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TMI Blog2022 (11) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) erred in holding that the amount received under the Package Scheme of Incentive (PSI) as a revenue receipt. 2. On the facts and circumstances of the case and in law, the CIT(A) erred in holding that the utilization of subsidy received would decide the nature of subsidy as capital receipt or revenue receipt. 3. On the facts and circumstances of the case and in law, the CIT(A) erred in not allowing the deduction under 80IC on the interest income of Rs.38,984 earned on vendor deposits. 2. Briefly stated, facts of the case are that the assessee filed return of income on 29/11/2014 declaring total income of Rs,35,96,53,730/-. The case was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short, the Act) were issued and complied with. The assessment under section 143(3) of the Act was completed on 23/12/2016 wherein the claim of the assessee for incentives received under the Package Scheme of Incentive (PSI-2007) was held by the Assessing Officer as revenue receipt as against the claim of the assessee as capital receipt. The Assessing Officer also disallowed the claim of deduction under section 80IC of the Act. 3. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007. The Preamble is an introduction to a particular law or a Government Scheme. It communicates the intention of the State and philosophy behind enacting a particular law or bringing a particular scheme. It is always distinct from enacting formulae of law or any Government Scheme. . Therefore, the Preamble cannot be taken as the purpose for which the appellant was given Industrial Promotion Subsidy. Neither the PSI, 2007 nor the Eligibility Certificate has elaborated the purpose for which the subsidy was given to the appellant. The quantum of the subsidy was to be decided on the basis of fixed capital investment made by the appellant, but, that is also not a determining factor to decide the purpose of the subsidy. The appellant is free to use the subsidy at its will for any purpose. Thus, it cannot be said that the subsidy given to the appellant was t only for the setting up of new business or expansion of the new business. The appellant has also not furnished the utilization of the subsidy given by the State Government. The purpose which has been explained by the Hon'ble Supreme Court in the cases of Ponni Sugar Chemicals Ltd. (supra) and also Sahney Steel Press Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of this, she submitted that the orders of the lower authorities are not correct in holding that the incentive received by the assessee is a revenue receipt. She further submitted that 'objects and purpose' of the subsidy clearly shows that it is capital receipt and cannot be charged to tax. 038. The learned CIT DR vehemently supported the orders of the lower authorities. She specifically referred to the direction of the dispute resolution panel wherein the decision of the honourable Bombay High Court in decision of special bench in case of Reliance Indusres Limited , has been sent back by the honourable Supreme Court to the file of the honourable Bombay High Court for deciding it afresh. Therefore, she submitted that this issue has not reached finality. In any case it is submitted that the receipt of sales tax incentive by the assessee is based on / ales made by the assessee and therefore is revenue in nature. 39. We have carefully considered the rival contention and perused the orders of the lower authorities. On Perusal of the PSI, 2007 shows that the subsidy has been granted to encourage industrial growth in less developed areas of the State. The quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the orders of authorities below. We have also considered various documents placed on record in the form of paper book Before we proceed to decide the nature of subsidy and the purpose for which the subsidy was received by the assessee, it would be relevant to first refer to the Preamble of Package Scheme ;Incentive, 2007 under which the assessee has received assistance from the State Government. The relevant extract of the Preamble of PSI, 2007 reads as under: PREAMBLE In order to encourage the dispersal of I:ndustries to the less developed areas of the State, Government has been giving a Package of Incentives to New/Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package Schemes of Incentives. Tin Package Scheme of incentives, introduced in 1564, was amended from time to time. The last amended scheme, commonly known as the 2007 Scheme is operative from the 1st April, 2007. The Slate has declared the new Industrial, Investment, Infrastructure Policy 2006 to ensure sustained Industrial growth through Innovative initiatives for development of key potential sectors and further improving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oximately Rs.117 crores in the new project at villages Sanaswadi, Tal.Shirur,Dist.Pune will offer employment to 310 persons. 2. GoM will offer following benefits / incentives granted hereunder available with regard to the eligible investments for expansion and shall be payable to ADAPL on ADAPL complying with the requirements under PSI 2007. 2.1 Electricity Duty exemption for the period of 7 years from the date of commencement of commercial production. 2.2 100% exemption from payment of Stamp Duty. 2.3 Industrial Promotion Subsidy (IPS) equivalent to 75% of ELIGIBLE INVESTMENTS (as defined in PSI 2007 ) made w.e.f 28 1 March, 2007 and made with such a period stipulated in the . Package Scheme of Incentives 2007. The IPS will however be limited to 75% of ADAPL's eligible investments less the amount of benefits availed at Sr.No.2.1 2.2 as per the period prescribed therein or to the extent of taxes paid to the State Government within a period of 7 years whichever is lower. 3. The IPS mentioned at 2.3 will be admissible only after the company employs 500 number of persons on regular basis within one year from the date of commencement of commercial pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket for sale. Until and unless the production starts and the products are sold in the market, there cannot be refund of sales tax. In the background of the above narrated facts, it would be wrong to conclude that since the assesses has received subsidy as refund of sales tax, therefore, it is a trade receipt. The assesses has received subsidy in the form of refund of sales lax for setting up of Mega Project in classified Area C of the State of Maharashtra and upon providing employment to more than 500 persons, as specified under the scheme. 