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TMI Blog2016 (5) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri A.K Tulsyan, CA, ld. AR represented on behalf of the assessee and Shri A.K. Mohapatra, ld.CIT/DR represented on behalf of the revenue. ITA No.65/Kol/2010 A.Y 2006-07 (by the assessee) 4. In this assessee's appeal, the assessee has raised following ground of appeal :- "1. That the CIT(A), Central-I, Kolkata, erred in helding that the power subsidy received as grant for new and expanding industrial unit as utilized for expansion & repayment of term loan, as revenue receipt in place of Capital receipt. The order of A.O & CIT(A) need to be reversed. " ITA No.665/Kol/2011 A.Y 2007-08 (by the assessee) 5. In this assessee's appeal, the assessee has raised following grounds of appeal:- "1. That the CIT(A), Central-I, Kolkata, erred in holding that the power subsidy received as grant for promotion of industrial unit is revenue receipt as against the claim of the assessee that the same is a capital receipt. The orders of A.O & CIT(A) need to be reversed. 2. That the assessee craves the leave to add, alter, amend or whether any ground or grounds of appeal before or at the time of hearing" 6. It was submitted by the learned AR for the assessee that the assessee is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W.B issued a Notification referring to the letter dated 25-2-1999 (refer to supra), wherein it was decided to provide incentives to power intensive industries being new and expanding industries. As per the said notification, part of the net energy charges was liable to be reimbursed for a specified period. It was the submission that the eligibility period in the case of assessee was from 27-9-03 to 26-9-09. The learned AR drew our attention to the letter of the West Bengal Development Industrial Corporation dated 02-03-2006, which was found at page 73 of the assessee's paper book which showed the eligibility period. It was submitted that the Deptt. of Power, Govt, of W.B vide letter dated 16-7-2004 held that the concession will not be provided to industries as per earlier order by M/s. DPL and West Bengal State Electricity Board w-e-f 1-4-2004. Consequently, the Govt, of W.B, Commerce & Industry Deptt had issued the Notification No. 276-CI/10/Incentive/052/05/I dated 19-05-2005, wherein it was mentioned that as there has been robust growth and resurgence in the industrial scenario/investment in the State and the State Govt is desirous of continuing all efforts to attract entrep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission that in the assessee's case the incentive admittedly was computed on the basis of consumption. but the subsidy was not given to the assessee as a reduction in the electricity bill/tariff. The subsidy was separately granted to the assessee from the funds allocated by the Govt. of W.B and the same was paid to the assessee through a specified agent for the purpose: It was the submission that the Hon'ble Special Bench, ITAT Mumbai in the case of Dy. CIT v. Reliance Industries. Ltd. [2004] 88 ITD 273 (Bom)(SB) had considered the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 and held that the sales tax incentive given by the Govt, of Maharashtra to an assessee for setting up industries in the notified area in the form of exemption of liability from the payment of sales tax, it had been held to be capital receipt. It was further submitted that the Hon'ble Supreme Court in the case of CIT v. Ponni Sugars.& Chemicals Ltd.[2008] 306 ITR 392 /174 Taxman 87 had laid down the test to be applied for determining the nature of the subsidy and such test was a purpose test. It was the submission t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount having been used to repay the loans in respect of the capital outlay on "that ground also the subsidy was liable to be treated as capital subsidy. The claim of the subsidy itself was to attract the entrepreneurs for setting up industries in the state specially in the back ward areas, which showed that the subsidy was on account of capital outlay and the same was liable to be treated as a capital receipt. 8. In reply, learned Sr.DR submitted that in view of the decision of the Hon'ble Supreme Court in the case of Rajaram Maize Products (refer to supra) and the decision of the Hon'ble Supreme Court in the case of Ms. Sahney Steel & Press Works Ltd & Ors (refer to supra) as also, the principle has laid down by the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd, (supra) the subsidy received by the assessee had been rightly held by the Assessing Officer to be revenue receipt and the same has also been upheld by the learned Commissioner of Income-tax (Appeals). He further placed reliance on the decision of the Hon'ble Special Bench, ITAT, Hyderabad to submit that the subsidy received by the assessee for the expansion of assessee's new projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove. AND WHEREAS, the WBERC vide its order dated June 9, 2004 fixed the tariffs for WBSEB for the years 2002-03, 2003-04 and 2004-D5. The tariff for the year 2002-03 was fixed at the same level as that of 2001-02. The tariff for 2003-04 