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TMI Blog2021 (8) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... D. [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] . We further notice that in the case of Sesa Goa Ltd. vs. JCIT, [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] , held the similar view. In view of the aforesaid, we see no legal infirmity in the impugned decision of the learned CIT(A) - Decided against revenue. Nature of receipts - Fertilizer Subsidy received - whether receipt is capital in nature and is chargeable to tax - HELD THAT:- This scheme is introduced with the object of passing the benefit to the farmers at the same time, there is no fresh investment and innovations were not coming to the industry due to low profitability in this industry. In order to attract the new investments, to increase the productivity and to reduce the manufacturing cost by bringing new innovation in the industry in order to achieve ultimate reduction in the price of the fertilizers. Therefore, the scheme was mainly to attract the investment in the industry and the purpose test is that the attraction of new players in the industry and also attracts the existing players to bring new investment. How the benefit of scheme is passed on to the industry matters. Sometime, Govt. introduces direct concession in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suring reasonable rate of return on investments made by the entrepreneurs in the fertilizer sector and to encourage competition among fertilizers companies; thereby establishing the fact that the Fertilizer Subsidy received by the Assessee is Revenue in nature and is chargeable to tax. 2. Insofar as ground No. 1 is concerned, the dispute is with regard to the direction of the first appellate authority in allowing the assessee's claim of education cess. 3. The assessee at the time of filing return of income has debited an amount of ₹ 14,17,072, to Profit Loss Account on account of Education Cess in view of the provisions of section 40(a)(ii) of the Income Tax Act, 1961 (for short the Act ). The Assessing Officer, however, disallowed the claim of Education Cess made by the assessee. Aggrieved, the assessee filed appeal before the first appellate authority. 4. During the course of first appellate proceedings, the assessee submitted that the claim of Education Cess is allowable as per the CBDT Circular No. 91/58/66-ITJ(19), dated 18th May 1967, and is also covered by the decision of the Hon'ble Rajasthan High Court in Chambal Fertilizers and Chemicals L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng precedent, the claim of the education cess is allowed in computing the total income of the assessee. This additional ground of appeal is thus allowed. 5. The Revenue being aggrieved by the aforesaid order of the learned CIT(A), filed appeal before the Tribunal. 6. Before us, the learned Departmental Representative has filed the following written submissions in connection with the assessee's claim of Education Cess. The assessee has relied upon the Hon'ble Bombay High Court's (Goa Bench) judgment in Sesa Goa Ltd. (2020) 117 taxmann.com 96 (Bombay). A careful perusal of the Sesa Goa case (supra) reveals that the Hon'ble High Court relied upon the Hon'ble Rajasthan High Court judgment in the case of Chambal Fertilisers Chemicals - DB ITA 52/2018 and 68/2018 which in turn relied upon the CBDT circular No. 91 of 1967, bearing number 91/58/64-ITJ(19), dated 18.05.1967 and the judgment of Hon'ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd. vs. CIT 82 ITR 580 (SC). As a matter of fact, the Hon'ble Bombay High Court was not informed whether the Revenue had instituted appeal against the Chambal Fertilisers judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) is reproduced as under: 12. We have heard counsel for the parties. 13. On the third issue in appeal No. 5212018, in view of the circular of CBDT where word Cess is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue No. 3 is required to be reversed and the said issue is answered in favour of the assessee. It is most respectfully and humbly submitted that a careful perusal of the judgment reveals that the Hon'ble High Court relied upon the judgment of the Hon'ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd. vs. CIT 82 ITR 580 (SC) and the CBDT circular No. 91 of 1967, bearing number 91/58/64-ITJ(19), dated 18.05.1967. It is most respectfully and humbly submitted that the Hon'ble Supreme Court in the Jaipuria case (supra) was dealing with a matter pertaining to AYs 1954-55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to as the surtax) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule'. The expression 'chargeable profits' is defined in clause (5) of section 2. It reads: 'chargeable profits' means the total income of an assessee computed under the Act, for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule. It is