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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 ..... arwal, Adv and Mr Samarth Chaudhari, Adv. RAJIV SHAKDHER, J.: Prefatory Facts: 1. These appeals concern Assessment Year (AY) 1997-98 [ITA No.393/2014], AY 2005-06 [ITA Nos. 392/2014 & 395/2014], AY 2006-07 [ITA Nos. 394/2014 & 397/2014], AY 2008-09 [ITA Nos. 396/2014 & 398/2014], AY 2013-14 [ITA No. 496/2022] and AY 2014-15 [ITA No. 443/2022]. 2. At the outset, we would note that the counsel for the parties agreed in the course of the hearing in the above-captioned appeals that the issue raised on behalf of the appellant/revenue is common, and therefore, the facts of one of the appeals could be taken up for discussion to arrive at the end result. 3. Bearing this in mind, we would be referring to the facts insofar as they are relevant to the issue at hand obtaining in ITA No. 393/2014, which, as indicated above, concerns the earliest AY, i.e., AY 1997-98. 4. The common question of law, which was framed in the above- captioned appeals, reads as follows: "Whether the Income Tax Appellate 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] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss declared by the respondent/assessee was scaled down to Rs. 180,95,99,757/-. 7.8 In the appeal preferred by the respondent/assessee with the Commissioner of Income Tax (Appeals) [hereafter referred to as "CIT(A)"], the order passed by the AO was reversed. Thus, CIT(A), via order dated 10.09.2002, in effect, accepted the loss, as declared by the respondent/assessee in its ROI. 7.9 This resulted in the appellant/revenue approaching the Income Tax Appellate Tribunal [hereafter referred to as "Tribunal"] against the order dated 10.09.2002 passed by the CIT(A). The respondent/assessee lodged cross-objections with the Tribunal regarding the issue concerning sales tax subsidy. 7.10 The Tribunal, insofar as the issue pertaining to sales tax subsidy was concerned, restored the matter to the AO to examine whether the 1993 Scheme (under which incentives had been granted to the respondent/assessee) was similar to an earlier avatar of the scheme, i.e., 1979 Scheme, which was considered by its special bench of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Package Scheme of Incentives. 19931" Butibori falling in Nagpur Division is a group "D" area, where the quantum of sales tax incentives in accordance with para 5.1 (IS) would be 9 years or earlier, if the ceiling of 90% of fixed capital investment is reached in case of non-pioneer unit or 11 years or earlier if the ceiling of 110% of fixed capital investment is reached, in case the appellant is regarded as a pioneer unit. Thus if the appellant is otherwise eligible to sales tax incentive by way of exemption under the 1993 New Package Scheme of Incentive of Govt. of Maharashtra, the fact that the unit is at Butibori, a category "D" area as per classification, and the unit being setup up in 1995, the percentage of fixed capital investment as per the stipulation for a period of 9 to 11 year. Since the appellant has setup up its unit in 1995, it is otherwise covered for the tax incentive for the year under appeal. (iii) The Tribunal in the appellant's case for AY 1997-98 has set aside for verification the issue as regards 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 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... backward area. According to the Tribunal, the Scheme was for industrial development of the backward districts as well as generation of employment and hence there was direct nexus with investment in fixed capital assets. The sales tax incentive had been envisaged as an "alternative, to disbursement and by its very nature would be available to the assesses only after the production has commenced. The Special Bench, after appreciating the ratio of the previous decision in Reliance Industries case (IT Appeal No. 1418/1988 and 7544/89) held that the observation of the Tribunal in Bajaj Auto case (IT reference -No 49 and 11-01) (Born) of 1991) was not supported by any reason as to why it was felt that the earlier order of the Tribunal in Reliance Industries case referred only to the form of the Scheme and not their substance in para 108 of the order in Reliance Industries case, the Tribunal found that in Andhra Pradesh Scheme, the object was to stimulate rapid industrialization throughout the state, whereas under the Maharashtra Scheme, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing approval under the 1993 scheme are similar to the one used in the 1983 scheme. The quantum of sales tax incentives under para 5.1 (1( (I) of the scheme 193, is directly linked to the amount of capital investment in the unit. The exemption under the