was the applicable tariff for 2001 -02 plus 52 paise per kilowatt hour for interim on certain categories. However, in the tariff order for 2004-05, the concessional tariff for the new, expanding and sick & closed industries have not been allowed as was granted by the Department of Power, Government of West Bengal under its letters referred to above. As such, it has been decided by the Department of Power, Government of newest Bengal vide their letter no. 3443/S S/04 dated July 16, 2004 and 3444/SS/04 dated July 16, 2O04 that such concessions will not be provided to the industries as per earlier orders by DPL and WBSEB with effect from April 1,2004. AND WHEREAS, there has been robust growth and resurgence in the industrial-scenario/investment in the State and the State Government is desirous of continuing -all efforts to attract entrepreneurs for setting up industries in the State, especially, the backward areas. AND WHEREAS, considering the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Government. (f) "WBIDC" means the West Bengal Industrial Development Corporation Limited. (g) "Authorised Agent" means WBIDC an agent specially authorized by the State Government for operation of the WBIPS 2005 in respect of large scale industries. (h) " Unit" means industrial project in large scale having approval in the from of letter of intent, industrial license or registration certificate, as the case may be, under the Industries (Development & Regulation) Act, 1951(65 of 1951) or an Acknowledgement in the form of a reference number of the Secretariat for. Industrial Assistance excluding those mentioned in the negative list of industries at Annexure I of West Bengal Incentive Scheme, 2000 and West Bengal Incentive Scheme, 2004; (i) "Large scale unit" means a unit as defined by the Government of India from time to time. (j) "New Unit" means an industrial unit in the large scale sector having investment in fixed capital assets which is established and commissioned by the entrepreneur for the manufacture of goods in West Bengal for the first time on or after the April 1,2004 and is registered with the Directorate of Industries: (k) "Existing Industrial Unit" mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed, as may be approved by the West Bengal Electricity Regulatory'' Commission in the tariff order from time to time. Presently it is the maximum KVA demand recorded between6 A.M and TO 10 P.M of the day or 75% of the contract demand whichever is higher. (u) 'Energy Charge',, is the product of actual energy in Kwh drawn during the month and gross energy charge rate as per prevailing tariff, but excluding demand charge. (v) 'Net Energy Charge', is the energy charge computed after allowing rebate on energy charge as approved by the West Bengal Electricity Regulatory Commission from time to time. At present rate, such admissible rebate is 4% for 33KV & 66KV supply and 8% for 33KV & 66KV supply and 8% for 132 & 220 Kv. (w) "Incentive" means reimbursement of part of the net energy charges for a certain period by the State Government. PART A A.4.0 APPLICABILITY A.4.1. Units which were already availing concessions from DPL and WBSEB in terms of letter nos. 78-Power/II/IR- 1/98 dated February 25, 1999 and 79- Power/IIIIR-9/98 dated February 25, 1999 from the Department of Power, Government of West Bengal and whose concessions were discontinued in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Engineer (Commercial), WBSEB/ DPL or any other officers nominated by the designated utility for this purpose along with a certified copy of Form-C, bill and receipt of the bill payment of the electricity bill. PART-B B.6.0 APPLICABILITY . B.6.1:This shall be applicable to all large scale new units and also for expansion of existing units on or after4he July 16, 2004 drawing power from West Bengal State Electricity Board(WBSEB). The units may be in the private sector, co-operative sector, joint sector, as also companies! undertakings owned or managed by the Government of West Bengal and who draw power from the WBSEB. B.7.0 ENTITLEMENT FOR INCENTIVE B. 7.1 The State Government through its Authorised Agent will offer incentive in the: form of reimbursement from the State Government to all new units or expansion of existing units, in the districts falling in Group 'B' and Group 'C' areas as defined in the West Bengal Incentive Scheme , 2004, drawing power through HT ( 33 KV) and EHT(above 33KV) connection having actual monthly maximum demand of 1500 KVA and above, on the Net Energy Charge as stated in monthly electricity bill at the following rates: Area Monthl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Agent from the funds placed by the State Government upon receipt of recommendation of admitted claim of power incentive in Format- D from Chief Engineer ( Commercial), WBSEB or any other officers nominated by the designated utility for this purpose with a certified copy of bill and receipt of the bill payment of the electricity bill. B. 8.4 The incentive will not be available to units which have availed State Capital investment Subsidy on purchase and installation of captive power generation set (s). B. 8.5 Units; availing of