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TMI Blog2018 (5) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of assessee. The ground of appeal No.3 raised by the assessee is dismissed. Taxation of “Industrial Promotion Subsidy” - capital receipt OR revenue receipt - Held that:- The issue arising before us is identical to the issue before the Tribunal in Innoventive Industries Ltd. Vs. DCIT (2017 (4) TMI 44 - ITAT PUNE) and the assessee had received incentive / subsidy from the State Government for setting up the project in the classified area. We hold that subsidy received by the assessee under PSI, 2007 is capital receipt in the hands of assessee. Accordingly, we delete the addition. The grounds of appeal raised by the assessee are thus, allowed. - ITA Nos.308 & 309/PUN/2017 - - - Dated:- 27-4-2018 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Appellant : Shri Kishore Phadke For The Respondent : Shri Ajay Modi ORDER PER SUSHMA CHOWLA, JM: Both the appeals filed by assessee are against separate orders of CIT(A)-7, Pune, both dated 25.10.2016 relating to assessment years 2010-11 2011-12 against respective orders passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. Both the appeals relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue raised vide ground of appeal No.3 against disallowance of amortization of expenses incurred on account of increase in share capital of ₹ 23,300/-. 6. The CIT(A) after considering explanation of assessee noted that the assessee had deducted tax at source @ 1% and there was certificate for lower rate of deduction @ 1%. He further noted that the assessee had not deducted tax at source on octroi charges reimbursed to Saraswati Transport Company. From the details given, octroi charges were ₹ 1,97,738/- and transport charges were only ₹ 3,955/-. Further, as per TDS certificate, total amount paid to Saraswati Transport Company was only ₹ 3,82,501/-. The CIT(A) from the perusal of bill and TDS certificate observed that TDS was not deducted on octroi charges. He was of the view that the payments made to Saraswati Transport Company were more than ₹ 3,82,501/-. The plea of assessee that TDS was not required to be deducted out of reimbursement of expenses, was not accepted by the CIT(A) on the ground that the assessee had failed to demonstrate that there was such reimbursement. The CIT(A) held that in view of the provisions of section 40(a)(ia) of the Act, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to delete disallowance of ₹ 1,97,738/-. Hence, the grounds of appeal No.1 and 2 raised by the assessee are thus, allowed. 11. The issue in ground of appeal No.3 raised by the assessee is against disallowance of expenses incurred on account of increase in share capital of the assessee company amounting to ₹ 23,300/-. The said expenses are capital in nature and hence, are not to be allowed in the hands of assessee. Accordingly, the ground of appeal No.3 raised by the assessee is dismissed. The grounds of appeal raised by the assessee are thus, partly allowed. 12. Now, coming to the appeal of assessee in ITA No.309/PUN/2017, relating to assessment year 2011-12. The grounds of appeal raised by the assessee are as under:- 1. The learned AO erred in law and on facts in taxing and learned CIT(A) erred in law and on facts in confirming the taxation of Industrial Promotion Subsidy amounting to ₹ 26,37,000/- on the analogy that the same is not a capital receipt, but a revenue receipt chargeable to tax. 2. The learned CIT(A) erred in law and on facts in drawing incorrect analogies and tests for deciding the nature and character of the Industrial Promotion s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007. The assessee has placed the copy of said certificate at pages 36 to 42 of Paper Book. As per said certificate, subsidy was granted only after setting up of industries and the same is claimed to be nothing but assistance given for the purpose of setting up of industries. The eligibility certificate states that electricity duty exemption for a period of 15 years from 01.03.2009 to 29.02.2024. It further states that Industrial Promotion Subsidy (IPS) equivalent to 40% of eligibility investment was ₹ 190.76 lakhs for the period of 96 months i.e. 01.03.2009 to 28.02.2017. The eligibility certificate further provides that in case unit is closed down or producing below normal production, incentive availed would be withdrawn. The case of assessee was that the said receipt was capital receipt in its hands. However, the case of Revenue is that the said receipt is revenue receipt chargeable to tax in the hands of assessee. 16. We find that the Tribunal in the case of Innoventive Industries Ltd. Vs. DCIT (supra) had considered the aforesaid scheme of PSI, 2007 and had relied on decision of the Hon'ble Supreme Court and on various decisions of Hon ble High Courts and held as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the developed areas, viz, Mumbai Metropolitan Regional (MMR) and Pune Metropolitan Region (PMR). (ii) Group B : comprising the areas where some development has taken place. (iii) Group C : comprising the areas, which are less developed than those covered under Group B. (iv) Group D : comprising the lesser developed areas of the State not covered under Group A/Group B/Group C. (v) Group D+ : comprising those least developed areas not covered under Group A/Group B/Group C/Group D. (vi) No industry District : not covered under Group A/B/C/D D+. 17. The beneficiary of PSI, 2007 will be issued eligibility certificate by the implementing agency and the eligibility certificate will be issued with effect from the date of commencement of commercial production by the eligible unit. The assessee is classified as Mega Project. The Department of Industries, Government of Maharashtra vide letter dated 30-10-2007 has offered the status of Mega Project to the proposal of assessee on the basis of employment generation and has offered incentives subject to compliance of PSI, 2007. 