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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 ..... , Central-1, Kolkata in Appeal No. 310/CC- VII/CIT(A)C-I/08-09 dated 30-10-2009 and the appeal in ITA No.665/Kol/2011 is filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), Central-I, Kolkata in Appeal No.221/CC-VII/CIT(A),C-I/09-10 dated 25-02-2011 for the assessment years 2006-07 and 2007-08 respectively. 2. As the issues in both the appeals are identical and common both the appeals are disposed of by this common order for the sake of convenience. 3. Shri 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 rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f power tariff vide letter dated 25-02-99 of the Department of Power, Govt. of W.B . The said concession power tariff was for new expanding, sick and closed industrial consumers of M/s. Durgapur Projects Ltd [ M/s. DPL] and West Bengal State Electricity Board. It was the submission that the assessee entered into an agreement with M/s. DPL for the supply of electrical energy vide the Memorandum of Agreement dated 30-07-2003 entered between the assessee and M/s. DPL. On 19-5-2005 the Commerce and Industries Department, Govt, of 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 Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and improving their marketing capabilities, then subsidies are assistance on capital account. It was further submission that the decision of the Hon'ble Supreme Court in the case of Rajaram Maize Products (refer to supra), which has been relied upon by the learned Commissioner of Income-tax (Appeals) was distinguishable in so far as in the case of Rajaram Maize Products (refer to supra), the same was given as incentive to the entrepreneurs as a reduction from the electricity tariff in respect of consumption. It was the submission 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 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22/9 taxmann.com 255 to submit that the incentives are made available only to the bonafide industrial units so that larger public interest of eradicating unemployment is achieved. Therefore, the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee. It was the submission that the subsidy having been received by the assessee is being for setting up a new project, the same was liable to be treated as capital subsidy. It was the further submission that the subsidy 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er January 26, 1999. Accordingly, such concessions were being given by WBSEB to the eligible consumers. AND WHEREAS, the West Bengal Electricity Regulatory Commission (WBERC) vide its order dated May 24:, 2004 and June 6, 2004 while fixing tariff for DPL consumers for the years 2000-01, 2001-02, 2002-03, 2003-04 2004-05 has observed that there shall not be any concessional tariff for the new, expanding and sick .closed industrial consumers of DPL as was granted by the Department of Power, Government of West Bengal under letter referred above. 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 Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries Department. (c) WBST means the West Bengal State Electricity Board and includes all its subordinate offices anywhere in the State. (d) DPL means the Durgapur Projects Limited and includes all its subordinate offices anywhere in the State. Designated Power utility means the Durgapur Projects Limited, West Bengal State Electricity Board and such other utility as may be notified by the State Government (e) Designated Power utility means the Durgapur Projects Limited, West Bengal State Electricity Board and such other utility as may be notified by the State 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth; (s) 'Maximum demand in 'KVA': shall be the recorded largest kilovolt amperes delivered the consumer(s) during any consecutive thirty minutes in a month: (t) 'Demand Charge', is the product of monthly chargeable Demand in KVA and demand charge rate as per prevailing tariff. Chargeable demand in a month shall be fixed, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignated power utility. The said officer will thereafter issue Admissibility Certificate in the space provided for in the said Format-C. A.5.3 The incentive will be disbursed quarterly in April, July, October and January or part thereof through the Authorised Agent from the finds placed by the State Government upon receipt of the Admissibility Certificate from Chief 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be made by the unit at its own cost. B.8.0 IMPLEMENTATION OF THE SCHEME B.8.1 The units eligible to receive incentives under the West Bengal incentive Scheme, 2004, are issued Eligibility Certificate by the Authorised Agent. The eligibility of availing subsidy under part-B of this scheme will also be incorporated in the same Eligibility Certificate. B.8.2 To claim incentive periodically, the unit will file application in Format -D to the designated officer of the designated power utility for recommendation of admitted claim of power incentive. B. 8.3 The incentive amount will be disbursed quarterly in April, July, October and January or part thereof through the Authorized 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of the fixed asset or for meeting the cost of plant and machinery. This notification also does not in any manner talk of granting the concession/incentive as a reimbursement of the cost of fixed asset nor does it talk of setting off concession against any of the loans taken for acquisition any of the fixed asset. There is no obligation on the part of the assessee to utilise the incentive/concession/reimbursement of the electricity charges etc. for the repayment of the loans taken for setting up of assessee's business. Interestingly, for the earlier assessment year being the assessment year 2005-06, the assessee has set off the concession received against the actual electricity charges incurred by the assessee. Thus, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) on this issue is on a right footing for both the assessment years under appeal. In the circumstances, both the appeals of the assessee are dismissed. 