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TMI Blog2022 (5) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee would therefore, not form part of its total income. Subsidy received by the assessee was capital in nature and not chargeable to tax. Decided against revenue. - R.S. Syal, Vice President And Shri Partha Sarathi Chaudhury, JM For the Appellant : Shri Sardar Singh Meena. For the Respondent : Shri Girish Ladda. ORDER PER BENCH: These bunch of four appeals preferred by the Revenue emanates from the consolidated order of the ld. Commissioner of Income Tax (A)-12, Pune dated 28-09-2018 as per the grounds of appeal on record. 2. At the very outset, parties agreed that the facts and circumstances of the case and the issues involved in all these appeals are absolutely identical and similar and therefore, after hearing the submissions of the parties herein, all these appeals were heard together and are being disposed of by this consolidated order. 3. The only issue for adjudication in all these appeals is whether the assessee having received subsidy from Government of Maharashtra under Package Scheme of Incentives of 2007 (hereinafter referred to as PSI 2007 for short) whether the said subsidy is capital receipt or a revenue receipt. Taking the lead case IT(SS)A No. 7/PUN/2019 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or revenue receipt. 5. In the present case before us, the ld. CIT(A) observed and held as follows: 3.1 I have considered the materials placed before me. Brief facts are that during the assessment proceedings the AD found out that the appellant has credited reserve and surplus account in the Balance Sheet by Rs. 31,00,000/-. The appellant claimed that the subsidy was received on account of setting up of new industrial unit hence; the same should be treated as capital receipt. The AD noted that the subsidy was received after the commencement of production; therefore, it was to be treated as assistance for functioning of the business which was in nature of revenue receipt. During the appellate proceedings, the appellant submitted that for the A.Y. 2011-12, addition was made in the regular assessment order u/s 143(3) dated 06.02.2014 treating the subsidy received as capital receipt, but the AD reduced the amount of subsidy received from fixed assets for calculating the amount of depreciation. In the appellate proceedings against the regular assessment, the CIT(A)-12, Mumbai held that the entire subsidy received was revenue receipt. During the appeal before the Hon'ble ITAT Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of Mumbai Tribunal in ITA No. 3428/MUM/2016 for A.Y. 2011-12 in assessee's own case, order dated 03-03- 2017 has observed and held as follows: 9.. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that above facts are undisputed. The assessee received subsidy from Maharashtra Govt. for putting up mega project in backward area amounting to Rs. 11,51,75,000/- during the year under consideration. The assessee's project was eligible mega project as certified by directorate of industries. The assessee treated the subsidy as capital receipt. The AO while framing assessment disallowed depreciation by reducing the incentive received from Maharashtra State Government from the cost of the building and plant and machinery. The CIT(A) enhanced the income of the assessee by an amount of Rs. 9,91,44,875/- by holding that the subsidy received from the Maharashtra Govt. for putting up the mega project by the assessee in backward area is revenue receipt and full amount of the subsidy is taxable in this year. For applying explanation 10 to section 43(1) of the Act the AO relied on the decision of Hon'ble Delhi High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch) decision in the case of assessee itself in Dy. CIT Vs. Reliance Industries Ltd. (2004) 82 TTJ (Mumbai) (SB)765 : (2005) 273 ITR 16 (Mumbai)(SB)(AT) : The scheme gainfully reproduce the following portion: The scheme framed by the Government of Maharashtra in 1979 and formulated by its resolution dt. 5-1-1980, has been analyzed in detail by the Tribunal in its order in RlL for the asst. yr. 1985-86 which we have already referred to in extension. On an analysis of the scheme, the Tribunal has come to the conclusion that the thrust of the scheme is that the assessee would become entitled for the sales-tax incentive even before the commencement of the production, which implies that the object of the incentive is to fund a part of the cost of the setting up of the factory in the notified backward area. The Tribunal has, at more than one place, stated that the thrust of the Maharashtra scheme was the industrial development of the backward districts as well as generation of employment thus establishing a direct nexus with the investment in fixed capital assets. It has been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, question (D) as framed, would also not arise. 11. Similarly, Hon'ble Supreme Court in the case of CIT(A) v. Ponni sugars Chemicals Ltd. (2008) 306 ITR 392 (SC) considering whether under a subsidy scheme, assessee a sugar mill, was obliged to utilized subsidy only for repayment of term loans undertaken by it for setting up new unit/ expansion of existing business, receipt of subsidy was held to be capital in nature. Hon'ble Supreme Court held that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In this case one has to apply the purpose test and the point of time of payment of subsidy is not at all relevant the source is immaterial and the form is also immaterial. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipts was on revenue account but if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand its existing unit, then receipt of the subsidy was capital in nature. 12. In the present case before us also the assessee has set up a manufacturing unit in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended to subsidize the cost of any fixed asset, therefore, it cannot be said that the subsidy was to meet a portion of cost of the asset. According to us, the assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY 2003-04 and 2004-05, the above stated subsidy was considered as capital receipt accepting the contention of the assessee. For the sake of consistency also the AO should not have changed the stand now. Even Hon'ble Supreme Court in the case of CITv. P.J Chemicals Ltd. [1994] 210 ITR 830/7 6Taxman 611 has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that the subsidy has been directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J Chemicals Ltd. (supra) that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein attempt to explain the law. They are not bringing any new law different from the law considered by the Hon'ble Supreme Court in the above cases. 14, From the above, we are of the view that it is only where subsidy is given specifically to offset the cost of an asset, such payment would fall within the expression 'met', whereas the subsidy received merely to accelerate the industrial development of the state cannot be considered as payments made specifically to meet a portion of the cost of the asset. Therefore, incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference. (Emphasis supplied). 8. Even in the case of Shree Balaji Alloys Oss. (2016) 287 CTR 459 (SC) the Hon'ble Supreme Court held that the object of subsidy is industrialization and eradicating unemployment then the subsidy is capital receipt merely notwithstanding the fact that it is available in installment only after the commencement of production. 9. We also find that Pune Tribunal in ITA No. 1766/PUN/2018 for A.Y. 2014-15 in the case of Hyundai Construction Equipment India Pvt. Ltd. Vs. ACIT dealt with this issue on an absolutely identical facts and circumstances where the assessee has received subsidy from Government of Maharashtra under PSI 2007. In this decision, the Tribunal relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Ponni Sugars and Chemicals Ltd (2008) 326 ITR 392 (SC) where the purpose test has been reiterated by the Hon'ble Apex Court holding that the relevant consideration should be the purpose of subsidy and not its source or mode of payment. When this test was appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by the Govt. of Maharashtra under Package Scheme of Incentives, 2007. A copy of the Scheme has been placed at page 753 of the paper book. The Preamble of the Scheme states that: The State 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 the conducive industrial climate in the State, for providing the global competitive edge to the State's industry. The policy envisages grant of fiscal incentives to achieve higher and sustainable economic growth with emphasis on balanced Regional Development and Employment generation through greater Private and Public Investment in industrial development. The Scheme talks of granting incentives subject to Eligibility Criteria in favour of the Eligible Units. The definition clause in the Scheme provides that An Eligibility Certificate under the 2007 Scheme will be issued by the Implementing Agency after ascertaining that the eligible unit has complied with the provisions of the Scheme and has commenced its commercial production. Clause 5 of the Scheme states that New projects, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ascertaining the true nature of subsidy. The purpose test has been reiterated by the Hon'ble Supreme Court in CIT Vs. Ponni Sugars and Chemicals Ltd. (2008) 326 ITR 392 (SC) by holding that the relevant consideration should be the purpose of subsidy and not its source or mode or payment. When we apply such a test on the facts and circumstances of the case, it demonstrably emerges that the purpose of subsidy is industrial growth; it is linked with the setting up of industrial units; and the amount of subsidy is linked with the amount of investment made in the eligible unit. Simply because the subsidy has been disbursed in the form of refund of VAT and CST, it will not alter the purpose of granting the subsidy, which is nothing but establishment of new industrial units in less developed areas of the State. The authorities below have been swayed by the fact that the subsidy was granted post commencement and is in the nature of refund of VAT and CST and overlooked the purpose of its granting, which is nothing but momentum in industrial pace in less developed parts of the State. Testing the factual panorama on the touchstone of the ratio laid down by the Hon'ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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