In view of the facts and circumstances of the case, the Ld. CIT(A), Ajmer has erred in : i) Deleting the disallowances made by the AO on account of sales tax subsidy by treating the amount of ₹ 31,86,07,921/- as capital receipts instead of revenue receipt; ii) Deleting the disallowance made by the AO on account of sales tax subsidy by treating the amount of ₹ 31,86,07,921/- as capital receipt and the same is not includible in the book profit u/s 115JB of the IT Act, without appreciating the facts of the case. 3. Regarding ground No. 1 of assessee s appeal, briefly the facts of the case are that the deduction u/s 80-IA was claimed by the assessee on its power undertakings i.e, 42MW unit at Beawar, 72MW unit at Ras 25 MW GPP at Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is similar to AY 2010-11. In the said year, transfer price rate was adopted by considering rate of sale of power through one of the mode. However, AO adopted the rate by considering average of sale to all the mode. Similarly in the present case, rate has been adopted by considering AALC of one of the unit whereas AO adopted the rate by considering average of AALC of all the units. Hence disallowance made in present case needs to be quashed since Departmental appeal has been dismissed in AY 2010-11 by stating that as long as the assessee has adopted a Market Value as the transfer price, it is sufficient compliance of law. Substitution of another market rate by the AO is not permissible. 6. It was submitted that only contention of CIT(A) is that the Tribunal order of earlier year is not applicable since in the present case, market value adopted of Jaipur unit does not represent relevant geographical area. The said fact does not hold good since the eligible power units of assessee is situated at Beawer Ras which is in Rajasthan and AALC of Jaipur unit adopted also falls under the same geographical area of Rajasthan as assessee s eligible units. It was submitted that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered. The AR of the assessee submits that the value adopted by assessee represents market value since it is based on real transactions between unrelated parties and the details for the same are available in public domain. The issue before us is whether in such situations where there are two or more market values available and if the Assessee has adopted a value which is market value , whether it is permissible for the Revenue to still replace the same by another market value . 11. At this stage, it is necessary to refer to the relevant provisions of the Act i.e. Sec 80IA(8), which states that- Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then for the purposes of the deduction under this section, the profits and gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. AO has the power to adopt the market price only when the price adopted by the assesee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also substantial and hence it cannot be said that the assessee has hand picked some transactions, which are beneficial to it. The DR submitted that since the assessee has itself drawn power from the grid, the grid rate represents the best market value hence the same should only be adopted. We are not agreeable to the above contention of the department. No doubt the grid rate is market value but there is no concept of best market value in law. If by using the said adjective, Revenue seeks to infer that grid rate is the only market value in the present context, such inference is also clearly not tenable. Further, in case there are options, the option favorable to the Assessee is to be adopted. This is a well settled principle of law laid down by the courts time and again including Supreme Court in the case of CIT vs. Vegetable Products Ltd. [1973] 88 ITR 192 [SC] and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which defines market value commonly for both sale and purchase by the eligible undertaking, section 80A(6) provides for separate market value with reference to sale and purchase by the eligible undertaking. Another fundamental change which has been brought-in is that the market value is made subject to statutory or regulatory restrictions, if any. In the context of present case where electricity has been generated and captively consumed, determination of the market value for claiming tax exemption has been aligned with the regulatory mechanism in terms of Electricity Act 2003 and related tariff regulations where the rate at which the electricity is supplied by the generating company to the distribution company is not the same at which the electricity is supplied by the distribution company to the consumers. The assessee company has determined the market value at annual average landed cost of electricity purchased from the Grid for its Jaipur unit i.e. ₹ 6.51 per unit whereas the AO has determined the market value at ₹ 5.36 per unit based on annual average landed cost of electricity purchased from the Grid by all units of the assessee located in Rajasthan. In our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. Explanation.