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TMI Blog2024 (1) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... object and the purpose of the 1993 Scheme, which was to industrialise underdeveloped and developing areas was fulfilled. Thus, in our opinion, the argument advanced on behalf of the appellant/revenue that a perusal 1993 Scheme would show that the incentives were tied in with production is untenable. The complete focus of the 1993 scheme was to achieve the object, as noticed above, engrafted in its preamble. Assessee was entitled to avail of sales tax subsidy/incentive under two eligibility certificates dated 13.12.1994 and 15.10.1996 [as amended] for 14 years and 13 years 11 months, respectively, subject to a maximum entitlement of 110% of capital investment made in setting up of the industrial units. Investment in capital assets such as land, buildings, plant and machinery was only a measure adopted for calculating the sales tax subsidy/incentive [which in this case was availed by the respondent/assessee by retaining the sales tax it had levied on its goods]. A perusal of the eligibility certificate dated 13.12.1994 would show that it was issued for setting up a new unit , while the eligibility certificate dated 15.10.1996 was given to a pioneer unit which had undertaken expansion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Tribunal was right in holding that the subsidy received in the form of sales tax incentive under the Resolution dated 07th May, 1993 under the Package Scheme of Incentives Scheme, 1993 was [a] capital receipt and not revenue in nature? 5. Thus, the central issue which arises for consideration in the appeals concerns the nature of the benefit received by the respondent/assessee. The benefit which the respondent/assessee has obtained from the Government of Maharashtra, in the AYs in issue, is a sales tax subsidy in the manner and form prescribed under the scheme titled Dispersal of Industries Package of Incentives, 1993 [hereafter referred to as 1993 Scheme ]. 6. The moot point which arises for consideration is whether the sales tax subsidy received by the respondent/assessee is a capital receipt or, as contended by the appellant/revenue, a revenue receipt. Backdrop: 7. Thus, before we proceed further to conclude one way or the other concerning the aforementioned issue, the following broad facts are required to be noticed: 7.1 The 1993 Scheme referred to hereinabove was notified by the Government of Maharashtra via Resolution dated 07.05.1993. 7.2 It appears that the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the matter of DCIT v. Reliance Industries Ltd (2004) 88 ITD 273 (Mum) (SB). This direction was issued by the Tribunal on 01.02.2006. 8. Upon remand by the Tribunal, submissions were advanced before the AO qua the matter concerning sales tax subsidy on 28.12.2007. 8.1. The AO, however, was not persuaded by the arguments advanced on behalf of the respondent/assessee and, accordingly, via order dated 31.12.2007, concluded that the sales tax subsidy had to be treated as a revenue receipt. 8.2. The respondent/assessee assailed the assessment order dated 31.12.2007 before the CIT(A). The CIT(A), via order dated 19.09.2011, overturned the conclusion arrived at by the AO that the sales tax subsidy had to be treated as revenue receipt. The CIT(A) observed that the 1993 Scheme was identical to the 1979 Scheme considered by the unique bench of the Tribunal in the matter of DCIT v. Reliance Industries Ltd. 8.3 In reaching this conclusion, the CIT(A), among other things, considered the order dated 26.03.1998 passed by his counterpart concerning the respondent/assessee qua AY 2003-04. Since, in the said order, there was an elaborate discussion about the similarities and differences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of the DCIT Vs Reliance Industries Ltd. 88 ITD 273 (Mumbai Special Bench) to the case of appellant undertaking its business of production of PSF and POY at an area classified under the Maharashtra Incentive. Scheme 1993 for its coverage for grant of sales tax incentive. In the case before the Bombay Tribunal, the issue relate to classifying the character of the subsidy obtained under the 1979 package scheme of incentives of the Maharashtra Government, and whether subsidy could be treated as revenue receipt as per the decision of the Tribunal in the case of Bajaj Auto Ltd. (IT reference no. 49 and 110) (Bombay) of 1991 dated 31.12.2002). in the case of DCST vs Reliance Industries Ltd (supra) it was held at para 28 and 29 of the order that the thrust of the Maharashtra Scheme was industrial development of the backward districts as well as generation of employment, thus establishing, a direct-nexus with the investment in fixed capital