package scheme of 1993 as in the 1983 scheme are therefore in direct production to the investment in fixed assets. I hold therefore that following the over ruling of the order in the case of Baja] Auto Ltd (IT reference No.49 and 1101 Bombay) of 1991 dated 31.12.2002) vide the special bench Bombay's order vs DCIT vs Reliance Industries Ltd 88 lTD 273 (mum) and the fact that the 1983 scheme of Govt of Maharashtra is identical in its application to those contained in the 1993 package scheme of incentives, the appellant is entitled to claim as capital receipt of the notional sales tax liability. The AD is directed to allow upon verification the quantum of notional sales tax liability computed at Rs. 77,89,99,7437- as per the CAs certificate. Subject to the verification above, the ground 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. [See paragraphs 3.1 and 3.3 of the 1993 Scheme]. (iii) The 1993 Scheme improved liquidity by providing sales tax incentives; it did not provide for any direct or indirect payment for setting up the industrial unit. The sole purpose of the 1993 Scheme was to alleviate hardship and handhold such industrial units. [See Sahney Steel & Press Works Ltd. v. Commissioner of Income Tax (1997)228 ITR 253 (SC)] (iv) The 1993 Scheme was not intended to contribute towards the capital outlay of the industrial unit. The sales tax subsidy provided to the respondent/assessee only assisted in carrying on business operations and, thus, was in the nature of a revenue receipt. [See Commissioner of Income Tax v. Rassi Cements Ltd. (2013) 351 ITR 169 (Andhra Pradesh); Wardex Pharmaceuticals (P.) Ltd. v. Assistant Commissioner of Income Tax (2008) 307 ITR 387 (Madras) and Commissioner of Income Tax v. Steel Authority of India Ltd. (2002) 257 ITR 241 (Delhi)] (v) Since the incentive concerned sales tax, the receipt inherently can only be construed as a revenue receipt. (vi) The judgments rendered in PCIT-04 v. Nestle India Ltd., 2023: DHC:4438-DB; CIT v. Ponni Sugars and Chemicals Ltd., (2008) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to underdeveloped and developing areas of the State, the manner and the point at which the assessee received the sales tax subsidy was of little relevance. 11.5 In sum, the submission was that merely the fact that the sales tax subsidy under the 1993 Scheme was received based on the eligibility certificate issued after the commencement of the production would not render the receipt as one on capital account. 11.6 In support of his submission, Mr Vohra relied upon the following judgments: (i) Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC) (ii) CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) (iii) CIT v. Chaphalkar Brothers [2018] 400 ITR 279 (SC) (iv) Shree Balaji Alloys v. CIT [2011] 333 ITR 335 (J&K) [approved in [2016] 287 CTR 459 (SC)] (v) DCIT v. Munjal Auto Industries Ltd. [2013] 218 Taxman 135 (Guj) [approved by Hon'ble Apex Court vide order dated 08.05.2018] (vi) CIT v. Maruti Suzuki India Ltd. ITA No.171 of 2012 (order dated 07.12.2017) (vii) CIT v. Johnson Matthey India (P) Ltd. ITA No. 193 of 2015 (order dated 13.03.2015) (viii) CIT v. Bougainvillea Multiplex Entertainment Centre (P.) Ltd. [2015] 373 ITR 14 (Del) (ix) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repelling the argument made on behalf of the assessee that since a part of the refund was linked to a capital asset, it had to be necessarily treated as a capital receipt. 14.4 The observations made by the court in this context being significant and perhaps apposite in unravelling the predicament in which one can get caught while deciphering as to how the incentives received by the assessee in a given case should be treated, for convenience, are extracted hereafter: "18. Mr. Ganesh's further argument was that the three types of refunds contemplated in the scheme, the refund of sales tax on purchase of machinery must be treated as capital. The payment for the purchase of machineries must be of capital nature and the entire payment of sales tax must have been treated as capital expenditure of the Company. If any refund of sales tax paid on purchase of capital goods is made the refund will partake of the character which it had originally borne. Such refunds cannot in any circumstances be treated as trade receipts or supplementary trade receipts. This argument overlooks the basic principle laid down in the cases discussed above. It is not the source from which the amount is paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting up an industry, as opposed to carrying out trade or business operations? (ii) Second, is the incentive/subsidy given to operate the industrial unit profitably and not for setting it up? (iii) Third, while employing the purpose test, the court is not concerned with the source, the timing or the mode and manner in which the subsidy is measured and paid. In other words, the quantification of the subsidy/incentive (whether it is linked to turnover or the cost of a capital asset) would not be a determinative factor in concluding the nature of the receipt. The purpose and the object with which the benefit/incentive/subsidy is extended would determine its character in the hands of the recipient, i.e., the assessee. 