incentive under this Scheme will not get State Capital Investment Subsidy under WBIS 2000/2004 for the investment in Captive Power plant. The unit will also not get benefit of inclusion of investment in Captive Power Plant for the purposes of .calculation of Fixed Capital Investment for Industrial Promotion Assistance under WBIS,2000/2004. B.9.0 POWER TO AMEND AND/OR RELAX/REPEAL: Notwithstanding anything contained in any of the provisions of the Scheme, the State Government may at any time - (a) make any amendment to this Scheme or repeal it, but the commitments already made for an approved project shall not be affected by any such amendments or repe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2005-06 the assessee did recognise that the concession receipt is not a capital subsidy, but was on the revenue field. Thus, concession received by the assessee for the assessment year 2005-06 is in line with the agreement entered by the assessee with M/s. DPL and M/s. WBSEB. It is because M/s. DPL and M/s. WBSEB decided to withdraw the concession granted by the agreement, the Govt, of W.B had brought it under the scheme called West Bengal Incentives to Power Industries Scheme 2005 by the Notification dated 19-5-2005. The incentive/concession received by the assessee under the said scheme shows that it is for the balance period of the agreement between the assessee and M/s. DPL & M/s. WBSEB. This is evident from the letter of the West Bengal Industrial Development Corporation dated 2-3-06. Even the said letter talks of .only concession energy. Thus, if we see the objects of the scheme, it is clear that the object is to run the business pf the assessee more profitably by giving a concession to the: assessee, in respect, of .power tariffs. The subsidy/concession/incentive under the notification has not been .granted to the assessee to enable the assessee to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the facts and circumstances of the case 1 have no disagreement regarding the facts and the arguments mentioned in paras 1 to 10 but 3 am not in agreement with the conclusion of the Id. JM at paras 11. 12 and 13 as proposed by me at the lime of hearing after discussion with the ld. JM 1 would like to express my opinion on the issue involved in both the appeals. 3. The only issue raised by assessee in both the appeals is relating to whether the power subsidy received as grant for promotion of industrial unit is revenue receipt or a capital receipt. In the proposed order the ld. JM has discussed the arguments of the ld. All at paras 6 and 7 and the arguments of the ld. DR at para no.8. In para no.9 and 10 he has discussed the scheme as provided under notification dated 19.05.2005 and further extracted the letter of West Bengal Industrial Development Corporation dated 02.03.2006 and as regarding the arguments and the scheme including the letter of West Bengal Industrial Development Corporation there is no dispute on these facts. Therefore I need not repeat the same as they are already incorporated in ld. JM's order. I am not in agreement only with the findings given by ld. JM at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the above two clauses since the assessee is not entitled as per the above two clauses either for state capital investment subsidy on purchase and installation of captive power generation sets or under WBIS 2000/2004 for the investment in captive power plant. It is further observed that while framing the notification dated 19.05.2005 West Bengal Commerce and Industry has categorically mentioned that this scheme is applicable for new as well as existing industrial units and the same has been defined at (j) and (k) under definitions in clause (iii). Again since the assessee gets the incentive: only after the assessee has gone into production, in my opinion, this cannot be treated, as revenue. Since the sales tax subsidy which has been given to the. industrial, units is much after the production and after tire effecting sales. The Special Bench of this Tribunal has considered this sales tax subsidy as capital subsidy and the Jurisdictional High Court of Kolkata in the case of Rasoi. Ltd. (supra) has also considered the .sales tax subsidy received by assessee as capital in nature, :copy of which is placed on record by assessee and further relied on the same which was recorded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales tax subsidy received by the industrial units from West Bengal Commerce and Industry vide Notification dated 19.05.2005 is capital in nature. The unit based at the state of West Bengal, in my opinion, is covering by the decision of the Jurisdictional High Court. 