-For the purposes of this sub-section, market value , in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market We also refer to the amendment brought in by the Finance Act, 2009 in section 80A of the Act where sub-section 6 has been specifically brought on the statue book by the legislation which reads as under: Amendment of section 80A. 29. In section 80A of the Income-tax Act,- ( a) after sub-section (3), the following sub-sections shall be inserted, and shall be deemed to have been inserted with effect from the 1st day of April, 2003, namely:- ( 4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading C-Deductions in respect of certain incomes , where, in the case of an assessee, any amount of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any. We now refer to the Notes to the clauses to the Finance Bill 2009 and the relevant notes in relating to section 80A(6) reads as under: The proposed sub-section (6) provides that notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of Chapter VIA under the heading C-Deductions in respect of certain incomes , where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction has not been claimed in the return of income; These amendments will take effect retrospectively from the 1st April, 2003, and will accordingly apply in relation to assessment year 2003-04 and subsequent years. Further it is also proposed to amend section 80A to provide that the transfer price of goods and services between the undertaking or unit or enterprise or eligible business and any other undertaking or unit or enterprise or business of the assessee shall be determined at the market value of such goods or services as on the date of transfer. Further, the expression market value has been defined to mean,- ( a) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; ( b) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s however noted that the authorities below have not examined the matter after taking into consideration the provisions of section 80A(6) of the Act. As we have stated above, the provisions of section 80A(6) will override the provisions of section 80IA(8) read with the explanation thereto. If we examine and compare the provisions of section 80IA(8) and 80A(6), it is noted are as follows: 1) Unlike section 80 IA(8), section 80A(6) starts with non obstante clause and provides that notwithstanding anything contrary contained in chapter VI-A, application of arm s length price is mandatory for computing profits eligible for deduction, of the eligible unit. 2) Market value, in section 80-IA(8) is defined commonly both for transfer and acquisition by the eligible unit. Section 80A(6) provides for separate market value with reference to transfer or acquisition by the eligible unit. 3) Determination of market value is made subject to statutory or regulatory restrictions, if any. In this context, it would be relevant to refer to decision of the Hon ble High Court of Calcutta in case of Commissioner of Income-tax, Kolkata - III vs. ITC Ltd [2016] 7 ITR OL 166 (Cal) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated by the section. The judgment in the case of Thiru Arooran Sugars Ltd. (supra) has no manner of application for the simple reason that the Court in that case was concerned with the question as to the market value of sugarcane grown by the assessee at home. The Supreme Court was of the opinion that the sugarcane grown at home would be deemed to have been sold to the sugar mill at the same rate at which sugar cane was purchased by the sugar mill. That obviously is correct because if the sugarcane grown at home had not been sold to the sugar mill of the assessee itself, the sugarcane would have been sold in the open market. The rate of sale in the open market would be the same at which sugarcane was purchased by the sugar mill of the assessee. But in the case before us the electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. The rate at which electricity could have been sold to any such company is not the same at which such companies sale electricity to the consumers. The rate at which electricity can be supplied to a consumer by the distribution licensee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed therefore doesn t support the case of the assessee. In the interest of justice and fair play, following our decision in case of Chambal Fertilizers (supra) and given the provisions of section 80A(6) which overrides section 80IA(8) and are clearly applicable in the instant case and have not been considered by the authorities below, we deem it appropriate to set aside the matter back to the file of the Assessing officer to examine the same afresh taking into consideration the above discussions. 13. Regarding ground No. 2 of assessee s appeal, briefly the facts of the case are that the assessee has claimed deduction on account of education cess (EC) secondary and higher education cess (SHEC) on Income tax Dividend Distribution Tax amounting to ₹ 1,42,79,859/-, as eligible revenue expense u/s 37 of the Act while computing total income for the year under consideration. The AO disallowed the above claim on contention that EC SHEC are in effect additional surcharge and if surcharge is not allowable as revenue expenditure, then education cess should be treated similarly while computing total income. 14. The ld. CIT(A) affirmed the contention of the AO that educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation-vs. CIT (1999) 237 ITR 589 (SC) - Vodafone International Holdings BV-vs.-UOI (2012) 341 ITR 1 (SC) 19. The said omission was clarified by CBDT Circular No. 91/58/66 ITJ (19) dated 18-05-1967, wherein it has been stated that the effect of the omission of the word cess from Sec. 40(a)(ii) is that only taxes paid are to be disallowed from AY 1962-63 onwards and not the Cess. Since Circular is binding on the Department as also held by Hon ble Apex Court in the case of Commissioner of Customs-vs.