thus clear beyond any doubt that the surtax is levied on the profits of a company, i.e., on the profits above the prescribed limit. The mere fact that the tax is levied upon 'chargeable profits' (which means the total income of the assessee computed under the Act, adjusted in accordance with the provisions of the First Schedule) does not mean that the tax is not levied on the profits of business. In other words, the mere fact that the First Schedule provides for certain further deductions out of the total income computed in accordance with the provisions of the Act, it cannot be said that amount on which the surtax is levied ceases to be the profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) the education cess levied under the Bengal (Rural) Primary Education Act, 1930 falls within the mischief of section 10(4). This Court held that they do not. A perusal of the decision shows that the road and public works cess was levied on immovable property to provide for construction and maintenance of roads and other works of public utility. Under section 5 of the Bengal Cess Act, 1880 all immovable property, with certain exceptions, was subjected to payment of road cess and public works cess. Section 6 of the Bengal Cess Act provided that the said cesses shall be assessed on the annual value of lands and, until provision to the contrary was made by Parliament, on the annual net profits from mines, quarries, tramways, railways and other immovable property at such rates as were to be determined in the manner prescribed Similarly, the education cess was also levied under section 29 of the Bengal (Rural) Primary Education Act, 1930, on immovable property on which the road and public works cesses were assessed. The rate at which the education cess was to be levied depended upon the character of the property; in respect of mines and quarries, it was leviable at the rate of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 JTR 100 and has further observed that the Parliament must be deemed to have accepted the view taken by the Privy Council by not changing the language of the relevant provision in the Act section 40(a)(ii). It is most respectfully and humbly submitted that the Hon'ble Supreme Court judgment in the Smith case (supra) specifically laid down the scope for operation of the provisions of section 40(a)(ii) of the Act in detail and the nature of cess/surcharge to which it would apply and covers the field in this regard. The CBDT circular No. 91 of 1967, bearing number 91/58/64-ITJ(19), dated 18.05.1967, being an old circular which came into existence much before introduction of the education cess, and, apparently, is not meant for the education cess under consideration (being tax for specific objective) computed/levied @ 3% on the income tax and surcharge for computation of income chargeable to tax. Therefore, it is most respectfully and humbly requested that the ground of appeal may kindly be allowed and order of the id. CIT (A) may please be set aside in this regard. 7. The learned Counsel for the assessee on the other hand relied upon the contents of the CBDT Circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or P K fertilizers w.e.f. 1st April 2010. During the year, the assessee received fertilizer subsidy for an amount of ₹ 14,79,86,182, which has been credited to Profit Loss Account. The Assessing Officer treated the subsidy as incentive which has been added to the income of the assessee which was charged to tax. Being aggrieved, the assessee carried the matter before the first appellate authority and submitted detailed information before the learned CIT(A). 11. The learned CIT(A) relying upon various judicial pronouncements held that once the subsidy are treated as capital receipt and not chargeable to tax has also to be excluded from computing the book profit under section 115JB of the Act. For better appreciation of facts, it is necessary to note the observations of the learned CIT(A) while granting the relief:- 8.3.10 I have carefully gone through the submissions made on behalf of the appellant and also perused the relevant schemes filed alongwith the submissions. From the perusal of the schemes and various facts and judicial precedents placed before me, I found that the salient features and the objective of NBS Policy under which the Appellant company is gettin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the submission filed, wherein it has been held that subsidy treated as capital receipt shall not taxable even in book profit u/s. 115JB: i. In CIT v. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014, dated 04-01-2017) (Born) (HC) wherein it has been held that, a) The issue raised in this question is consequential to question No. (i). We have already held that the subsidy received by the respondent assessee from the State of Bihar was in the nature of capital receipt. Hence the same cannot be added to arrive at book profits of the respondent assessee under Section 1151 of the Act. (b) Thus, the question as proposed herein does not give rise to any substantial question of law as it also stands concluded against the Revenue. ii. Recently in PCIT v. Ankit Metal Power Ltd. (ITA 155 of 2018, dated 09-07-2019) it has been held that, But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. 