Thermo Cables Limited., Hyderabad V. Asst. Commissioner of Income Tax, Circle-2(2)., Hyderabad

ITA 1177/Hyd/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2483 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-08-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 07-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARMADA
• Keywords: Capital asset; Capital receipt; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1177/HYD/2017 ASSESSMENT YEAR: 2013 - 14 THERMO CABLES LIMITED, HYDERABAD. PAN: AABCT 3169 K VS. ACIT, CIRCLE - 2(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI K.C. DEVDAS REVENUE BY: SMT. M. NARMADA, DR DATE OF HEARING: 14.08.2018 DATE OF PRONOUNCEMENT: 29 .08.2018 ORDER PER INTURI RAMA RAO, A.M.: THIS APPEAL FILED BY THE ASSESSEE - COMPANY IS DIRECTED AGAINST THE ORDER OF L EARNED COMMISSIONER OF INCOME TAX (APPEALS) - 9, HYDERABAD DATED 28 TH MARCH, 2017 FOR THE ASSESSMENT YEAR 2013 - 14. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) IS ERRONEOUS IN LAW AS WELL AS FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN CONCLUDING THAT THE ASSESSING OFFICER WAS CORRECT IN TREATING THE POWER SUBSIDY OF RS. 51,61,213/ - CONSTI TUTE REVENUE RECEIPT AND THEREFORE THE ADDITION IS LIABLE TO BE DELETED. 3. THE LD. CIT(A) OUGHT TO HAVE OBSERVED THAT THE POWER INCENTIVE WAS ALLOWED TO ENCOURAGE EXPANSION OF INDUSTRY IN THE STATE AND THEREFORE THE SAME CONSTITUTE CAPITAL RECEIPT. HENCE THE LD. CIT(A) OUGHT TO HAVE HELD THAT THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SAME AS REVENUE RECEIPT IS AGAINST THE PROVISIONS OF THE ACT AND THEREFORE THE ADDITION OUGHT TO HAVE BEEN DELETED. 2 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE A RE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF INSTRUMENTATION, CONTROL, LT POWER CABLES & SPECIALITY CABLES. THE RETURN OF INCOME FOR THE A.Y. 2013 - 14 WAS FILED ON 28.09.2013 DECLARING TOTAL INCOME OF RS. 13,16,89,470/ - . AGA INST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ACIT , CIRCLE - 2(2), HYDERABAD VIDE ORDER DATED 01.03.2016 PASSED U/S 143(3) OF THE ACT AT A TOTAL INCOME OF RS. 13,68,50,683/ - . WHILE DOING SO, THE ASSESSING OFFICER BROUGHT TO TAX THE SUB SIDY RECEIVED FROM GOVERNMENT OF ANDHRA PRADESH AS INCENTIVE FOR SETTING UP INDUSTRY TREATING AS A REVENUE RECEIPT AS AGAINST THE CLAIM THAT IT IS ON CAPITAL ACCOUNT . IN THIS REGARD, A.O. PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT DECISI ON IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD (228 ITR 253). 3. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE CIT(A), WHO VIDE IMPUGNED ORDER HAD HELD IT TO BE REVENUE RECEIPT HOLDING THAT THE SUBSIDY IS IN THE FORM OF REIMBURSEMENT OF ELECTRICI TY CHARGES WHICH IS ON REVENUE ACCOUNT. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US. 4. LEARNED COUNSEL FOR THE ASSESSEE, SRI K.C. DEVDAS, SUBMITTED THAT THE APPELLANT RECEIVED THE SUBSIDY FROM GOVERNMENT OF ANDHRA PRADESH AS AN INCENTIVE FOR SE TTING UP A NEW INDUSTRY IN THE STATE OF ANDHRA PRADESH IN TERMS OF INDUSTRIAL INVESTMENT PROMOTION POLICY FOR 2005 - 2010 BY G.O.MS.NO. 178, DATED 21.06.2005. HE HAD TAKEN US T HROUGH THE CONTENTS OF THE SAID G.O., PLACED AT PAGE 31 OF THE PAPER BOOK. VIDE PARA 3.3.5 OF THE SAID G.O., IT IS STATED THAT THE ELIGIBLE UNITS SHALL BE ENTITLED FOR REIMBURSEMENT OF POWER COST @ RS. 0.75 PER UNIT DURING THE FIRST YEAR OF THE POLICY AND THE B ALANCE OF FOUR YEARS OF THE POLICY THE RATE OF REIMBURSEMENT BEING SO REGULATED ON EARLY BASIS KEEPING IN VIEW THE TARIFF STRUCTURES TO ENSURE THAT POWER COST TO THE INDUSTRY IS PEGGED DOWN TO THE FIRST YEARS LEVEL. F URTHER , VIDE PARA 4 OF THE SAID G.O., THE 3 OBJECT BEHIND THE GRANT OF SUBSIDY WAS STATED AND FOR THE SAKE OF READY REFERENCE, THE SAID PARA IS EXTRACTED AS UNDER: - 4. TO PROMOTE ANDHRA PRADESH AS ATTRACTIVE AND COMPETITIVE DESTINATION FOR INDUSTRIAL INVESTMENTS, THE STATE GOVERNMENT HAVE OFF ERED VARIOUS INCENTIVES / BENEFITS TO ALL ELIGIBLE NEW INDUSTRIAL UNITS SET UP IN THE STATE EXCEPT IN THE MUNICIPAL CORPORATION LIMITS F VISAKHAPATNAM, VIJAYAWADA AND HYDERABAD AND COMMENCE COMMERCIAL PRODUCTION ON OR AFTER 1.4.2005 BUT BEFORE 31.33.2010. PROJE3CTS INVOLVING SUBSTANTIAL EXPANSION / DIVERSIFICATION OF EXISTING INDUSTRIES IN THE ELIGIBLE LINES OF ACTIVITIES ARE ALSO ENTITLED FOR BENEFITS OFFERED UNDER THE POLICY. THE LIST OF INELIGIBLE INDUSTRIES / ACTIVITIES AS PER G.O.MS.NO.9, INDUSTRIAL & COMMERCE (IP) DEPARTMENT, DATED 5 - 1.2001 READ WITH G.O.MS.NO.141, INDUSTRIES & COMMERCE (IP) DEPARTMENT, DATED 3 - 7 - 2004 IS APPENDED TO, AS ANNEXURE II, TILL FURTHER MODIFICATIONS OF THE LIST. 5. THUS, HE SUBMITTED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD IS NOT APPLICABLE . IN A SUBSEQUENT DECISION OF THE APEX COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS (306 ITR 392) IT WAS HELD THAT THE PUR POSE TEST SHOULD BE APPLIED IN ORDER TO DETERMINE THE NATURE OF THE SUBSIDY. HE FURTHER RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SENAIRAM DOONGARMALL VS. CIT (42 ITR 393) IN SUPPORT OF THE PROPOSITION THAT THE METHOD AND MEASU RE OF PAYMENT ARE NOT THE DECISIVE TO DETERMINE THE NATURE OF THE SUBSIDY. HE FURTHER RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. CHAPHALKAR BROTHERS (400 ITR 279) WHEREIN HONBLE SUPREME COURT REITERATED THE SAME POSITION OF LAW. LEARNED COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. SHYAM STEEL INDUSTRIES LIMITED (ITA NO. 37 OF 2018, DATED 07.05.2018) AND DECISION O F THE ITAT HYDERABAD B BENCH IN THE CASE OF SANGHI INDUSTRIES (ITA NO.979/HYD/2017 AND OTHERS, DATED 20.04.2018) IN SUPPORT OF HIS CONTENTION. 6. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE SUBSIDY WAS GRANTED BY THE GOV ERNMENT OF ANDHRA 4 PRADESH IN ORDER TO IMPROVE THE REVENUES OF THE GOVERNMENT AND IT IS ONLY REIMBURSEMENT OF THE COST OF REVENUE EXPENDITURE AND THEREFORE THE SAME SHOULD BE TREATED AS A REVENUE RECEIPT AND IN THIS REGARD HE PLACED RELIANCE ON THE FOLLOWIN G DECISIONS: - 1. SAHNEY STEELS & PRESS WORKS VS. CIT 228 ITR 238 (SC) 2. PONNI SIGARS AND CHEMICALS LTD 306 ITR 392 3. CIT VS. BHUSHAN STEELS LTD ITA NO.315 /2003 AND OTHERS, DT: 13.07.2017 4 V.S.S.V. MEENAKSHI ACHI VS. CIT 60 ITR 253 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE IN THE PRESENT APPEAL IS WHETHER THE SUBSIDY RECEIVED FROM THE GOVERNMENT OF ANDHRA PRADESH AS AN INCENTIVE FOR SETTING UP OF A NEW INDUSTRY IN THE ELIGIBLE AREA IS CAP ITA IN NATURE OR REVENUE. ON PERUSAL OF THE G.O.MS.NO.178, DATED 21.06.2005 IT IS CLEAR THAT THE SUBSIDY IS GRANTED AS AN INCENTIVE FOR SETTING UP OF A NEW INDUSTRY IN THE STATE OF ANDHRA PRADESH IN THE ELIGIBLE AREA. NO DOUBT, THE SUBSIDY IS IN THE FORM OF REDUCTION / CONCESSION IN THE POWER TARIFF WHICH IS OBVIOUSLY ON REVENUE ACCOUNT. THE HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD (228 ITR 253) (SUPRA) HAD DECIDED THAT IF THE MONIES ARE GIVEN TO THE ASSESSEE FOR ASSISTING THEM IN CARRYING OUT THEIR BUSINESS OPERATIONS AFTER COMMENCEMENT OF PRODUCTION SUCH SUBSIDY MUST BE TREATED AS A ASSISTANCE FOR THE PURPOSE OF TRADING WHICH CAN BE BROUGHT TO TAX AS R EVENUE RECEIPT . THE SAID PROPOSITION IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD (SUPRA) WAS DISTINGUISHED BY THE HONBLE APEX COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD (SUPRA) AND HELD AS UNDER: - PONNI SUGARS (SUPRA) WAS THE AUTHORITY RELIED ON BY THE ASSESSEE. IN PANNI SUGARS (SUPRA), THE COURT OBSERVED ABOUT THE DECISION IN SAHNEY STEEL (SUPRA) AS FOLLOWS: 'THE IMPORTANCE OF THE JUDGMENT OF THIS COURT IN SAHNEY STEEL CASE LIES IN THE FACT THAT IT HAS DISCUSSED AND ANALYSED THE ENTIRE CASE LAW AND IT HAS 5 LAID DOWN THE BASIC TEST TO BE APPLIED IN JUDGING THE CHARACTER OF A SUBSIDY. THAT TEST IS 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 OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMM ATERIAL. THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS. ON THIS A SPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OR THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN ARE IRRELEVANT. ONE MORE ASPECT NEEDS TO BE MENTIONED. IN SAHNEY STEEL AND PRESS WORKS LTD. THIS COURT FOUND THAT THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED. IT WAS NOT OBL IGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. IN THE CASE OF SEAHAM HARBOUR DOCK CO. THE ASSESSEE WAS OBLIGED TO SPEND THE MONEY FOR EXTENSION OF ITS DOCKS. THIS ASPECT IS VERY IMPORTANT. IN THE PRESENT CASE ALSO, RECEIPT OF THE SUBSIDY WAS CAPITAL IN NATURE AS THE ASSESSEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXISTING BUSINESS. APPLYING THE ABOVE TESTS TO THE FACTS OF THE PRESENT CASE AND KEEPING IN MIND TH E OBJECT BEHIND THE PAYMENT OF THE INCENTIVE SUBSIDY, WE ARE SATISFIED THAT SUCH PAYMENT RECEIVED BY THE ASSESSEE UNDER THE SCHEME WAS NOT IN THE COURSE OF A TRADE BUT WAS OF CAPITAL NATURE. 8. THIS POSITION OF LAW AGAIN WAS REITERATED BY THE HONBLE SUP REME COURT IN THE CASE OF CIT VS. CHAPHALKAR BROTHERS (400 ITR 279) WHEREIN THE APEX COURT REFERRING TO THE EARLIER DECISIONS IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD (SUPRA) AND PONNI SUGARS AND CHEMICALS LTD (SUPRA) HELD AS UNDER: - 11. HAVING HEARD LEARNED COUNSEL FOR BOTH SIDES, IT BECOMES NECESSARY TO ANALYZE THE JUDGMENTS RELIED UPON. 12. IN SAHNEY STEEL & PRESS WORKS LTD.'S CASE ( SUPRA ), THE NOTIFICATION ISSUED BY THE ANDHRA PRADESH GOVERNMENT WAS