-Indian Oil Corpn. Ltd. (2004) 267 ITR 272 (SC), cess should not be disallowed while computing total income for the year under consideration. 20. Reliance in this regard is placed on the decision of Duncans Industries Ltd.-vs-JCIT (2003) 87 ITD 457 (Kol), wherein relying on CBDT Circular No. 91/58/66-ITJ (19) it has been held that cess does not fall within the prohibitory items of deduction under sec. 40(a)(ii). 21. Further, the issue whether tax shall include cess, has been decided by Hon ble Lucknow Tribunal in DCIT-vs.-Yuvraj Singh (ITA No. 408/Lkw/2011 dated 23.12.2013) wherein it has been held that for computing tax effect, cess should not be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cess is clearly additional surcharge for the purposes of the Union and being a surcharge, it partake the nature and character of tax and thus disallowable under the provisions of section 40(a)(ii) of the Act. The relevant discussion and findings are reproduced herewith: 62. We have heard the rival contentions of both the parties and perused the material available on the record. In order to appreciate the alternate contentions raised by both the parties, we refer to the provisions of section 40(a)(ii) of the Act which is the subject matter of examination before us which reads as under: Section 40(a)(ii) Amounts not deductible. 40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- ( a) in the case of any assessee- ( ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 1.-For the removal of doubts, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of charging income-tax in respect of the total income; and ( b) the income-tax chargeable shall be calculated as follows:- ( i) the total income and the net agricultural income shall be aggregated and the amount of income-tax shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income; ( ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in the said paragraph A, as if the net agricultural income as so increased were the total income; ( iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax in respect of the total income: Provided that the amount of income-tax so arrived at, as reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, shall be increased by a surcharge for purposes of the Union calculated in each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded therein. ( 6) In cases in which tax has to be deducted under sections 194C, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194LA, 196B, 196C and 196D of the Income-tax Act, the deductions shall be made at the rates specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated,- ( a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of such tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds eight hundred and fifty thousand rupees; ( b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax; ( c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such tax. ( 7) In cases in which tax has to be collected under the proviso to section 194B of the Income-tax Act, the collection shall be made at the rates specified in Part II of the First Schedule, and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act shall be increased by a surcharge for purposes of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of Part III of the First Schedule: Provided also that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, advance tax computed under the first proviso shall be increased by a surcharge for purposes of the Union, calculated,- ( a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of advance tax where the total income exceeds eight hundred and fifty thousand rupees; ( b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such advance tax ; ( c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such advance tax . ( 10) In cases to which, Paragraph A of Part III of the First Schedule applies, where the assessee has, in the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-sections (4) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the Education Cess on income-tax , so as to fulfill the commitment of the Government to provide and finance universalised quality basic education, calculated at the rate of two per cent of such income-tax and surcharge. We now refer to the Notes to clauses of the Finance Bill 2004 which provides as under : It is also proposed that the amount of income-tax as specified in sub-clauses (4) to (10) of clause 2 of the Finance (No. 2) Bill, 2004 and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the Education Cess on Income-tax so as to fulfil the commitment of Government to provide and finance universalised quality basic education, calculated at the rate of two per cent, of such income-tax and surcharge. The Education Cess on Income40 tax shall be payable during the previous year beginning on 1st April, 2004. