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TMI Blog2018 (12) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 - - - Dated:- 28-11-2018 - SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) For The Revenue : Mr. Anand Mohan, CIT- DR And Mr. S.K. Bepari, DR For The Assessee : Mr. H.P. Mahajani, AR ORDER PER N.K. PRADHAN, AM The captioned appeals filed by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-13, Mumbai [in short CIT(A) ] and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961 (the Act ). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. We begin with the assessment year (AY) 2011-12. 2. The grounds of appeal read as under: 1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) is correct in holding that the object of the scheme of sales tax subsidy granted to the assessee to be for setting up of or for expanding existing industries in the developing region of Maharashtra without appreciating the legal and factual matrix of the case. 2. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) is correct in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court vide order dated 09.09.2011 has remitted the issue of sales tax subsidy to the High Court. Also adverting to the case of the Holding Company, Mahindra Mahindra Ltd., the AO commented that for AY 2008-09, on the issue of octroi incentive in a similar scheme, the Tribunal in ITA No. 586/Mum/2013 vide order dated 29.11.2013 has set aside the issue to be decided afresh. In view of the above facts, the AO held the receipt of sales tax subsidy of ₹ 71,83,20,499/- as revenue receipt and added back the same to the total income of the assessee. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) observed from the Resolution of Government of Maharashtra dated 30.03.2007 that it had been issued in connection with Package Scheme of Incentives , which had been formulated for setting up of new units or for expending the existing units set up in underdeveloped regions of Maharashtra. It would hence become clear that the purpose for which the Package Scheme of Incentives had been formulated and for which the impugned subsidy had been granted was for either setting up a new unit of for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy in question of ₹ 71,83,20,499/- was received on the capital account and the same cannot be charged to tax. 5. Before us, the Ld. DR relies on the decision in Sahney Steel Press Works Ltd. (supra) and CIT v. M/s Bhushan Steels Strips Ltd . (2017) 398 ITR 216 (Del). The Ld. DR read out 1st and 2nd para of the Preamble of the Package Scheme of Incentives, 2007 , which showed that the earlier schemes were valid upto 31.03.2007. Referring to para 1.3, dealing with classification of areas, he drew attention our attention to Group A which comprises of developed areas viz. Mumbai Metropolitan Region and Pune Metropolitan Region to suggest that subsidies were available even for developed areas of the State. The Ld. DR further submitted that (i) the assessee had set up a mega project, (ii) the Eligibility Certificate (EC) was issued on 24.01.2011 whereas the commercial production started on 13.01.2010, (iii) Khed (Chakan, where the plant is located) falls in Group A as per page 60 of the Paper Book (P/B) filed by the assessee (iv) the entitlement includes electricity, exemption from stamp duty, Industrial Promotion Subsidy (IPS) measured as lower of eligible fixe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complied with the conditions. In any event the EC is effective from 13.01.2010 (page 70 of the P/B) being the date of commencement of production. The Ld. counsel states that the plant falls in Group C which is also included in Khed which falls outside the Pune Metropolitan Region. If the plant was located in Group A, the assessee would not have been entitled to any subsidy. It is further submitted that the assessee has not availed electricity duty exemption, it has only availed stamp duty exemption and IPS and availment of stamp duty exemption automatically reduces IPS by that amount. It is stated that IPS is equal to 100% of fixed capital investment or taxes paid to the State Government, whichever is lower, both of which are the measure for granting subsidy. The Ld. counsel also submits that Chakan falls in Group C which comprises of less developed areas than those covered by Group B. It is clarified that Group B has been defined to mean areas, where some development has taken place. It is submitted that the quantum of incentive is still within the approved limit, only more flexibility to Mega Projects, considering size of investment committed by the investors. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs which commenced production on or after 01.01.1969 with investment capital not exceeding ₹ 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. The incentives were not available unless and until production had commenced. The AO included the said amount in the assessable income of the assessee and that was affirmed by the CIT(A). On further appeal, the Tribunal deleted the additions holding that the refund was a development subsidy in the nature of a capital receipt. On reference, the Hon ble High Court set aside the order of the Tribunal. On appeal to Supreme Court, it was held that the subsidies had been granted for production of or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee and, therefore, these were of revenue character and would have to be taxed accordingly. Here in the instant case, the issue is not subsidy in the nature of refund of sales tax on raw materials, machineries an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of the recipient, whether capital or revenue, has to be determined having regard to the purpose of which the subsidy was given. Although the source is immaterial, the purpose should be examined; if the purpose was to help the assessee to set up its business or to complete the business, the moneys had to be treated as having received for capital purposes. Conversely, if moneys were given to the assessee for assisting it in carrying on business operations and if the money was given only after and conditional upon production, subsidies had to be treated as assistance for the purpose of the trade. In the instant case, as per the EC issued by the Directorate of Industries on 24.01.2011, the assessee was entitled to IPS equivalent to 100% of the eligible amount of fixed capital investment made by the assessee or the taxes paid by it to the GOM within a period of 20 years, whichever is lower. Between 2008 to 2010, the assessee had set up a plant for the manufacture of four wheelers, trucks and construction equipments. Commercial production from this new unit started on 13.01.2010. As per the scheme (para 3.1), it is provided that an EC will be issued by the implementing agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then 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 then the receipt of the subsidy was on capital account We are of the considered view that the ratio laid down in the above decision squarely applies to the present case. In the instant case, the main objective of the scheme was to intensify and accelerate the process of dispersal of industries from developed areas and for development of under-developed regions of Maharashtra. It is clear from the scheme that IPS incentive was granted not for carrying on day-to-day business of the unit more profitably but to provide impetus to the process of dispersal of industries to backward areas. The plant of the assessee falls in Group C, which also includes Khed, which is outside the Pune Metropolitan Region. In the present case the sales tax payment is only an yardstick to determine the quantum of incentive and cannot be ..... 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