9911796707
TMI Blog2003 (10) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... a, of Patalganga in Raigad District, should be treated as capital receipt in the hands of the assessee and accordingly excluded from the assessee's total income chargeable to tax, from paras 48 to 118 of the order. A copy of this order has been filed at the paper book No. 1. We have carefully gone through these paragraphs. In that year, the basic facts were the same as those in the asst. yr. 1984-85. The assessee was exempt from payment of sales-tax to the Government of Maharashtra under the 1979 Scheme. In that year also, the assessee claimed that the incentive given in the form of non-payment of the sales-tax amount should be excluded from the total income either on the basis that the same was a capital receipt or, alternatively, that it should be treated as liability under the sales-tax law and deemed to have been paid by the assessee within the meaning of s. 43B of the Act. The reasons given by the AO for rejecting the assessee's claim were the same as the reasons given in the assessment order for the asst. yr. 1984-85. The CIT(A), following the view taken by him in the appeal for the asst. yr. 1984-85, rejected the assessee's claim agreeing with the AO. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, of the ratio laid down in the judgment of the Supreme Court in Sahney Steel [ 1983 (11) TMI 30 - ANDHRA PRADESH HIGH COURT] cannot be stated to be erroneous. The Tribunal did recognise, as the Supreme Court itself recognised, that the object with which the subsidy was given is decisive. It did recognise, following the distinction pointed out by the Supreme Court that if the subsidy is given for setting up or expansion of the industry in a backward area, it will be capital, irrespective of the modality or the source of funds through or from which it is given and that if monies are given for assisting the assessee in carrying out the business operations only after, and conditional upon, the commencement of production, it would be revenue. It was only for the purpose of bringing out this distinction that the Tribunal had analysed the features of the Maharashtra Scheme of 1979 and had come to the conclusion that the subsidy given under the Scheme had a direct nexus with the fixed capital investment and that it could not be said that the subsidy was given with the object of assisting or lending a helping hand to the assessee in its business operations. The Tribunal also took the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eligibility certificate originally issued that, in the matter of employment of personnel for the unit, candidates from Scheduled Castes and Scheduled Tribes and local people should be given preference. All these facts have not been disputed before us. Thus, we answer the question referred to us in the affirmative. Since there are other grounds in the appeal of the assessee and since there is also an appeal by the Department, they will go back to the Division Bench for being disposed of in accordance with law. - HON'BLE V. DONGZATHANG, PRESIDENT, J.P. BENGRA, VICE PRESIDENT AND R.V. EASWAR, MEMBER (J) For the Appellant : S.K. Tulsiyan, Adv. For the Respondent : Rafique A. Dada, Sr. Adv., Girish Dave and Sunil Agarwal, Advs. ORDER R.V. Easwar, J.M.: 1. The following question has been referred to the Special Bench by the Hon'ble President., ITAT, for decision: Whether, on the facts and in the circumstances of the case and in law the assessee-company is justified in its claim that the sales-tax incentive allowed to it during the previous year in terms of the relevant Government order constitutes capital receipt and is not to be taken into account in computation of total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view of the importance of the issue and its very huge revenue implications, I, the undersigned, under the direction of CC-II, Bombay request you to kindly consider constituting a Special Bench for hearing the appeal in the case of Reliance Industries Ltd. for asst. yr 1986-87, considering the decision in the case of Bajaj Auto Ltd., overruling the view taken in the case of the assessee for asst. yr. 1985-86. The case is posted for hearing on 4th March, 2003. The Hon'ble President, accepting the request, was pleased to constitute a Special Bench to decide the question which has been reproduced above. 