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I of the First Schedule to the Finance Act, 2003. The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union to be calculated as follows: ( i) in the case of every individual, Hindu undivided family, association of persons and body of individuals at the rate of ten per cent, of such tax where the income or the aggregate of such incomes paid or likely to be paid exceeds ₹ 8,50,000; ( ii) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent, of such tax; and ( iii) in the case of every artificial juridical person, at the rate of ten per cent, of such tax. An additional surcharge, to be called the Education Cess to finance the Government s commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge. III. Rates for deduction of income-tax at source from Salaries , computation of advance tax and charging of income-tax in special cases during the financial year 2004-2005 The rates for deduction of income-tax at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time being in force. ( 2) The Education Cess on excisable goods shall be in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 (1 of 1944) or any other law for the time being in force. ( 3) The provisions of the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be. Education Cess on imported goods 84. (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Finance Bill 2004 in the Parliament: 22. In my scheme of things, no issue enjoys a higher priority than providing basic education to all children. The NCMP mandates Government to levy an education cess. I propose to levy a cess of 2 per cent. The new cess will yield about ₹ 4000 - 5000 crore in a full year. The whole of the amount collected as cess will be earmarked for education, which will naturally include providing a nutritious cooked midday meal. If primary education and the nutritious cooked meal scheme can work hand in hand, I believe there will be a new dawn for the poor children of India. On perusal of the Finance Bill and the relates notes to the clauses and the memorandum explaining the Finance Bill, it is clear that income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge for the purposes of the Union. Further, as per section 2(11), the amount of income-tax shall be further increased by an additional surcharge for the purposes of the Union to be called the Education Cess on income-tax . We have also gone through the Finance Act 2004 and found that the provisions there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word education cess . Infact, clause 83 (3) of the Finance Bill 2004 makes this position crystal clear when it states that the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be. Though the same has been stated in the context of Central Excise Act, in our view, the same equally applies in the context of the Income tax Act given that the nature and character of levy of education cess is identical across all tax legislations. We now refer to the judgement of the Hon ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). In this case, the assessee who carried on the business of raising coal from coal mines and selling it, paid road and public works cess under the Bengal Cess Act, 1880 and education cess under the Bengal (Rural) Primary Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich would be deemed to be the annual net profits. The Cess Act of 1930 follows the same pattern so far as the ascertainment of annual net profits is concerned. These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under section 10 of the Act. It is not possible to see, therefore, how section 10(4) could be applicable at all in the present case. Thus, on the language of the provisions both of the Act and the two Cess Acts the applicability of section 10(4) cannot be attracted. But even according to the decided cases such cesses cannot fall within section 10(4). It is thus clear that Section 10(4) of the 1922 Act excludes only cess, rate or tax which is levied on the profits or gains of any business, profession or vocation, or is assessed at a proportion of or on the basis of such profits or gains, in accordance with the provisions of section 10 of the Act. The road and public works cess levied under the Bengal Cess Act, 1880 and education cess levied under the Bengal (Rural) Primary Tax Act, 1930 was thus held as not a cess levied as part of the tax under the Income-Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment and is levied for which the person who pay the tax is not promised in return to get any benefit or service. The assessee is not getting any benefit or services in return by making the payment towards the education cess and secondary higher education cess. Therefore, it cannot be said that it is an expenditure incurred wholly and exclusively for the purpose of the business and is not part of tax. We do not find any infirmity or illegality in the order of the CIT(A) while confirming the disallowance made by the assessing officer in this regard. Thus, disallowance of ₹ 19,72,00,814/-is hereby confirmed. Thus, this ground stand dismissed. As regards the Circular No.91 / 58 / 66 ITJ (19), dt.18.5.1967, the effect of omission of the word cess from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessments for the years 1962-63, onwards. In this regard, in the first place, it has to be seen that cess , as contemplated in the aforesaid Circular, relates to the cess which is leviable under some other Statutes and which is a charge on the profits of the assessee, as in the aforesaid case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held above, the basis character of education cess as intended by the legislature is tax which is levied on the profits or gains of the business and given that such tax has already been provided in section 40(a)(ii) as not an allowable deduction, there was nothing more that was required or expected from the legislature. The levy of wealth tax, securities transaction tax and fringe benefit tax are not on the profits or gains of business or profession, hence, there was a necessity felt by the legislature and which was specifically provided for. 64. In light of above discussions and the facts and circumstances of the case, we are of the view that ld CIT(A) has rightly disallowed the claim of education cess as an allowable deduction under section 40(a)(ii) of the Act. In the result, ground taken by the assessee is dismissed. 