8.3.14 I have considered the submission and the contention of the appellant carefully, since the subsidy received is capital in nature and not chargeable to tax in computing the total income as per the normal provisions of the Act, the said subsidy is not termed as Income to be fall under the section 4 of the Income-tax Act being the charging section. As stated by the Apex Court Padmaraje R. Kadambande (supra) wherein it has been held that Capital Receipts are not income within the definition of section 2(24) of the Act and hence are not at all chargeable under the entire Income-tax Act. Further, recently Hon'ble Calcutta High Court in the case of Ankit Metals (supra), Hon'ble Rajasthan High Court in the case of Shri Cement Ltd. (supra) and Jurisdictional High Court in the case of Harinagar Sugar Mills Ltd. (supra) and Jurisdictional Tribunal in the case of Alok Industries Limited (supra) considering the various decisions on the said issue has specifically held that, once the subsidy are treated as capital receipt and, not chargeable to tax has also to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntegral part of the organically evolving fertilizer policy. The underlying main purpose is to make the fertilizer available to farmers at reasonable price so that consumption of the same does not come down affecting the food production. It is evident from the 'fertilizer policy' which contained NBS (Nutrient Based Subsidy) policy. The relevant part of the same, which is part of the paper book submitted by the assessee at page Nos. 208 to 217, is reproduced below: Fertilizer Subsidy Policy for Phosphatic Potassic (P IQ Fertilizers: I. Historical Background: 1.1 Since independence, Government of India has been regulating sale, price and quality of fertilizers. For this purpose, Government of India has passed Fertilizer,' control Order ('FCO) under Essential commodity Act ('EC Act.) in the year 1957. In order to regulate the distribution of Fertilizer, Movement Control Order was passed in 1973. No subsidy was paid on Fertilizers till 1977 except Potash for which subsidy was paid only for a year in 1977. 1.2 On the recommendation of the Maratha Committee, the Government had introduced Retention Price Scheme (RPS) for nitrogenous fertilizers i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing imbalance fertilization of the soil, unaffordability by farmers due to increase in phosphatic and potassic fertilizer prices, Government of India announced ad hoc concession Scheme for phosphatic and potassic fertilizers from Rabi 1992 to cushion the impact of price hike with a view to encourage balanced fertilizers consumption. 2.2 The basic purpose/objective of the Concession Scheme for P K fertilizers to the farmers at affordable prices so as to increase the food productivity in the country though balanced use of fertilizers. The concession scheme was also aimed at ensuring reasonable rate of return on the investments made by the entrepreneurs in the fertilizer sector. 2.3 Initially, the ad-hoc Concession Scheme was applicable on DAP, MOP, NPK complex fertilizers. This scheme was also extended to SSP from 1993-94. Concession was disbursed to the manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on the grants provided by Department of Agriculture Cooperation (DAC). 2.4 During 1997-98, Department of Agriculture cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP. The respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to link phosphoric acid and price with international DAP price. The matter was referred to Expert Group under chairmanship of Prof Abhijit Sen. The report of this Group was submitted in October 2005 and considered by Inter-Ministerial group. TC conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. Based oil TC report, the subsidy was calculated on monthly basis till 31.3.2010. 4. MRP of P K fertilizers under concession Scheme: The MRP was fixed by the Government with effect from 1.4.1997 and the details of 'MRI' fixed by the Government from 1997 to 31.3.2010 are mentioned in the table below. 5. Impact of concession Scheme: 5.1 The MRP of P K fertilizers were much lower than its delivered cost. This led to increase in consumption of fertilizers during the last three decades and consequently increase in food grain production within the county. However, it was observed in last few years that the marginal response of agricultural productivity of additional fertilizer usage in the country had fallen sharply, leading to near stagnation in agricultural productivity and consequently agricultural production. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and Department of Agriculture Research and Education ('DARE). This Committee recommends per nutrient subsidy for 'N', 'P', 'K and '5' before the start of the financial year for decision by the government (Department of Fertilizers). The IMC recommends a per tonne additional subsidy on fortified subsidized fertilizers carrying secondary (other than 'S') and micro-nutrients. The Committee also recommends inclusion of new fertilizers under the subsidy regime based on application of manufactures/importers and its need appraisal by the Indian Council for Agricultural Research (JcAR), for decision by the Government. The per Kg subsidy rates on the nutrient N, P, K, S is converted into per Tonne subsidy on the various P K fertilizes covered under NBS Policy. Any variant of the fertilizers covered under the subsidy scheme with micronutrients namely Boron and Zinc, is eligible for a separate per tone subsidy to encourage their application along with primary nutrients. At present 22 grades of P K fertilizers namely DAP, MAP, TST, MOP, Ammonium Sulphate, SSP and 16 grades of NPKS complex fertilizers are covered under the NB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of 'N' for maximum period of two years w.e.f. 1.4.2010 to 31.3.2012 during which the units are required to convert to gas or use imported Ammonia as feedstock. The quantum of additional subsidy is finalized by Department of Fertilizers in consultation with DOE, based on study and recommendations by the Tariff Commission. The NBS is passed on to the farmers through the fertilizer industry. The payment of NBS to the manufactures/importer of P K fertilizers is released as per the procedure notified by the Department. 6.5 Reasonableness of MRP: Under NBS policy companies are allowed to fix the MRP on their own. The intention behind introduction of NBS was to increase competition among the fertilizer companies to facilitate availability of diversified products in the market at reasonable prices. However, the prices of P K fertilizers have gone up substantially and doubts have been raised about reasonableness of the prices fixed by the companies. The prices have gone up substantially on the account of increase in prices of raw materials/finished fertilizers - in international market, depreciation of Indian rupee w.r.t. US Dollar and also due perhaps to la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the ld. CIT(A) erred in appreciating the 'purpose' of the NBS policy. The NBS policy is part of the evolving fertilizer policy. The underlying main purpose, as stated above, is to make the fertilizer available to farmers at reasonable price so that consumption of the same does not come down affecting the food production. It is evident from the details/contents narrated under the heading 'Fertilizer Subsidy Policy for Phosphatic Potassic (P K) Fertilizers'. It provides clear and emphatic perspective/context of the policy, which lucidly laid down the purpose of the policy. The entire policy including NBS policy is focussed on protecting the interest of farmers and food production. The Id. CIT (A) failed to appreciate the NBS policy narrated at item No. 6 of the document above. At the last 'bullet point' under the NBS policy at item No. 6.1, it is clearly stated that 'The NBS is passed on to the farmers through the fertilizer industry. The payment of NBS to the manufacturer/importers of P K fertilizers is released as per the procedure notified by the Department'. It establishes the purpose of the NBS (subsidy), which is to pass on the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce the MRP in order to bring down the manufacturing cost. Whole scheme was designed to increase the fertilizer production and utilization among the farmers by making available at the affordable price to the farmers. Since it is linked to reduction of price in manufacturing, this subsidy can only be classified under revenue not capital. However, we notice that the purpose of introduction of NBS scheme and modification of various Govt. schemes over the period is due to the fact that (refer impact of concession scheme) the growth of fertilizer industry was stagnated with virtually no investments over the years in urea sector, this industry had no incentive to invest on modernization and for increasing efficiency. The industry had no incentive to focus on farmers leading to poor farm extension services. The policy was introduced to reduce the burden on subsidy outgo in the hands of the Government which increased exponentially over the years. This policy is introduced considering all the issues relating to agriculture productivity, balanced fertilization and growth of indigenous fertilizer industry, competitiveness among the fertilizer companies and to overcome the deficiency of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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