assets. In the preamble to 1993 scheme, there is sufficient pointer that the incentive under the scheme is given encourage the setting up of industrial units during a particular period n certain backward areas of Maharashtra as well as for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aim was to disperse the industries outside the Bombay, Thana - Pune belt and to speed up the pace of industrialization in the developing regions of the state. Under the Maharashtra Scheme, no incentive was available to industries in the developed regions of the state. The second point of difference related to the quantum of the sales tax incentive which was uniform to all eligible units under the Andhra Pradesh Scheme, but not so under the Maharashtra scheme, under which the quantum depended on the area in which the industry is located. The third point of distinction was that in the Andhra Pradesh scheme incentive, was in the form of refund of sales tax subject to maximum of equity capital, whereas under the Maharashtra scheme, it was either in form of sales tax exemption and interest free unsecured loans. Further the incentives in the Maharashtra Scheme were subject to monetary limits directly related to fixed-capital investment. Another distinction is the period f (sic: of) eligibility, which stood at 5 years for all units under Andhra Pradesh scheme, whereas, it varied depending upon whether the unit was new or existing or a pioneer unit or a resource based unit. The period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed. (d) I also hold that pursuant to introduction of Explanation (10) in section 43(1) w.e.f 01.04.99, any subsidy intended to meet the cost of assets should go to the reduce the actual cost for the purposes of allowance of depreciation u/s 32 of the act. Hence, the amount of sales tax exemption is also to be proportionately reduced from the w.d.v. of the respective block of asset on the basis of cost of project indicators given in the eligibility certificate issued by SICOM. Thus I direct that the amount of sales tax incentives held a capital receipt in an earlier part of this order be considered as a reduction form the block of asset at the admissible amount of depreciation. The AD would give effect accordingly. [Emphasis is ours] 9. Being dissatisfied, the appellant/revenue preferred an appeal with the Tribunal. Via the impugned order dated 22.06.2012, the Tribunal sustained the order passed by the CIT(A). 10. Against this backdrop, the appellant/revenue has preferred an appeal to this court. Submissions of counsel: 11. The submissions on behalf of the appellant/revenue were advanced by Mr Shlok Chandra, learned senior standing counsel, while Mr Ajay Vohra, learned senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments rendered in PCIT-04 v. Nestle India Ltd., 2023: DHC:4438-DB; CIT v. Ponni Sugars and Chemicals Ltd., (2008) 306 ITR 392 (SC) and CIT v. Chaphalkar Brothers, [2018] 400 ITR 279 (SC), are distinguishable on facts. In paragraph 16 of the judgment rendered in Ponni Sugar s case, the Supreme Court noted that the facts found in Sahney Steel were different. It was noticed that Ponni Sugar, i.e., the appellant, was free to use the money received in its business activity as per its requirements. Likewise, in Chaphalkar Brothers, the subsidy was given to offset the burden of the substantial capital expenditure required for setting up multiplex cinema theatres. (vii) On the other hand, the 1993 Scheme does not impact the capital expenditure component, which would remain the same or even less if the eligible industrial unit moved to a less developed or underdeveloped area. What the 1993 Scheme does is improve the profitability and viability of the eligible industrial unit. (viii) The mere factum of setting up a new unit in a particular geographical region would not be sufficient to treat the sales tax incentive as a capital receipt. Thus, the subsidy would have to be treated as a revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Centre (P.) Ltd. [2015] 373 ITR 14 (Del) (ix) CIT v. Rasoi Ltd. [2011] 335 ITR 438 (Cal) (x) Sunbeam Auto (P.) Ltd. v. PCIT [2018] 402 ITR 309 (Del) (xi) PCIT v. Nestle India Ltd. [ITA 303 of 2023 (Order dated 04.07.2023)] Analysis and Reasons: 12. We have heard the learned counsel for the parties and perused the record. 13. As would be evident from the narration of facts and the submissions recorded hereinabove, the nature of subsidy in the hands of an assessee is fact-centric. 13.1 What has uniformly emerged upon perusal of the case law cited by both sides is that the courts have applied the purpose test for concluding one way or the other as to whether the subsidy received should be treated one on capital or revenue account. The principles enunciated by the Supreme Court in Sahney Steel s case have been uniformly applied in all cases which followed that decision. 