CONCERNED WITH CERTAIN FACILITIES AN D INCENTIVES WHICH WERE TO BE GIVEN TO ALL NEW INDUSTRIAL UNDERTAKINGS WHICH COMMENCED PRODUCTION ON OR AFTER 01.01.1969 WITH INVESTMENT CAPITAL NOT EXCEEDING RS. 5 CRORES. THE INCENTIVES WERE TO BE ALLOWED FOR A PERIOD OF FIVE YEARS FROM THE DATE OF COMME NCEMENT OF PRODUCTION. CONCESSION WAS ALSO AVAILABLE FOR SUBSEQUENT EXPANSION OF 50% AND ABOVE. THE INCENTIVES WERE IN THE FORM OF, INTER ALIA, REFUND OF SALE TAX ON RAW MATERIALS, MACHINERY AND 6 FINISHED GOODS. THIS COURT HELD, ON THE FACTS OF THAT CASE, T HAT AS NO FINANCIAL ASSISTANCE WAS GRANTED TO THE ASSESSEE FOR SETTING UP OF THE INDUSTRY, THE IDEA OF THE SUBSIDY SCHEME WAS TO PROVIDE A HELPING HAND FOR FIVE YEARS IN ORDER TO ENABLE THE INDUSTRY TO BE VIABLE AND COMPETENT. IN DOING THIS, IN PARAGRAPH 9 OF THE SAID JUDGMENT, THE TEST STATED BY VISCOUNT SIMON IN PONTYPRIDD AND RHONDDA JOINT WATER BOARD V. OSTIME (1946) 1 ALL ER 668 WAS REFERRED TO. IN PARAGRAPH 10, THE COURT WENT ON TO APPLY THE AFORESAID TEST AND STATED THAT, SINCE FUNDS WERE MADE AVAILA BLE TO THE ASSESSEE TO ASSIST IT IN CARRYING ON ITS TRADE AND BUSINESS, THERE CAN BE LITTLE DOUBT THAT THE OBJECT 'OF VARIOUS ASSISTANCES UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY'. 13. THE JUDGMENT OF THE HOUS E OF LORDS IN SEAHAM HARBOUR DOCK CO. V. CROOK [1931] 16 TC 333 (HL) WAS THEN REFERRED TO AND DISTINGUISHED. WHAT IS IMPORTANT FOR OUR PURPOSE IS THE FACT THAT IN PARA 18 OF THAT JUDGMENT, THE TEST OF WHETHER THE RECEIPT OF SUBSIDY IS CAPITAL OR REVENUE IS STATED AS FOLLOWS: '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 ASS ISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TRADE OR BUSINESS, IT HAS TO BE TREATED AS A TRADING RECEIPT. THE SOURCE OF THE FUND IS QUITE IMMATERIAL.' 14. THE COURT WENT ON, THEREAFTER, TO GIVE A TELLING EXAMPLE IN PARA 19 OF THE AFORESAID JUDGMENT, WHIC H IS SET OUT HEREIN BELOW: '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 MAN UFACTURING CAPACITY IN A BACKWARD AREA, THE ENTIRE SUBSIDY MUST BE HELD TO BE A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. IT WILL NOT BE OPEN TO THE REVENUE TO CONTEND THAT THE REFUND OF SALES TAX PAID ON RAW MATERIALS OR FINISHED PRODUCTS MUST BE TREA TED AS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. IN BOTH THE CASES, THE GOVERNMENT IS PAYING OUT OF PUBLIC FUNDS TO THE ASSESSEE FOR A DEFINITE PURPOSE. IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJECT AS IN SEAHAM HA RBOUR DOCK CO. CASE, THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE. BUT IF MONIES ARE GIVEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPERATION AND THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEME NT OF PRODUCTION, SUCH SUBSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE.' 15. THEREAFTER, THE COURT WENT ON TO DISCUSS CERTAIN HIGH COURT JUDGMENTS AND, IN PARA 30, SPECIFICALLY REFERRED TO THE BOMBAY HIGH COURT JUDGMENT IN SADICHHA CHIT RA V. CIT [1991] 189 ITR 774 AND APPROVED THE VIEW TAKEN BY THE BOMBAY AND KERALA HIGH COURTS AS THEY ACCORDED WITH THE PRINCIPLE LAID DOWN IN SEAHAM HARBOUR DOCK CO. CASE ( SUPRA ) THE FACTS IN SAHNEY STEEL & PRESS WORKS LTD'S. CASE (SUPRA) WERE DISTINGUISHED FROM THE FACTS OF THE BOMBAY AND KERALA JUDGMENTS AS FOLLOWS: - 7 'IN THE CASE BEFORE US, SUBSIDIES HAVE NOT BEEN GRANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. AP PLYING THE TEST OF VISCOUNT SIMON IN THE CASE OF OSTIME IT MUST BE HELD THAT THESE SUBSIDIES ARE OF REVENUE CHARACTER AND WILL HAVE TO BE TAXED ACCORDINGLY.' 