26. Our above view has been fortified by a recent decision of the Hon ble Supreme Court in case of SRD Nutrients Private limited vs Commissioner of Central Excise, Guwahati (Civil Appeal No. 2781-2790 of 2010 dated 10.11.2017) wherein the issue for consideration was where the appellant was entitled for refund of education cess and higher education cess w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil. 22) It is rightly pointed out by the learned counsel for the appellants that the CESTAT in the earlier two judgments given in Bharat Box Factory Ltd. and Cyrus Surfactants Pvt. Ltd., held that Education Cess and Higher Education Cess would also refundable along with excise duty and in view thereof, another co-ordinate Bench of CESTAT could not take a contrary view in Jindal Drugs Ltd. Judicial discipline warranted reference of the matter to the Larger Bench which it did not do. In the impugned judgment, while preferring to follow the view taken in Jindal Drug Ltd. the Tribunal has not given any reasons for adopting this course of action. The Rajasthan High Court in the case of Banswara Syntex Ltd. while holding that surcharge taken in the form of Education Cess shall also be refundable has given the following reasons in support of the said view: 15. The very fact that the surcharge is collected as part of levy under three different enactments goes to show that scheme of levy of Education Cess was by way of collecting special funds for the purpose of Government project t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atna v. Tata Engineering and Locomotive Co.10 In that case, issue pertained to valuation of cess which was levied @ 1/8 per cent of ad valorem value of the central excise duty. The Court held that the calculation of 1/8 per cent ad valorem of the motor vehicle for the purposes of the levy and collection of the automobile cess must be made that was being calculated since automobile cess was to be levied and calculated as if it was excise duty. As a fortiorari, the Education Cess and Higher Education Cess levied @ 2% of the excise duty would partake the character of excise duty itself. 27. In light of above discussions, respectfully following the decision of the Hon ble Supreme Court in case of SRD Nutrients Private limited (supra) where education cess and higher education cess have been held to partake the character of excise duty, the legal proposition so laid down by the Hon ble Supreme court will apply with equal force in the context of income tax, and following our decision in case of Chambal Fertilizers (supra) wherein we have held that across all tax legislation direct taxes as well as indirect taxes on goods and services, the nature and character of education cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 in assessee s own case in DB ITA No. 204/2010 dated 22/08/2017 and DB ITA No. 85/2014 dated 22/08/2017. 32. In DB ITA No. 204/2010 dated 22/08/2017, the substantial question of law framed for consideration by Hon ble Rajasthan High Court was as under:- Whether on the facts and circumstances of the case, the tribunal was justified in holding that the sales tax subsidy received by the assessee of ₹ 18,48,85,506/- in the form of Sales Tax Exemption was a capital receipt and not a revenue receipt ignoring the basic purpose for which the same was given which itself provides that the subsidy was given to the assessee to enhance the production, employment and the sale in the State of Rajasthan which are all post operational activities. 33. While considering the above substantial question of law, the findings of the Hon ble Rajasthan High Court are as follows: 6. We have heard counsel for the parties. 6.1 In view of the contentions which have been raised by the counsel for the department and discussions made by the AO as well as CIT(A) in our considered opinion, the tax liability, we have considered original purpose for which the Scheme has been floated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. 38. Now, we refer to AY 2013-14 wherein the respective grounds of appeal are as follows: ITA No. 178//JP/2016 (Ground of Assessee s appeal): i) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance u/s 80-IA by ₹ 137,34,88,344/- by making adjustment in the transfer price of power captively consumed. ii) That on the facts and in the circumstances of the case the ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the AO on account of Education Cess amounting to ₹ 7,03,53,342/-. iii) That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the A.O on account of gift expenses to the tune of ₹ 4,13,437/-. iv) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and erred in confirming the disallowance made by the A.O on account of profit on sale of investment amounting to ₹ 60,37,35,196/- profit on sale of fixed assets amounting to ₹ 2,23,82,657/- wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her not including the same while determining the books profits u/s 115JB of the Act. 43. Briefly, the facts of the case are that during the year under consideration, the assessee company has received ₹ 6,57,98,024 by way of electricity duty exemption under Rajasthan Investment Promotion Scheme 2003. The assessee company has treated the same as capital receipt applying the same analogy as in case of sales tax subsidy and has not offered the same to tax. In support, reliance