17. Against the backdrop of the aforesaid principles, it will be helpful to advert to the purpose and object of the 1993 Scheme. The purpose and object of the 1993 Scheme is best illustrated by referring to the preamble of the 1993 Scheme: "In order to achieve dispersal of industries outside the Bombay-Thane-Pune belt and to attract them to the underdeveloped and developing areas of the State, Government has been giving a Package of Incentives to New/Expansion Units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferral/Interest-Free Unsecured Loan, (ii) Special Capital Incentive for SSI Units, (iii) Refund of Octroi/Entry Tax (in lieu of Octroi), (iv) Refund of Electricity Duty, (v) Concession in the Capital Cost of Power Supply, and (vi) Contribution towards the Cost of Feasibility Study." 19. Each of the incentives referred to above was made admissible to either one or more of the following units categorised as new/pioneer or prestigious. 19.1 A perusal of the definition of new unit/pioneer unit/prestigious unit would show that there is a common denominator: a brand-new unit had to be set up. The only difference was that insofar as the pioneer unit was concerned, it included a large-scale new unit or a large-scale fixed capital investment made by an existing unit. In other words, there was an expansion of an existing unit. 19.2 Insofar as the prestigious unit was concerned, its definition is almost similar to a pioneer unit; the only difference being that it had to be set up in a specific district, i.e., Gadchiroli District. It is common knowledge that Gadchiroli is a problematic area for more than one reason; therefore, setting up an industry in that area is challenging. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1993 Scheme. 25.1 In the categorisation, a clear distinction has been drawn between developed areas [Group A] and those where some development has taken place [Group B] or are less developed than those falling under Group B [Group C], those which are the least developed areas of the State not covered under Group A/Group B/Group C [Group D] and areas which are least developed lacking basic infrastructure and not covered under Group A, Group B, Group C and Group D [Group D+]. 26. The fact that the 1993 Scheme is different from the scheme which the Andhra Pradesh Government framed [which was considered in Sahney Steel] is evident upon perusal of the order passed by the CIT(A). The finding of fact returned by the CIT(A) is that the 1993 Scheme is akin to the 1979 Scheme considered in DCIT v. Reliance Industries Ltd. 26.1 Even though the appellant/revenue did not inform us as to whether the decision of the special bench of the Tribunal rendered in DCIT v. Reliance Industries Ltd was carried further in appeal, we are of the opinion that the frame of the 1993 Scheme clearly indicates that it was mainly envisaged to industrialise underdeveloped and developing areas and not to im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a cryptic order in which the court notes that the assessee had received a grant-in-aid from the Central Government for operations and not to bring into existence a new asset. Based on the purpose test evolved in Sahney Steels Ltd, the court answered the question of law as framed in favour of the revenue. In other words, the court held that the grant-in-aid was a revenue receipt. Once again, we must emphasise that the facts mentioned in the judgement suggest that the aid received was on the revenue account. Conclusion: 28. Given the foregoing discussion, we are not inclined to interfere with the impugned order dated 22.06.2012 passed by the Tribunal concerning AY 1997-98. The question of law, as framed in ITA 393/2014, is answered in favour of the respondent/assessee and against the appellant/revenue. The sales tax subsidy/incentive received by the respondent/assessee under the 1993 Scheme was a capital receipt. 29. Since, as noticed at the outset, the issue is common to the remaining appeals, the decision in those appeals can be no different. Consequently, in the remaining appeals as well, the question of law as framed is answered in favour of the respondent/assessee and aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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