16. THE NEXT IMPORTANT JUDGMENT THAT WAS REFERRED TO IS THE JUDGMENT IN PONNI SUGARS & CHEMICALS LTD. CASE ( SUPRA ). ON THE FACTS IN THAT CASE, INCENTIVES GIVEN UNDER A SCHEME RELATING TO SUGAR PRODUCTION WERE IN THE NATURE OF A HIGHER FREE SALE SUGAR QUOTA, AND ALSO ALLOWING THE MANUFACTURER TO COLLECT EXCISE DUTY ON THE SALE PRICE OF FREE SALE SUGAR IN EXCESS OF THE NORMAL QUOTA BUT TO PAY TO THE GOVERNMENT ONLY THE EXCISE DUTY PAYABLE ON THE PRICE OF LEVY SUGAR. CLAUSE 7 OF THE AFORESAID SCHEME WAS SET OUT IN PARA 3 OF THE JUDGMENT AS FOLLOWS: 'THE BENEFICIARIES OF THE INCENTIVE SCHEME SHALL ENSURE THAT THE SURPLUS FUNDS GENERATED THROUGH SALE OF THE INCENTIVE SUGAR ARE UTILISED FOR THE REPAYMENT OF TERM LOANS, IF ANY, OUTSTANDING FROM THE CENTRAL FINANCIAL INSTITUTIONS. THE SUGAR FACTORIES SHOULD SUBMIT UTILISATION CERTIFICATES A NNUALLY FROM CHARTERED/COST ACCOUNTANT, HOLDING CERTIFICATE OF PRACTICE. UTILISATION CERTIFICATE IN RESPECT OF EACH SUGAR SEASON DURING THE INCENTIVE PERIOD SHOULD BE FURNISHED ON OR BEFORE 31 ST DECEMBER OF THE SUCCEEDING YEAR. FAILURE TO SUBMIT UTILISATION CERTIFICATE WITHIN THE STIPULATED TIME MAY RESULT NOT ONLY IN THE TERMINATION OF RELEASE OF INCENTIVE FREE SALE QUOTA, BUT ALSO IN THE RECOVERY OF THE INCENTIVE FREE SALE RELEASES ALREADY MADE, BY RESORTING TO ADJUSTMENT FROM THE FREE SALE RELE ASES OF FUTURE YEARS.' 17. THE COURT THEN REFERRED TO THE BACKGROUND OF THE INCENTIVE SCHEME AND TO THE FACT THAT THE SAMPAT COMMITTEE WAS SET UP TO EXAMINE THE QUESTION RELATING TO THE ECONOMIC VIABILITY OF NEW SUGAR FACTORIES. THE COURT THEN FOUND IN PAR A 9 OF THE JUDGMENT THAT THE SAMPAT COMMITTEE REFERRED TO THE FACT THAT THE INCREASE IN THE COST OF NEW SUGAR FACTORIES WAS BECAUSE OF INCREASE IN THE COST OF PLANT AND MACHINERY. THE COMMITTEE THEN STATED THAT FIVE POSSIBLE INCENTIVES FOR MAKING A SUGAR P LANT ECONOMICALLY VIABLE COULD BE PROVIDED. IT IS TWO OF SUCH INCENTIVES REFERRED TO THAT WAS THE SUBJECT - MATTER FOR DECISION BEFORE THIS COURT. IN PARA 10 THIS COURT FOUND: 'WE HAVE EXAMINED IN THIS CASE THE 1980 AND 1987 SCHEMES. ESSENTIALLY ALL THE FOUR SCHEMES ARE SIMILAR EXCEPT IN THE MATTER OF DETAILS. FOUR FACTORS EXIST IN THE SAID SCHEMES, WHICH ARE AS FOLLOWS: ( I ) BENEFIT OF THE INCENTIVE SUBSIDY WAS AVAILABLE ONLY TO NEW UNITS AND TO SUBSTANTIALLY EXPANDED UNITS, NOT TO SUPPLEMENT THE TRADE RECE IPTS. ( II ) THE MINIMUM INVESTMENT SPECIFIED WAS RS. 4 CRORES FOR NEW UNITS AND RS. 2 CRORES FOR EXPANSION UNITS. 8 ( III ) INCREASE IN THE FREE SALE SUGAR QUOTA DEPENDED UPON INCREASE IN THE PRODUCTION CAPACITY. IN OTHER WORDS, THE EXTENT OF THE INCREASE OF FREE SALE SUGAR QUOTA DEPENDED UPON THE INCREASE IN THE PRODUCTION CAPACITY. ( IV ) THE BENEFIT OF THE SCHEME HAD TO BE UTILISED ONLY FOR REPAYMENT OF TERM LOANS.' 