3. Before deciding the question, it is necessary to refer to certain facts constituting the background of the matter. We are concerned with the asst. yr. 1986-87. The assessee is a company deriving income from the manufacture of yarn, synthetic fabrics, etc. During the year, the assessee also commenced manufacture of polyester staple fibre in its unit in Patalganga. In the return of income filed by the assessee for the year under consideration, a copy of which is at pp. 47 to 57 of the assessee's paper book No. 1, the assessee commenced the computation of the income from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital receipt, that it was given to encourage the setting up of new industrial units during a particular period in certain backward areas of Maharashtra which needed huge capital investment, that since the State Government cannot give subsidy in cash, it has been granted to the assessee by allowing it to retain the sales-tax payable to the State Government and that the AO went wrong in his conclusion that accepting the assessee's claim would amount to double benefit, since the subsidy has been included in the total income of the assessee which is subjected to tax. The CIT(A) disposed of the above contentions of the assessee in the following words: 11.2 I have gone through the detailed submissions given by the learned counsel and also through the appellate orders of my learned predecessor in the appellant's own case for asst. yrs. 1984/85 and 1985/86. It is not considered necessary to repeat the facts all over again, but for the detailed reasons given in para 10 of the appellate order for asst. yrs. 1985/86 and the conclusion given in para 10.9 on p. 33 of the said order, I am inclined to reject the appellant's submission in this regard. It will be seen from the, above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay any sales-tax to the Government, and (v) The assessee did not maintain any separate sales-tax account any separate incentive account nor has shown any amount as outstanding liability under the head. After noticing the above reasons given by the AO which were confirmed by the CIT(A), the Tribunal proceeded to consider the various arguments advanced before it and the decisions cited by both the sides. Ultimately it came to the following conclusions: (1) The amount determined as sales-tax by the STO would bear the character of subsidy which is capital in nature. (2) A perusal of the Scheme and the purpose for which it was framed by the State shows that the incentive was given for bringing about necessary infrastructure in processing/developing the backward area and thus the incentive would be in the capital field and therefore cannot be taxed as revenue receipt. (3) The incentive is based on the amount of investment in fixed assets. It is to induce or motivate the businessman to move and take a risk when the State has placed its stake. (4) The judgment of the Bombay High Court in CIT vs. Elys Plastics (P) Ltd. (1990) 87 CTR (Bom) 80 : (1991) 188 ITR 11 (Bom) covers the issue. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: So what the assessee has obtained from the State Government is exemption from the payment of tax under the Bombay ST Act and Central ST Act and other rules thereunder. Now what is the amount for which the exemption from payment to the State Government is granted? The amount additionally payable on assessment, but for notification under s. 41 as long as it is in force. This amount otherwise payable under the Sales-tax Act is not recovered from the assessee by virtue of exemption under s. 41 of the Act. Why it is not recovered, the answer is simple. Because the assessee is to be granted/disbursed incentive in the form of subsidy under Scheme framed by the Government. Therefore, this amount determined and referred to as notional sales-tax liability should have been reduced from the Revenue receipts as it is embedded in such receipts, though having character of subsidy. Sec. 41(1) of Bombay Sales-tax Act states that subject to such condition as it may impose, the State Government may, if it is necessary in public interest, by notification exempt any specified class of sales/purchases from payment of whole or any part of any tax payable under the provisions of the Act. This a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of its order. The Tribunal noted that it was not necessary to collect from the buyer the amount of sales-tax so as to be liable to pay sales-tax. The Tribunal further noted from the evidence that the assessee is obliged to specifically state in the invoice that it is exempt from payment of sales-tax and it is only with this specific knowledge that the buyer purchases the goods of the assessee, knowing fully well that when he resells the goods in turn, he would be liable to pay sales-tax. The Tribunal held that considering this position it appears that what was given to the assessee in the form of incentive by way of subsidy is recovered from another dealer by way of sales-tax. That is why, according to the Tribunal, the assessee's claim that it was granted exemption only from the payment of tax gains further weightage. 