21 One of the objection by the CIT(A) in rejecting the claim of assesses is that the assesses has failed to complied with only one of the two criterias laid down under the PSI, 2007 for claiming benefit of Industrial Promotion Subsidy, i.e. employment criteria. The other condition of minimum investment is not fulfilled. According to Memorandum of Understanding, the assessee was required to invest approximately Rs. 117 cores and offer employment to 510 persons. A perusal of the eligibility certificate dated 17-03-2009 at page 112 of the paper book shows that as against expected investment of Rs.117 crores the assessee had made investment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plant Machinery 8813.80 8180.82 Electricals 1282.00 139.14 Others 1001.00 649.73 Total 11700.00 9453.69 Date of start of Commercial Production 01.12.2008 Validity period of EC Period for ED Exemption 7 years : from 01.12.20087 to 30.11.2015 Date of effect of the EC 01.12.2008 Period for investment From 28.03.2007 to 27.03.2012 Entitlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the State. The subsidy was received by the assessee in the form of excise refund and interest, etc. The Tribunal decided the issue in favour of the R evenue by holding the subsidy received by the assessee as Revenue receipt on the following grounds:- (i) The excise refund an interest subsidy had not been given to the appellants to establish industrial units promoting the industry stood already established. (ii) The incentives were not available unless and until commercial production had commenced. (iii) The incentive were recurring in nature, in that, those were limited to a period of 10 years from the date of commencement of commercial production. (iv) The incentives in the form of excise duty refund and interest subsidy were not given to the assessee for purchasing capital asset or for purpose of machinery. (v) The incentives were given for market accessibility and to run the business profitably. The Hon ble High Court after thoroughly examining the salient features of the New Industrial Policy under which the subsidy was extended to the assessee and also the ratio of judgements rendered by the Hon ble Apex Court in the case of Sahney Steel and Press Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of the schemes as such, which the apex Court was considering to find the intent and purpose of the incentives under those schemes, and not the law laid down as such; 19) The Tribunal has relied upon five factors to hold the incentives in question as Production Incentives but without dealing with that part of the Scheme, whereby unemployment in the State had been intended to be eradicated creating atmosphere for accelerated industrial development to provide employment opportunities to deal with the social problem of unemployment. This in our view is lop-sided interpretation of the New Industrial Policy and Concessions formulated by the Central Government for the State of Jammu and Kashmir vide Office Memorandum of June 14, 2002. 20) Therefore, in view of the clear legal position adumbrated by the Hon'ble Supreme Court of India on the issue in question, that to determine the nature and intent of the incentives as to whether thoso were Revenue Receipts or Capital Receipts, the purpose underlying the incentives was the determinative test, there may not be any necessity of referring to the judgments of other High Courts of the Country rolled upon by the appellants' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployment in the State of Jammu and Kashmir and the generation of employment, so contemplated, was not only casual or temporary, but was on the other hand, of permanent or temporary, but was on the other hand, of permanent nature. 25) Considered thus, the paramount consideration of the Contra/ Government in providing the incentives to the Now industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment In the State, additionally creating opportunities for self employment, hence a purpose in Public Interest. 26. In this view of the matter, the incentives provided to the industrial units, in terms of the New Industrial Policy, for accelerated industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir were in fact, in the nature of creation of New Assets of Industrial Atmosphere end Environment, having the potential of employment generation to achieve a social object. Such incentives, designed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough PS/, 2007 intends to achieve industrialization with twin objects of (1) Balanced Regional Development, and (b) Employment Generation. Thus, the ratio laid down in the case of Shree Balaji Alloys Vs. CIT (supra) would apply in the present case. 25. We find that the Special Bench of Tribunal in the case of DCIT Vs. Reliance Industries Ltd., in a case where the assessee had received the incentive/subsidy in the form of exemption from liability to payment of sales tax for setting up of industries in notified areas under 1979 scheme of Government of Maharashtra has held that sales tax incentives received by the assessee from the Government of Maharashtra is Capital receipt not chargeable to tax. 26. The Hon'ble Bombay High Court in the case of CIT Vs. Chaphalkar Brothers after considering the ratios laid down in the case of Sahney Sleel and Press Works Ltd. (supra) and Ponni Sugars and Chemicals Ltd. (supra) has held that the purpose for which the subsidy was given is relevant factor to determine whether the same is capital or revenue receipt. If the object was to enable the assesses to set up a new unit then receipt of subsidy would be on capital account. In the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al held that the incentives received by the assessees in the form of sales tax benefits were Revenue receipt as it has nothing to do with setting up of the windmill. The facts of the aforesaid case are entirely at variance with that of the case in-hand. In the present case, the incentive in the form of refund of sales tax is on account of setting up of now industrial unit with twin objective of balance development of regions and generation of employment. As per the scheme there are two modes of payment of Industrial Promotion Subsidy. The subsidy to the extent of 75% of the eligible investments as reduced by the benefit of electricity duty exemption and stamp duty exemption or to the extent o! taxes paid to the State Government within a period of 7 years, whichever is lower. It is not the choice of the assesses to opt for either of the two modes The beneficiary under the Scheme will receive the subsidy alter comparative analysis of both the modes, whichever is lower. The assesses is eligible to claim the incentive subject to the compliance of certain conditions mentioned in the PSI 2007 scheme., subject to the maximum limit as specified in the scheme. Since the assessee I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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