14. In the Sahney Steel case, the Supreme Court dealt with an incentive scheme forged by the Government of Andhra Pradesh. The incentives were given in the form of refund of sales tax on raw materials, machinery and finished goods, subsidy on power consumed for production, exemption from payment of water rate on wat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce from which the amount is paid to the assesses which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's Case (supra) is that if payment in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The sales tax upon collection forms part of the public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient-whether revenue or capital- will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite immaterial. 19. For example, if the scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipts in the hands of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w/Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package Scheme of Incentives. The Package Scheme of Incentives, introduced in 1964, was amended from time to time. The last amended Scheme, commonly known as the 1988 Scheme was operative from 1st October, 1988 to 30th September, 1993. The question of revising the 1988 Scheme to rationalise the scope of incentives, various scales and mode of release of incentives to intensify and accelerate the process of dispersal of industries from the developed areas and for development of the underdeveloped regions of the State, particularly those farther away from the Bombay-Thane-Pune belt, had been under consideration of the Government . In the light of the experience gained in implementation of the earlier Schemes, particularly the 1988 Scheme, and in the changed circumstances of the liberalised industrial policy of the Government of India, and with a view to achieving the objectives outlined above, the Government has decided to revise the 1988 Scheme and bring into force a New Scheme, viz., the Package Scheme of Incentives, 1993 (hereinafter referred to as the 1993 Scheme ). [Emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scheme also refers to a sick unit, which, as per the definition provided in paragraph 3.17 of the scheme, includes a small-scale industrial unit. 21. Therefore, the common thread running through various incentives provided under the scheme (to which we have referred above) was the setting up a new unit or large-scale investment in fixed capital. The fact that the eligibility certificate was to be issued by the agency implementing the scheme after the commencement of commercial production by the eligible unit appears to have been incorporated in the 1993 Scheme to ensure that the object and the purpose of the 1993 Scheme, which was to industrialise underdeveloped and developing areas was fulfilled. 22. Thus, in our opinion, the argument advanced on behalf of the appellant/revenue that a perusal of paragraphs 3.1 and 3.3 of the 1993 Scheme would show that the incentives were tied in with production is untenable. The complete focus of the 1993 scheme was to achieve the object, as noticed above, engrafted in its preamble. 23. As noticed hereinabove, the respondent/assessee was entitled to avail of sales tax subsidy/incentive under two eligibility certificates dated 13.12.1994 and 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofitability of industrial units, which may have been incidental benefits of the said scheme. 27. Apart from the Sahney Steel judgement, Mr Shlok Chandra, on behalf of the appellant/revenue, has also cited the decisions rendered in Commissioner of Income Tax v Rassi Cements Ltd by the Andhra Pradesh High Court, Wardex Pharmaceuticals (P.) Ltd v ACIT by the Madras High Court and lastly, a judgement of this court in Commissioner of Income Tax v Steel Authority of India Ltd . A close perusal of these judgements would show that they are distinguishable on facts. 27.1. In Rassi Steel, the court was called upon to decide whether the power subsidy received by the assessee under an incentive scheme framed by the State of Andhra Pradesh was a revenue receipt. The court concluded that the power subsidy received by the assessee [albeit after the commencement of production] was based on actual power consumption and, hence, had nothing to do with investment subsidy for establishing industries in backward areas. It is in this context that the court ruled that the power subsidy received was a trading receipt and, hence, taxable. 27.2. The Wardex case concerned financial assistance received by an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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