13. In the result, the appeal of the assessee being ITA No. 65/Kol/2010 for the assessment year 2006-07 and appeal of the assessee being ITA No.665/Kol/2011 for the assessment year 2007-08 are dismissed. C.D. Rao, Accountant Member - At the lime of hearing after hearing the rival submissions the Bench pronounced as under:- Alter hearing rival submission the Id. J.M, is of the view that the appeals of the assessee are liable to he dismissed. However, the ld. A.M. has reserved his opinion. 2. After going through the proposed order of the id. JM and after considering 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 powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the same as pointed out by the Id. JM. In the original agreement between the assessee and M/s. DPL and WBSEB there is no clause as mentioned at B.8.4 and B.S.5, which is as under ;- 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. 4. Keeping in view 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, in my view the treatment of the subsidy by assessee in the books of accounts is nothing to do while deciding whether the subsidy is revenue or capital in nature. This view of mine will be fortified by the decision of Hon'ble Supreme Court in the case of Delhi Stock Exchange Association Ltd. v CIT[1961] 41 ITR 495 wherein it was held that accounting treatment given by an assessee to a certain transaction cannot he decisive of the nature of transaction. He further relied on the following case laws: (i) Sahney Steel Press Works Ltd. (supra) (ii) Rajaram Maize Products (supra) (iii) Ponni Sugars and Chemicals Ltd. (supra) But however, in my view all these case laws have been decided by the Jurisdictional High Court while stating that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assesses. (Emphasis supplied by its) In the aforesaid case, it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably the receipt is on revenue account. 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 the receipt of the subsidy was on capital account. Therefore, the Court proceeded, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plant for the purposes of calculation of Fixed Capital Investment for Industrial Promotion Assistance under WBIS.2000/2004 4.5 Keeping in view of the above facts, I am of the view that the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing 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 case of Senairam Doongarmall v. CIT 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. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power subsidy as capital in nature. Reference under section 255(4) of the Income tax Act, 1961 In Appeal Nos.65/Kol/2010 and 665/Kol./2011 for assessment years 2006-07 and 2007- 08 in the case of M/s. Shyam Steel Industries Ltd. While adjudicating these appeals, both the members have expressed their independent views. We, therefore, make a reference to the Hon'ble President of the Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961, for an appointment of a Third Member or to pass necessary order to adjudicate the following question of law on a point of difference :- Whether in the facts and circumstances of the case the power subsidy received by the assessee is capital in nature or revenue in nature ? The Registry is accordingly directed to place this reference before the Hon'ble President for his kind perusal and necessary orders. THIRD MEMBER ORDER Justice Dev Darshan Sud, President (As a Third Member):- This reference u/s. 255(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act) has been received to adjudicate on the question as to whether the power subsidy received by the assessee is capital or reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and, therefore, such a subsidy could 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 field that the subsidy received by Sahney Steel could not be regarded as anything but revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and in has laid down the basic test to be applied in judging the character of a subsidy. The test is 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, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in the affirmative and against the Revenue and the last question in the negative and against the Revenue. [P.445] 4. The High Court of Andhra Pradesh in CIT v. Rassi Cements Ltd. [2013] 351 ITR 169/33 taxmann.com 470/215 Taxman 144 (Mag.) applying the decision of the Supreme Court in Sahney Steel and Press Works Ltd. (supra) Ponni Sugars Chemicals Ltd. (supra) Mepco Industries Ltd. v. CIT[2009] 319 ITR 208/185 Taxman 409 (SC) holds that the power subsidy if given for setting up industries in the backward areas or for repayments of term Joan taken up by the assessee for setting up new industries, it should be treated as capital asset and if the power subsidy is granted as a part of the incentive scheme after commencement of production, it should be treated as subsidy linked to production and it should be treated as revenue receipt because such assistance in this context is for carrying on the business. The court further holds that production incentive scheme is always different from the scheme giving subsidy for setting up industries in backward areas. The Saw is thus well settled. It is undisputed before me that the subsidy was granted to the assessee pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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