18. AFTER DISCUSSING THE JUDGMENT IN SAHNEY STEEL & PRESS WORKS LTD.'S CASE (SUPRA) THIS COURT THEN HELD: 'THE IMPORTANCE OF THE JUDGMENT OF THIS COURT IN SAHNEY STEEL CASE LIES IN THE FACT THAT IT HAS DISCUSSED AND ANALYSED THE ENTIRE CASE LAW AND IT HAS LAID DOWN THE BASIC TEST TO THE APPLIED IN JUDGING THE CHARACTER OF A SUBSIDY. THE T EST IS 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 OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IS THAT THE INCENTIVE MUST BE UTILISED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF EXISTING UNITS. ON THIS ASPECT THERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WHICH THE SUBSIDY/ASSISTAN CE IS GIVEN WHICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT.' 19. SAHNEY STEEL WAS DISTINGUISHED, IN PARA 16 BY THEN STATING THAT THIS COURT FOUND THAT THE ASSESSEE WAS FREE T O USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED. 20. FINALLY, IT WAS FOUND THAT, APPLYING THE TEST OF PURPOSE, THE COURT WAS SATISFIED THAT THE PAYMENT RECEIVED BY THE ASSESSEE UNDER THE SCHEME WAS NOT IN THE NATURE OF A HELPING HAND TO THE TRADE BUT WAS CAPITAL IN NATURE. 21. WHAT IS IMPORTANT FROM THE RATIO OF THIS JUDGMENT IS THE FACT THAT SAHNEY STEEL WAS FOLLOWED AND THE TEST LAID DOWN WAS THE 'PURPOSE TEST'. IT WAS SPECIFICALLY HELD THAT THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEV ANT; THE SOURCE OF THE SUBSIDY IS IMMATERIAL; THE FORM OF SUBSIDY IS EQUALLY IMMATERIAL. 22. APPLYING THE AFORESAID TEST CONTAINED IN BOTH SAHNEY STEEL AS WELL AS PONNI SUGAR, WE ARE OF THE VIEW THAT THE OBJECT, AS STATED IN THE STATEMENT OF OBJECTS AND RE ASONS, OF THE AMENDMENT ORDINANCE WAS THAT SINCE THE AVERAGE OCCUPANCY IN CINEMA THEATRES HAS FALLEN CONSIDERABLY AND HARDLY ANY NEW 9 THEATRES HAVE BEEN STARTED IN THE RECENT PAST, THE CONCEPT OF A COMPLETE FAMILY ENTERTAINMENT CENTRE, MORE POPULARLY KNOWN AS MULTIPLEX THEATRE COMPLEX, HAS EMERGED. THESE COMPLEXES OFFER VARIOUS ENTERTAINMENT FACILITIES FOR THE ENTIRE FAMILY AS A WHOLE. IT WAS NOTICED THAT THESE COMPLEXES ARE HIGHLY CAPITAL INTENSIVE AND THEIR GESTATION PERIOD IS QUITE LONG AND THEREFORE, THE Y NEED GOVERNMENT SUPPORT IN THE FORM OF INCENTIVES QUA ENTERTAINMENT DUTY. IT WAS ALSO ADDED THAT GOVERNMENT WITH A VIEW TO COMMEMORATE THE BIRTH CENTENARY OF LATE SHRI V. SHANTARAM DECIDED TO GRANT CONCESSION IN ENTERTAINMENT DUTY TO MULTIPLEX THEATRE CO MPLEXES TO PROMOTE CONSTRUCTION OF NEW CINEMA HOUSES IN THE STATE. THE AFORESAID OBJECT IS CLEAR AND UNEQUIVOCAL. THE OBJECT OF THE GRANT OF THE SUBSIDY WAS IN ORDER THAT PERSONS COME FORWARD TO CONSTRUCT MULTIPLEX THEATRE COMPLEXES, THE IDEA BEING THAT EX EMPTION FROM ENTERTAINMENT DUTY FOR A PERIOD OF THREE YEARS AND PARTIAL REMISSION FOR A PERIOD OF TWO YEARS SHOULD GO TOWARDS HELPING THE INDUSTRY TO SET UP SUCH HIGHLY CAPITAL INTENSIVE ENTERTAINMENT CENTERS. THIS BEING THE CASE, IT IS DIFFICULT TO ACCEPT MR. NARASIMHA'S ARGUMENT THAT IT IS ONLY THE IMMEDIATE OBJECT AND NOT THE LARGER OBJECT WHICH MUST BE KEPT IN MIND IN THAT THE SUBSIDY SCHEME KICKS IN ONLY POST CONSTRUCTION, THAT IS WHEN CINEMA TICKETS ARE ACTUALLY SOLD. WE HASTEN TO ADD THAT THE OBJECT OF THE SCHEME IS ONLY ONE - THERE IS NO LARGER OR IMMEDIATE OBJECT. THAT THE OBJECT IS CARRIED OUT IN A PARTICULAR MANNER IS IRRELEVANT, AS HAS BEEN HELD IN BOTH PONNI SUGAR AND SAHNEY STEEL. 