18. The assessee has entered into Memorandum of Understanding with the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions of the Memorandum of Understanding reveal that the incentive/benefits under the scheme are offered to the assessee subject to the compliance of certain conditions. The benefits are in the form of exemption from payment of Electricity Duty, 100% exemption from payment of Stamp Duty on purchase of land etc., the Industrial Promotion Subsidy is given to the extent of 75% of eligible investment made during prescribed period (limit of 75% of the eligible investment shall be reduced by the amount of benefits offered in the form of electricity duty and exemption of stamp duty) or to the extent of taxes paid to the State Government within a period of 7 years, whichever is lower. A close perusal of the above condition would make it unambiguously clear that it is not the choice of the beneficiary under the scheme to select the mode of subsidy. The beneficiary is entitled to subsidy subject to the limit of 75% of eligible investments as reduced by the amount of benefits availed on account of Electricity Duty and Stamp Duty exemption or the taxes paid to the State Government within a period of 7 years, whichever is lower. In the present case, the assessee has received Industrial Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subsidy was also increased from 7 years to 9 years. Thus, it is unambiguously clear that the assessee had reached the level of investment and had even gone much beyond the initial level of investment of ₹ 117 crores. Therefore, the said objection raised by the CIT(A) in rejecting the claim of the assessee is unwarranted. 22. To be eligible to claim the benefit of scheme the assessee was required to obtain eligibility certificate. In the present case, the eligibility certificate was issued with effect from the date of commencement of commercial production by the assessee. Thus, the assessee was eligible to claim the benefit of Industrial Promotion Subsidy for the period of 7 years starting from the date of production, i.e. 01-12-2008 to 30-12-2015. Accordingly, the period relevant to the assessment year 2009-10 was the first year in which the assessee could have claimed the benefit of subsidy. The relevant extract of the eligibility certificate is reproduced herein below : 6. Capital cost (Rs.in lacs) Particulars Maximum Admissible Fixed Capital Investment Actual accepted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has received benefit of subsidy for Mega Project after qualifying all the conditions set out in PSI, 2007. 23. The Hon ble Supreme Court of India in the case of Ponni Sugars and Chemicals Ltd. (supra) has laid down certain principles to determine the nature of subsidy, they are : (a) The object of subsidy scheme - If the scheme was to enable the assessee to run the business more profitably then the receipt is on Revenue account. If the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand existing unit then the receipt of subsidy is on capital account. (b) The form or mechanism through which the subsidy is given is irrelevant. The purpose for which the amount received as subsidy is utilized. (c) The purpose for which the amount received as subsidy is utilized. The underlying factor which determines the nature of subsidy is the purpose for which the subsidy is given. The mode of payment of subsidy does not determine the nature of subsidy. 24. In the case of Shree Balaji Alloys and Others Vs. CIT (supra), the Hon ble High Court of Jammu Kashmir had occasion to deal with the issue determining the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt introduced to the Office Memorandum vide Notification of November 28, 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 April 19, 2003, was, for creation of one lac employment and self employment opportunities in Jammu and Kashmir State. 23) To achieve the purpose and objective referred to herein above, 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 Deputy Commissioner of the Central Excise or the Assistant Commissioner of Central Excise, 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 the Office Memorandum and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bonafide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of 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 and Ponni Sugars cases (supra). 31) The finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of subsidy would be on capital account. In the light of the aforesaid objects of the Scheme framed by the State Government, the decision of the Income Tax Appellate Tribunal that the amount of subsidy received by the assessee is on capital account cannot be faulted. Accordingly, both the appeals are dismissed with no order as to costs. 27. The Ld. Departmental Representative has placed reliance on the decision of Coordinate Bench of the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT (supra). In the said case, the State Government for the purpose of promotion of wind energy generation in the State of Maharashtra had granted certain benefits to the persons who had set up windmill. The policy to grant further incentives to windmill owners was formulated in the background of the fact that earlier policy of the State Government on generation through non-conventional sources did not achieve the desired results. In the subsequent policy the sales tax benefits were granted to the windmill operators to mitigate the problems faced by the promoters of wind energy generation. In the background of these facts the Tribunal held that the sales tax benefit was not intend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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