was placed on the decision of the Coordinate Benches of the Tribunal for earlier years rendered in the context of sales tax subsidy. The AO also applying the same analogy as in case of sales tax subsidy given that these receipts are also borne out of the same scheme of the Rajasthan Government and the fact that the decision of the Coordinate Benches are under challenge before the Hon ble High Court, brought these receipts to tax and also added the same to compute the book profits u/s 115JB of the Act. 44. On appeal, the ld CIT(A) held that both sales tax subsidy and electricity duty exemption has been received under the Rajasthan Invesment Promotion Policy of 2003, following the orders of the Coordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme The scheme shall be applicable to all new investments and investments made by existing units and enterprises for modernization/diversification, subject to the condition that such units shall commence commercial production/operations owing to such investment during the operative period of the scheme. Clause-5: Eligibility: The benefit (subsidies as per Clause 7 and exemption as per Clause 9 under this scheme shall be available to all units, other than those covered in the list of ineligible units subject to the fulfillment of the following conditions:- ( i) To claim wage/employment subsidy the unit shall provide:- ( a) Direct employment to at least then persons in case of a new unit and ( b) Twenty five percent additional direct employment subject to a minimum of ten persons in case of diversification, modernization or expansion. ( c) The unit shall be eligible for interest subsidy and/or wage/employment subsidy only if it commences first commercial production/operation during the operative period of the scheme. Clause-7: Subsidies: In case of new investment made, the sum total of interest subsidy and wage/emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the respondent was of revenue nature inasmuch as it went towards reduction of the electricity bills. 49. The A/R has cited the decision of Bombay Spt. Bench ITD 273 (2004) in the case of DCIT vs. Reliance Industries Ltd. In this case the following point was to be decided; whether on the facts and in the circumstances of the cae and in law the assessee company is justified in its claim that the sales tax incentive allowed to it during the previous year in terms of relevant government order constitute capital receipt and is not to be taken into account in computation of total income. The factual position in this case is as under:- The assessee set up a unit in Patalganga which is a notified area and became eligible for incentive announced by the Govt. of Maharashtra, which begins commercial production in November, 1982. The incentive was in the form of exemption from liable for payment of sales tax for a period of 5 years commencing from 8-6-83 and ending on 7-6-1988. The assessee s claim was that the quantum of the sale tax liable would be claimed as deduction on the basis of that it is a capital receipt or on the basis of that it should be treated as liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has also commenced in the same financial year. Thus all the terms and conditions of the scheme do clearly define that the waiver of electricity duty by the Govt. of Rajasthan was with a purpose to held the assessee to establish a new power plant and not to held in day to day operations of the power plant. Therefore, the decision of the Hon ble Spl. Bench, Bombay in the case of Reliance Industries is fully applicable to the appellant s case. Therefore, the disallowance made by the AO is deleted. The appeal is allowed on this ground. From above, it can be inferred that ld. CIT (A) considered all the judgments as relied by the parties and by following the decision of the Special Bench deleted the addition. In the present case, there is no dispute with regard to the fact that the waiver of electricity duty is linked with the quantum of investment made by the Assessee. The pre condition for availing such incentive is essentially investment made by the assessee. In the Sahney Steel and Press Works Ltd.(supra), the Hon ble Supreme Court examined the issue and laid down principles on the basis of which a subsidy given to the assessee is required to be categorized. If it is an oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production, and therefore, such a subsidy would only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a Revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel Press Work s Ltd. s case(supra) lies in the fact that it has discussed any analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. The test that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, on has to apply the purpose test. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he House of Lords held that money received by the company was not in the course of trade but was of capital nature. The judgment of House of Lords shows that the source of payment or the form in which the subsidy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily such payments would have been on revenue account but since the purpose of the payment was to curtain/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature. 16. one more aspect needs to be mentioned. In Sahney Press Works Ltd. s case (supra) 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. (supra) assesee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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