10. In para 32.1, the Tribunal proceeded to consider the factual position regarding sales-tax before the date of exemption notification, during the period of operation of the exemption notification and after the expiry of the exemption period and it found that the position was as follows: (a) Before the date of notification under s. 41 of the Bombay Sales-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, these envisaged that the quantum of subsidy in each year would be equal to the sales-tax liability of each year subject to maximum limit. The Tribunal also perused the compromise agreement between the assessee and SICOM in relation to 1979 Scheme, under which the assessee agreed to refund the excess amount of sales-tax incentive (above the limit of 10,000 tons) together with interest and held that this clarified that the assessee had retained money belonging to the Government. As regards the impact of the eligibility certificate issued by SICOM, the Tribunal noticed s. 2(12B) of the Bombay Sales-tax Act which defined eligibility certificate as meaning a certificate granted by SICOM under the Package Scheme of Incentives designed by the State Government for promoting industrialization of the backward areas of the State of Maharashtra. The Tribunal held that this showed, that the intention of the State legislature was clear that the incentive was only in the capital field. In the absence of the certificate, the assessee was liable to pay the amount of tax determined. According to the Tribunal, the effect of the eligibility certificate was to free the assessee from paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, rejected the assessee's claim agreeing with the AO. The CIT(A) also entertained a view that sales-tax exemption was placed in a category separate from the capital subsidy which an eligible unit was entitled to, that the AO was right in saying that there was no actual payment-of sales-tax to the Government, that the sales-tax collected on sales made was a part of the turnover, and deduction was available to the assessee only if the same was actually paid to the Government and that the turnover was merely exempt from the levy of sales-tax for specified period and therefore, the assessee's contention that it was entitled to the exemption of the income cannot be accepted. 15. The matter reached the Tribunal at the instance of the assessee. The assessee inter alia contended that the issue was fully covered by the earlier order of the Tribunal for the asst. yr. 1984-85 (discussed above) and that in that, order the Tribunal had relied on the judgment of the jurisdictional High Court in the case of Elys Plastics (P) Ltd. which has been approved by the Supreme Court in CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) and therefore there should be no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made in July, 1982 to the Scheme with reference to gross fixed capital investment was only for the purpose of monitoring, but the essential condition relating to production continued and therefore the assessee's case fell within the ratio laid down by the Supreme Court in Sahney Steel. (f) The eligibility certificate issued by SICOM on 6th June, 1983, made it a condition that the assessee should remain in normal production and in case the production was stopped or went below the normal level, the exemption would be forfeited. (g) The judgment of the Bombay High Court in the case of Elys Plastics (P) Ltd relied upon by the earlier Tribunal was on a different question and was not relevant to the present controversy. (h) The line of reasoning adopted by the Tribunal in its order for the asst. yr. 1984-85 was influenced by the fact that the objective of the State Government in granting the subsidy was the development of backward regions of the State. This is erroneous. Various judgments were cited before the Tribunal on behalf of the Department to prove this point, notably the judgment of the Supreme Court in Sahney Steel and another judgment of the Supreme Court in CIT vs. Rajar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case were specifically relied upon to contend that the fact that the subsidy was granted after the industry was set up and went into regular production was not the operative or decisive factor in coming to the conclusion as to whether the receipt was revenue or capital and that the most decisive factor was the object with which the incentive was given. The further submission was that Hon'ble Justice Jeevan Reddy who wrote the judgment of the Andhra Pradesh High Court in Sahney Steel which was upheld by the Supreme Court in appeal, himself viewed the Scheme in Godavan Plywoods differently in view of the material distinctions between the two schemes. While in Sahney Steel the object of the Scheme was to strengthen the unit financially for efficient and profitable running of the industry, the purpose in Godavari Plywoods was to provide a recompense for setting up the industry in a backward area. Various other contentions were also raised before the Tribunal explaining the judgments, especially the judgment of the Supreme Court in Sahney Steel. The attention of the Tribunal was drawn to p. 263 of Sahney Steel where it was held as follows: For example, if the Scheme was that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Seaham Harbour Dock Co. and not under the principle of Pontypridd Rhondda. These decisions have been discussed in great detail in paras 76 to 85 of the order. Three broad principles have been culled out from these judgments and they are: (a) It is the purpose for which the subsidy or incentive is given that would define the character of receipt in the hands of the recipient; (b) The mere mode of payment would not alter the character of the sums received; and (c) It would be quite irrelevant whether the money, when received, was applied for capital purposes or for revenue purposes, in the absence of any special allocation in the grant itself. (3) In Sahney Steel, both the House of Lords' decisions were referred to and it was held that the ultimate decision would depend upon the salient features of the Scheme. If it is given as a general assistance to the assessee to carry on his business or trade, it would be a trading receipt, but if the object of the subsidy, irrespective of its source, is to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme formulated by the State Government thereafter and also proceeded to compare the 1979 Scheme (with all its modifications made subsequently) with the Andhra Pradesh Scheme, which was the subject matter of the judgment in the case of Sahney Steel, and also with the MP Scheme which was also considered in the judgment of the Supreme Court in Sahney Steel while overruling the judgment of the Madhya Pradesh High Court in CIT vs. Dusad Industries (1986) 51 CTR (MP) 217 : (1986) 162 ITR 784 (MP). The Tribunal after a detailed analysis of all the three schemes in paras 90 to 117 came to the conclusion that the Maharashtra Scheme was materially different from the Andhra Pradesh and Madhya Pradesh Schemes which were similar to one another. For the sake of brevity, the detailed reasoning of the Tribunal is not reproduced here, but we shall refer to the same at the appropriate juncture. Suffice here to notice, briefly, that the Tribunal held that the Maharashtra Scheme unlike the Andhra Pradesh and MP Schemes was completely focussed on the location of the industry and the amount of fixed capital investment and that these twin objectives were sought to be achieved by an elaborate Scheme of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the assessee on revenue account. Thus the Tribunal held that this judgment did not have any bearing on the present issue. 18. The main reason for constituting the Special Bench is the submission of the CIT in his letter addressed to the Hon'ble President of the Tribunal to the effect that the view taken by the Tribunal in the aforesaid order in the assessee's own case for the asst. yr. 1985-86 has been virtually overruled by the subsequent decision of the Tribunal in the case of Bajaj Auto Ltd. (ITA No. 49/Bom/1991 and 1101/Bom/1991) dt. 31st Dec, 2002. It is therefore incumbent upon us to examine the order of the Tribunal in Bajaj Auto Ltd., a copy of which has been placed at pp. 346 to 375 of the paper book No. 1, to find out whether the claim of the Revenue is correct. Paras 27 to 48 of the order in the case of Bajaj Auto Ltd. deal with this issue. In that case, the assessee received a sum of Rs. 3,56,48,643 as sales-tax incentive in respect of the Aurangabad unit at Waluj and the question was whether the receipt constituted capital or revenue. The factory started production on 15th May, 1985. It was located in a notified backward area. The sales-tax incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Reliance Industries Ltd. for the asst. yr. 1985-86: (a) In the case of Reliance Industries Ltd., the Tribunal, while comparing the Andhra Pradesh Scheme with the Maharashtra Scheme, had laid stress on the form, not on the substance of the Scheme . (b) The reliance placed by the earlier Tribunal in CIT vs. Balarampur Chini Mills Ltd. (1999) 154 CTR (Cal) 323 : (1999) 238 ITR 445 (Cal) is not appropriate since in the case before the Calcutta High Court, the assessee had received incentive for repayment of a loan taken for expansion of plant and machinery, whereas in the present case (i.e., Bajaj Auto Ltd.), the incentive has not been given for acquiring any capital asset. (c) In the case of Reliance Industries Ltd., the Tribunal considered the incentive as capital receipt in view of the CBDT Circular No. 142 . According to the order of the Tribunal in the case of Bajaj Auto Ltd., this Circular pertains to subsidy given for helping the growth of industries and not for supplementing their profits, that it concerns itself only with subsidies which are intended to contribute to capital outlay of the industrial unit and that the Circular has got no relevance with the facts of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal. In that sense, when the High Court declines to interfere with a finding of fact given by the Tribunal in an earlier year, it may not mean that the High Court had approved of such a finding. This, however, does mean that a subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal in the same case for an earlier year on a similar set of facts. Such a thing may not be in the larger public interest as it is likely to shake the confidence of the public in the system. It is, therefore, desirable that in case a subsequent Bench of the Tribunal in earlier year requires reappraisal either because the appreciation, in its view, was not quite correct or inequitable or some new facts have come to light justifying reappraisal or reappreciation of the evidence on record, it should have the matter placed before the President of the Tribunal so that the case can be referred to a larger Bench of the Tribunal for adjudication and for which there is a provision in the IT Act. There may also arise a situation, as it has happened in the present case, where a later Bench may have occasion to doubt the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision Benches consisted of the same number of judges, it was not open to one Division Bench to decide the correctness or otherwise of the views of the other. The principle was reaffirmed in Union of India vs. Godfrey Philips India Ltd. (1986) 158 ITR 574 (SC); (1985) 4 SCC 369, which noted that a Division Bench of two judges of this Court in Jit Ram Shiv Kumar vs. State of Haryana (1984) 3 SCR 689, had differed from the view taken by an earlier Division Bench of two Judges in Motilal Padampat Sugar Mills Co. Ltd. vs. State of UP. (1979) 118 ITR 326 (SC); (1979) 2 SCR 641, on the point whether the doctrine of promissory estoppel could be defeated by invoking the defence of executive necessity, and holding that to do so was wholly unacceptable, reference was made to the well accepted and desirable practice of the later Bench referring the case to a larger Bench when the learned judges found that the situation called for such reference. In this light, it would have been in order for the Bench which heard the appeal of Bajaj Auto Ltd., when it entertained doubts about the correctness of the Tribunal's order in Reliance Industries Ltd. for the asst. yr. 1985-86, to have invoked th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends to overlook the same. The observation of the Tribunal in Baja; Auto Ltd. is not supported by reasons as to why it was felt that the earlier order of the Tribunal in RIL referred only to the form of the schemes and not their substance. In para 108 of the order in RIL, the Tribunal found that in the 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-Thane-Pune belt and to hasten the pace of industrialization in the developing regions of the State. Under the Maharashtra Scheme, no incentive was available to industries in the developed areas of the State. The second point of difference related to the quantum of 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 was located. The third point of distinction was that in the Andhra Pradesh Scheme, the incentive was in the form of refund of sales-tax subject to a maximum of the equity capital, whereas in the Mahsrashtra Scheme was either in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entrepreneur could gradually increase his level of entitlement as and when further investment in the fixed capital assets was made. In this view of the matter, while the Andhra Scheme came to be considered as an operational subsidy , the Maharashtra Scheme is in a different class altogether and should be treated as a fixed capital investment incentive. In the light of such a detailed discussion and comparison of the two schemes, it cannot be said that the. Tribunal laid more stress on the form of the schemes and not on their substance. 24. The second remark made by the Tribunal in Bajaj Auto Ltd. which is at paragraph 38 of the order is that in RIL, the Tribunal relied on the judgment of the Calcutta High Court in CIT vs. Balarampur Chini Mills Ltd., where the incentive was received for repayment of a loan taken for expansion of plant and machinery which were capital assets, whereas in the case of Bajaj Auto Ltd., the incentive was not given for acquiring any capital asset It was therefore held in Bajaj Auto Ltd. that the ratio laid down in the above judgment cannot be applied to the facts of Bajaj Auto Ltd. Actually, the effect of this observation in Bajaj Auto is merely that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to. The learned counsel for the assessee would appear to have submitted that the circular and P.J. Chemicals indirectly supported the assessee's case, whereas the learned counsel for the Revenue appears to have contested the claim made on behalf of the assessee by contending that P.J. Chemicals was decided in the context of the applicability of s. 43(1) and the question whether the subsidy was capital or revenue was not decided in P.J. Chemicals at all. Now the Tribunal while discussing the cases of P.J. Chemicals and the judgment of the Andhra Pradesh High Court in Sahney Steel did refer to the circular but not as constituting the basis of its decision, but only for the purpose of explaining its understanding of the judgments. The Tribunal no doubt took the view that in the case of P.J. Chemicals, though the question was whether the subsidy given by the Government would reduce the actual cost of the assets for purposes of depreciation, it was common ground between the parties in those appeals that the nature of the subsidy in the hands of the recipients was otherwise capital, but it is not correct to say that the Tribunal considered the incentive as capital receipt only beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to appreciate the above observation in Bajaj Auto Ltd., it is necessary to examine as to how the Tribunal in the case of RIL understood the judgment of the Supreme Court in Sahney Steel. 