23. MR. GANESH, LEARNED SENIOR COUNSEL, ALSO SOUGHT TO RELY UPON A JUDGMENT OF THE JAMMU AND KASHMIR HIGH COURT IN SHREE BALAJI ALLOYS V. CIT [2011] 9 TAXMANN.COM 255/198 TAXMAN 122/ 333 ITR 335 . WHILE CONSIDERING THE SCHEME OF REFUND OF EXCISE DUTY AND INTEREST SUBSIDY IN THAT CASE, IT WAS HELD THAT THE SCHEME WAS CAPITAL IN NATURE, DESPITE THE FACT THAT THE INCENTIVES WERE NOT AVAILABLE UNLESS AND UNTIL COMMERCIAL PRODUCTION HAS STARTED, AND THAT THE INCENTIVES IN THE FORM OF E XCISE DUTY OR INTEREST SUBSIDY WERE NOT GIVEN TO THE ASSESSEE EXPRESSLY FOR THE PURPOSE OF PURCHASING CAPITAL ASSETS OR FOR THE PURPOSE OF PURCHASING MACHINERY. 24. AFTER SETTING OUT BOTH THE SUPREME COURT JUDGMENTS REFERRED TO HEREINABOVE, THE HIGH COURT FOUND THAT THE CONCESSIONS WERE ISSUED IN ORDER TO ACHIEVE THE TWIN OBJECTS OF ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF JAMMU AND KASHMIR AND GENERATION OF EMPLOYMENT IN THE SAID STATE. THUS CONSIDERED, IT WAS OBVIOUS THAT THE INCENTIVES WOUL D HAVE TO BE HELD CAPITAL AND NOT REVENUE. MR. GANESH, LEARNED SENIOR COUNSEL, POINTED OUT THAT BY AN ORDER DATED 19.04.2016, THIS COURT STATED THAT THE ISSUE RAISED IN THOSE APPEALS WAS COVERED, INTER ALIA , BY THE JUDGMENT IN PONNI SUGARS & CHEMICALS LTD. CASE ( SUPRA ) AND THE APPEALS WERE, THEREFORE, DISMISSED. 25. WE HAVE NO HESITATION IN HOLDING THAT THE FINDING OF THE JAMMU AND KASHMIR HIGH COURT ON THE FACTS OF THE INCENTIVE SUBSIDY CONTAINED IN THAT CASE IS ABSOLUTELY CORRECT. IN THAT ONCE THE OBJECT O F THE SUBSIDY WAS TO INDUSTRIALIZE THE STATE AND TO GENERATE 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. 10 26. IN COMING TO THE WEST BENGAL CASES, WE FIND THAT THE WEST BENGAL FINANCE ACT, 2003 WHICH AMENDED THE BENGAL AMUSEMENTS TAX ACT OF 1922 ALSO PROVIDED: THE BENGAL AMUSEMENTS TAX ACT, 1922. THE PROVISION SEEKS TO PROVIDE, IN ORDER TO ENCOURAGE DEVELOPMENT OF MULTIPLEX THEATRE COMPLEX, A VERY MODERN AND HIGHLY CAPITAL - INTENSIVE ENTERTAINMENT CENTRE, FINANCIAL ASSISTANCE TO THE PROPRIETORS OF SUCH COMPLEX BY ALLOWING THEM TO RETAIN, BY WAY OF SUBSIDY, THE AMOUNT OF ENTERTAINMENT TAX COLLECTED AGAINST THE VALUE OF TICKET FOR ADMI SSION TO SUCH MULTIPLEX THEATRE COMPLEX FOR A PERIOD NOT EXCEEDING FOUR YEARS; 27. SINCE THE SUBSIDY SCHEME IN THE WEST BENGAL CASE IS SIMILAR TO THE SCHEME IN THE MAHARASHTRA CASE BEING TO ENCOURAGE DEVELOPMENT OF MULTIPLEX THEATRE COMPLEXES WHICH ARE CAP ITAL INTENSIVE IN NATURE, AND SINCE THE SUBSIDY SCHEME IN THAT CASE IS ALSO SIMILAR TO THE MAHARASHTRA CASES, IN THAT THE AMOUNT OF ENTERTAINMENT TAX COLLECTED WAS TO BE RETAINED BY THE NEW MULTIPLEX THEATRE COMPLEXES FOR A PERIOD NOT EXCEEDING FOUR YEARS, WE ARE OF THE VIEW THAT WEST BENGAL CASES MUST FOLLOW THE JUDGMENT THAT HAS BEEN JUST DELIVERED IN THE MAHARASHTRA CASE. 28. ACCORDINGLY, THE APPEALS FILED BY THE DEPARTMENT ARE DISMISSED. 