4.3. Now I want to analyse the Jurisdictional High Court's observations made in the case of CIT v. Rasoi Limited as relied on by the Id. Counsel and analysed the facts of the present case with that of the one decided by the Jurisdictional High Court. The Jurisdictional High Court has given the following findings which are as under :- "We find that the principles laid down in the case of Saheney Siecl and Press Works Ltd (supra), relied upon by Mr, Niianniddin has been explained by die Supreme Court in a subsequent decision in the case of CIT v. Ponni Sugars and Chemicals Ltd (supra), relied upon by Mr. Poddar in die following terms; In our view, the controversy in hand can be resolved if we apply the lest laid down in the Judgment of this Court in Sahney Steel and Press Works Ltd. In that case, on behalf of the assessee, if was contended that the subsidy given was up lo 10% of the capital investment calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arketing capabilities and thus, those are for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90% of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sale tax paid. As pointed out by the Supreme Court in the ease of Senairam Doougarmall v. Commissioner of income-tax, Assam, reported in AIR 1961 SC 1579, it is the, quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature. In the case of CIT-1, Ludhhma v. Adarsh Kumar Gael, reported in [2006] 156 Taxman 257 (Punjab), relied upon by Mr. Nizamuddin, a Division Bench of/he Punjab and Haryana High Court was dealing with a case of subsidy granted in the form of sale tax exemption and thus, the Division Bench held that in the absence of any document or policy of the State Government to show the kind of subsidy it had granted it should be treated as a revenue receipt: In the case before us having regard to the objects and reasons behind the grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, and makes it fall within capital or revenue. Thus, in the case before us the amount paid as subsidy was really capital in nature. 4.6 It is further observed that the subsidy received by the assessee has been utilized for re-payment of the loan which was taken for the capital assets and addition to fixed assets in respect of Durgapur plant which is apparent from the paper book filed by the assessee. The details are as under:- SHYAM STEEL INDUSTIRES LTD. STATEMENT OF POWER SUBSIDY Financial Year Power Subsidy Receivable Power Subsidy Accounted for Addition to Fixed assets in DGP Unit Repayment of Loan (a) (b) (c) (d) 2003-04 130.051.S39 2004-05 22,153,023 Accounted for F.Yr. 2004-05 148,112,827 25,100,000.0 2005-06 59,628.713 Accounted for F.Yr. 2005-06 162,287,988 81,781,736 2006-07 65,717,283 Accounted for F/T'r. 2006-07 23,973,342 40,000,000.0 147,499.019 464.425.996 65.100.000.0 *Power Subsidy recognized for the Period June 04 to Mar 05. He further submitted year-wise details also in respect of addition of fixed assets in respect of Durgapur Plant, Howrah. Head Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was revenue in nature; while the Accountant Member holds that the power subsidy received is capital in nature. 2. It is undisputed before me that the power subsidy was grante the assessee by the West Bengal Government. The only point difference is as to whether it is capital receipt or to be treated as revenue receipt. 3. In. Ponni Sugars and Chemicals Ltd. (supra ) this question has been discussed in extenso. The co formulated two questions of which the first one is significant viz: "(i) Whether the incentive subsidy received by the assessee is a capital receipt not includible in the total income?" While determining this question, the court holds "In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this court in the case of Sahney Steel and Press Works Ltd. In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent Of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant. "[PP399- 400] (Emphasis supplied) 3.1 The second decision is of High Court of Calcutta in Rasoi Ltd. (supra). On the totality of the facts, the High Court holds "19. In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for assistance on capital account. Similar, merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sales tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT reported in [1961] 42 ITR 392 (SC); AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward areas. In the certificate, dated 2nd March, 2006 issued by Executive Director, West Bengal Industrial Development Corporation Ltd., it is clearly mentioned that the assessee is setting up a new project at Angadpur, Durgapur for manufacturing not-roiled steel bars, steel ingots/billets-and sponge iron and is entitled for power subsidy till 26.09.2009. In this view of the matter there can be no doubt that the subsidy granted is for setting up a new unit in a backward area as it is not disputed before me that Angadpur is not a backward area. The question is answered accordingly. 5. In these circumstances, on the ratio of the judgment of the Supreme Court in Ponni Sugars and Chemicals case, it is held that the subsidy so granted is a capital receipt and cannot be treated as a revenue receipt. The submissions to the contrary by the learned DR that it is revenue in nature cannot be accepted. 6. The case be put up before Division Bench for further proceedings. ORDER S.S. Viswanethra Ravi, Judicial Member - When these cases came up before the Division Bench, there was a difference of opinion between the Members then constituting the Division Bench. Accordingly the following questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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