27. It was argued before the Tribunal on behalf of the Department that the earlier order of the Tribunal for the asst. yr. 1984-85 in which it was held that the sales-tax incentive was in the nature of a capital receipt was incorrect and no longer tenable in view of the judgment of the Supreme Court in the case of Sahney Steel. After referring to the observations of the Supreme Court at p. 257 of the report, it was argued on behalf of the Department that the Supreme Court did not accept the contention of the assessee to the effect that any subsidy given for the purpose of stimulating the setting up and expansion of industries in the State was capital in nature, because the Supreme Court found that it was only when the assessee (in the case before the Supreme Court) had set up its industry and commenced production that various incentives were given for a limited period of 5 years. Attention of the Tribunal was drawn to the Supreme Court's observation that the endeavour of the State was to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself observed that if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given and that at p. 259 the Supreme Court observed that the endeavour of the State was to provide the newly set up industries a helping hand for five years to enable them to be viable and competitive . It was argued by the assessee that these observations of the Supreme Court in Sahney Steel would themselves show that there is a distinction between the subsidy given with the object of encouraging the industrial growth and for setting up industries in backward areas and the subsidy given with the object of assisting industries for a limited period after they are set up and to lend ttiem a helping hand. The following observations of the Supreme Court in Sahney Steel at pp. 262-263 were strongly relied upon: 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this paragraph. The Supreme Court also noted that the power subsidy under the Andhra Scheme was confined to the power that was consumed for production and if any power is consumed for setting up the plant and machinery, the incentive was not to be given. The Supreme Court held that such subsidies were operational subsidies and were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable . It is in this background that we will have to consider the further observations of the Supreme Court at pp. 262-263 of the report, which we have extracted in the preceding paragraph. These observations, in our humble understanding of the judgment, constitute the ratio of the judgment. It is here that the Supreme Court has laid down the following principles: (1) The character of the subsidy (whether revenue or capital) in the hands of the recipient will have to be determined by having regard to the purpose for which the subsidy is given. (2) If the subsidy is given as assistance to the assessee in the carrying on of his trade or business, it is a trading receipt. (3) In determining the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 industry was in the process of being set up. According to the Tribunal, the Scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales-tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales-tax incentive was not given to the assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area. 29. Thus, the interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial unit. 30. The Tribunal was thus aware of the distinction between the subsidy given with the object of setting up the industry and the subsidy given after the industry commences production and conditional upon the commencement of production. Factually, the Tribunal found that the assessee's case which fell under the Maharashtra Scheme, was a case where the subsidy was given for the purpose of facilitating the assessee to set up an industry in Patalganga, Raigad District, which is a notified area. The actual disbursement took place after the assessee commenced production, but, according to the Tribunal, it was only a mode of disbursement and had nothing to do with the object for which the subsidy was given. In para 115 at the bottom of p. 121 of its order, the Tribunal observed as follows: On a detailed consideration of various schemes of Government of Maharashtra and 1979 Scheme in particular, we find that the investment in fixed capital assets is not merely a measure of the amount of incentive. The entire Scheme of incentive has been oriented and is subservient to investment in fixed capital assets in the specified districts of the State. The importance of this aspect has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd. at pp. 260-261: 'Mr. Ganesh strongly relied on Seaham Harbour Dock Co.'s case which does not come to the assistance of his contention in any way. In that case application for assistance was made even before the work of expansion of clock commenced. The money was for extension of the docks of the company. The extension would have enabled some persons to be kept in employment who would otherwise have lost their jobs. Money was given for the express purpose which was named. It was found by the House of Lords that it had nothing to do with the trading of the company. 33. The above observations of the Tribunal made on the basis of the observations of the Supreme Court in Sahney Steel also show that the Tribunal was alive to the distinction between the character of the subsidy given with the object of promoting industrial growth in a particular area and the subsidy given conditional upon the commencement of production and after actual commencement of production. In our opinion also, it is not correct to understand the judgment as laying clown the broad proposition that wherever the subsidy is given after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the industrial unit. It was also one of the conditions of the eligibility certificate originally issued that, in the matter of employment of personnel for the unit, candidates from Scheduled Castes and Scheduled Tribes and local people should be given preference. All these facts have not been disputed before us. The Departmental authorities have relied on the assessment and appellate order for the earlier years they have not brought, any new fact, or material on record, liven before us, with respect to counsel who appeared for both the sides, no new arguments were advanced other than the arguments which had been advanced by the assessee and the Department before the Tribunal in the appeal for asst. yr. 1985-86. The preliminary argument of the Department before us that the assessee did not collect any sales-tax and therefore there is no question of any exemption or incentive being given is an argument which has been advanced before the Tribunal both in the asst. yrs. 1984-85 and 1985-86. In fact, in para 74 of its order for the asst. yr. 1985-86, the Tribunal has referred to this aspect of the matter and after noting that the argument has already been found against the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. The Madras High Court held that a fair reading of the Government order showed that the subsidy was given by way of assistance to the sugar factories on the commencement of production and not for the setting up of the factories and it was given only to tide over the difficulties that might be experienced by the management in the actual running of the sugar factories. It was further held that though the amount of subsidy is equivalent to the quantum of purchase tax, the object behind the grant of the subsidy is not to set up a new sugar factory, bur to run the factory efficiently. In other words, the subsidy is given so that the management may not be in trouble in running the factories in the initial year. In this background of facts, the Madras High Court applied the decision of the Supreme Court in Sahney Steel. In doing so, the High Court noted that in Sahney Steel's case, the payments were made directly or indirectly not for the setting up of the industries, but were made only after the production was commenced. It was therefore held, applying the ruling of the Supreme Court, that the subsidy received by the assessee, which was not for the setting up of the sugar factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object with which the subsidy is given is the prime or foremost consideration while determining the nature of the receipt. The High Court held as under: The nature of the receipt of the incentive, therefore, has to be examined in the light of that object. Law has to keep up with the newer devices and methods adopted in the world of business as also in the several schemes that policy makers draw up from time to time to ensure the desired development in the different sectors of industry. If the Government found it convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the Scheme for discharging such loans, it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive would be a trading receipt in the hands of the recipient. The fact that the time of payment is subsequent to the commencement of production would not in the larger perspective make a difference. As observed by the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outcome of another case merely on the ground that post-production receipts are normally regarded as trading receipts. In other words, the High Court has held that merely because the monies are received after production commences, it cannot be said, irrespective of the purpose and object of the Scheme, that the receipt is of revenue nature. This observation of the Madras High Court and the manner in which the judgment of the Supreme Court in Sahney Steel has been explained at p 612 of the report also show that the Tribunal in the case of RIL for the asst. yr. 1985-86 correctly interpreted the judgment of the Supreme Court in Sahney Steel. The observations of the Madras High Court lend support to the view that the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy was received after the commencement of production or conditional upon it. Therefore, in our view and with respect, the Tribunal in the case of RIL had correctly interpreted and understood the ratio of the judgment of the Supreme Court in Sahney Steel. 38. In this view of the matter, we answer the question referred to us in the affirmative. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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