9. THUS, FROM THE ABOVE IT IS CLEAR THAT THE OBJECT BEHIND THE GRANT OF SUBSIDY IS IMPORTANT TO DETERMINE THE NATURE OF THE SUBSIDY. IN THE PRESENT CASE, THE SCHEME SPECIFICALLY PROVIDES THAT THE INCENTIVES ARE GIVEN TO PROMOTE INDUSTRIAL INVESTMENT TO ALL NEW ELIGIBLE INDUSTRIAL UNITS. THEREFORE, WE HAVE NO HESITATION TO CONCLUDE THAT THE OBJECT BEHIND THE GRANT OF SUBSIDY IS ONLY TO PROMOTE THE SETTING UP OF NEW INDUSTRY AND THEREFORE HAVING REGARD TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD (SUPRA) AND CIT VS. CHAPHALKAR BROTHERS (SUPRA), THE SUBSIDY AMOUNT GRANTED IS CAPITAL IN NATURE AND CANNOT BE BROUGHT TO TAX. THE FACT THAT THE SUBSIDY IS IN THE FORM OF CONCESSION OF THE POWER TARIFF IS NOT RELEVANT TO DECIDE THE NATURE OF THE SUBSIDY I N THE LIGHT OF SETTLED PROPOSITION OF LAW THAT IT IS THE QUALITY OF PAYMENT THAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OR ITS MEASURE. THE HONBLE APEX COURT IN THE CASE OF SENAIRAM DOONGARMALL VS. CIT (42 ITR 392) AFTER REFERRING TO THE DECISIONS OF GLENBOIG UNION FIRECLAY CO. LTD VS. COMMISSIONERS OF INLAND REVENUE AND LORD MACMILLAN IN VAN 11 DEN BERGHS LTD VS. CLARK, WHILE DECIDING THE NATURE OF THE COMPENSATION RECEIVED ON ACCOUNT OF ACQUISITION OF THE TEA GARDENS, FACTO R Y AND OTHER BUILDINGS BY MILITARY AUTHORITIES HELD AS UNDER: - THE COMPENSATION WHICH WAS PAID IN THE TWO YEARS WAS NO DOUBT PAID AS AN EQUIVALENT OF THE LIKELY PROFITS IN THOSE YEARS ; BUT, AS POINTED OUT BY LORD BUCKMASTER, IN GLENBOIG UNION FIRECLAY CO. LTD. V. COMMISSIONERS OF INLAND REVENUE [1922] 12 TAX CAS. 427 AND AFFIRMED BY LORD MACMILLAN IN VAN DEN BERGHS LTD. V. CLARK [1935] 3 ITR (ENG. CAS.) 17, 'THERE IS NO RELATION BETWEEN THE MEASURE THAT IS USED FOR THE PURPOSE OF CALCULA TING A PARTICULAR RESULT AND THE QUALITY OF THE FIGURE THAT IS ARRIVED AT BY MEANS OF THE APPLICATION OF THAT TEST.' THIS PROPOSITION IS AS SOUND AS IT IS WELL - EXPRESSED, AND HAS BEEN FOLLOWED IN NUMEROUS CASES UNDER THE INDIAN INCOME - TAX ACT AND ALSO BY T HIS COURT. IT IS THE QUALITY OF THE PAYMENT THAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OR ITS MEASURE, AND MAKES IT FALL WITHIN CAPITAL OR REVENUE. THE ABOVE PRINCIPLE HA D BEEN REITERATED BY THE HONBLE SUPREME COUR T RECENTLY IN THE CASE OF PONNI SUGARS AND CHEMICALS (306 ITR 392) (SUPRA) WHEREIN IT WAS HELD VIDE PARA 25 OF THE JUDGMENT THAT THE FACT THAT THE SUBSIDY TOOK A PARTICULAR FORM WOULD MAKE NO DIFFERENCE. IN THE LIGHT OF THIS POSITION OF LAW, THE REASONING ADOPTED BY THE LD. CIT(A) CANNOT BE APPRECIATED AND THEREFORE THE DECISION OF THE CIT(A) IS NOT IN ACCORDANCE WITH THE SETTLED POSITION OF LAW. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH AUGUST, 2018 . SD/ - SD/ - (P. MADHAVI DEVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 29 TH AUGUST, 2018 OKK 12 COPY TO: - 1) B. NARASING RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO.554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD - 92. 2) ACIT, CIRCLE - 2(2), HYDERABAD. 3) THE CIT(A) - 9 , HYDERABAD 4) THE PR. CIT - 9 , HYDERABAD 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE