Dhariwal Industries Ltd., Pune V. ACIT Circle 1(2), Pune

ITA 1230/PUN/2010

• Counselvise Citation: 123024514 RSA 2010
• Duration Of Justice: 4 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 20-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: P J PARDIWALA
• Keywords: Capital asset; Depreciation; Source of fund; Bad and doubtful debts; Difference of opinion; Scheme of amalgamation; Capital receipt; Revised return; Unabsorbed depreciation; Change of opinion; Capital expenditure
• Section: 143(3); 115JB; 139(5); 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.489, 1559 & 1560/PN/2007 (ASSESSMENT YEARS : 2003-04 TO 2005-06) DHARIWAL INDUSTRIES LTD., MANIKCHAND HOUSE, PLOT NO.100-101, D. KENNEDY ROAD, BEHIND HOTEL MEREDIAN, PUNE 411001 .. APPELLANT PAN NO.AAACD5896L VS. ADDL.CIT, CIRCLE-1(2), PUNE .. RESPONDENT ITA NO.1230/PN/2010 (ASSESSMENT YEAR 2006-07) DHARIWAL INDUSTRIES LTD., MANIKCHAND HOUSE, PLOT NO.100-101, D. KENNEDY ROAD, BEHIND HOTEL MEREDIAN, PUNE 411001 .. APPELLANT PAN NO.AAACD5896L VS. ADDL.CIT, CIRCLE-1(2), PUNE .. RESPONDENT ITA NO. 1267/PN/2010 (ASSESSMENT YEAR : 2006-07) ADDL.CIT, CIRCLE-1(2), PUNE .. APPELLANT VS. DHARIWAL INDUSTRIES LTD., MANIKCHAND HOUSE, PLOT NO.100-101, D. KENNEDY ROAD, BEHIND HOTEL MEREDIAN, PUNE 411001 .. RESPONDENT PAN NO.AAACD5896L 2 ASSESSEE BY : SHRI P.J. PARDIWALA REVENUE BY : SHRI A.K. MODI DATE OF HEARING : 04-03-2015 DATE OF PRONOUNCEMENT : 29-05-2015 ORDER PER R.K. PANDA, AM : ITA NO.489/PN/2007 FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 04-01-2007 OF THE CIT(A)-I, PUNE RE LATING TO ASSESSMENT YEAR 2003-04. ITA NO.1559 AND 1560/PN/2 007 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 20-09-2007 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. 2. ITA NO.1230/PN/2010 FILED BY THE ASSESSEE AND IT A NO.1267/PN/2010 FILED BY THE REVENUE ARE CROSS APPE ALS AND ARE DIRECTED AGAINST THE ORDER DATED 02-07-2010 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMENT YEAR 2006-07. FOR THE SAKE OF CONVENIENCE, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS COMMON ORDER. ITA NO.489/PN/2007 (A.Y. 2003-04) : 3. FIRST GROUND OF APPEAL BY THE ASSESSEE RELATES T O THE ORDER OF THE CIT(A) IN REJECTING THE ASSESSEES CLAIM FOR DEDUCT ION U/S.80I/80IA. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE CLAIMED DEDUCTION OF RS.3,18,11,789/- U/S.80I OF THE I.T. A CT, 1961 IN RESPECT OF THE PROFITS AND GAINS DERIVED BY ITS BARODA UNIT . THIS IS THE 10 TH YEAR OF CLAIM FOR THE BARODA UNIT. SIMILARLY, THE ASSESSEE CLAIMED DEDUCTION OF RS.4,04,96,585/- U/S.80IA OF THE I.T. ACT IN RESPECT OF THE 3 PROFITS AND GAINS DERIVED BY ITS HYDERABAD UNIT. T HIS IS THE 9 TH YEAR OF CLAIM FOR THE HYDERABAD UNIT. THE AO FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS. 1994-95 AND 1995-96 DISALLOWED THE CLAIM. IN APPEAL THE LD.CIT(A) UPHE LD THE ACTION OF THE AO. AGGRIEVED WITH SUCH ORDER OF THE LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 3.2 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE WAS SET ASIDE BY THE HONBLE BOMBAY HIGH COURT. SUBSEQUENTLY, THE SPECI AL BENCH WAS CONSTITUTED TO DECIDE THE ISSUE AS TO WHETHER THE A SSESSEE IS ENTITLED TO DEDUCTION U/S.80I/80IA OF THE I.T. ACT IN RESPECT O F THE PROFITS AND GAINS OF ITS BARODA AND HYDERABAD UNIT. THE SPECIAL BENCH DECIDED THE ISSUE AGAINST THE ASSESSEE AS REPORTED IN 111 I TD 379 (PUNE) (SB) HOLDING THAT GUTKHA AND PAN MASALA MANUFACTURED BY THE ASSESSEE COMPANY IS A TOBACCO PREPARATION WITHIN THE MEANI NG OF ELEVENTH SCHEDULE OF THE INCOME TAX ACT. THEREFORE, THE ASS ESSEE IS NOT ENTITLED TO DEDUCTION U/S.80I/80IA OF THE INCOME TA X ACT. HE ACCORDINGLY SUBMITTED THAT THE ISSUE IS DECIDED AGA INST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. IN VIEW OF THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND RAISE D BY THE ASSESSEE IS DISMISSED. 4. SECOND GROUND BY THE ASSESSEE RELATES TO THE ORD ER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE AO IN TREATIN G THE AMOUNT RECEIVED ON TRANSFER OF SALES TAX INCENTIVE AS A RE VENUE RECEIPT. 4 4.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE HAS SET UP WIND MILLS IN MAHARASHTRA FOR GENERATION OF WIND POWER. TO PROMOTE COMPANIES TO INVEST IN THE SCHEME THE MAHARASHTRA G OVERNMENT HAS OFFERED INCENTIVE/BENEFIT IN THE FORM OF SALES TAX DEFERRAL/EXEMPTION AGAINST INVESTMENTS MADE IN WIND ENERGY PROJECT. T HE ASSESSEE IS ENTITLED TO THIS SUBSIDY IN VIEW OF GOVERNMENT OF M AHARASTHRAS RESOLUTION NO.1 NCP-1097/CR-57/NRG-7 DATED 12-03-19 98 AND (2) NCP-1099/CR-202/ENERGY 7 DATED 01-10-1999. UNDER T HIS SCHEME THE COMPANY CAN EITHER OPT FOR THE DEFERRAL PAYMENT OF SALES TAX BEYOND 10 YEARS OR THE COMPANY CAN OPT FOR SALES TA X EXEMPTION, I.E. TO COLLECT SALES TAX FROM THE CUSTOMERS AND NOT TO PAY IT TO THE SALES TAX DEPARTMENT. IT WAS STATED BY THE AUTHORISED RE PRESENTATIVE OF THE ASSESSEE BEFORE THE AO THAT THE ASSESSEE HAD OP TED FOR THE SECOND OPTION, I.E. IT HAS OPTED FOR SALES TAX EXEMPTION F OR 6 YEARS. THE ASSESSEE WAS ENTITLED TO CLAIM SALES TAX EXEMPTION @1/6 TH OF THE INVESTMENT MADE IN THE SETTING UP OF WIND MILLS FOR 6 YEARS PROVIDED THE PLANT LOAD FACTOR OF 12% IS ACHIEVED IN EACH EL IGIBLE YEAR OF OPERATION. IN TERMS OF THE GOVERNMENT RESOLUTION, THE ASSESSEE IS FURTHER ENTITLED TO SALES TAX BENEFIT OR TO TRANSFE R SALES TAX BENEFIT TO ANY OTHER ELIGIBLE PARTY. DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE HAS TRANSFERRED THE SALES TAX BENEFIT FOR A TOTAL CONSIDERATION OF RS.7,28,71,527/-. THOUGH THE SAME HAS BEEN INCL UDED AS OTHER INCOME IN THE PROFIT AND LOSS ACCOUNT AS PER SCHED ULE-13, THE ASSESSEE HAS CLAIMED THE SAME TO BE IN THE NATURE O F CAPITAL SUBSIDY AND DEDUCTED IT IN ITS COMPUTATION OF INCOME FILED WITH THE RETURN OF 5 INCOME. IT IS PERTINENT TO MENTION HERE THAT THE A SSESSEE HAD NOT DEDUCTED THE ABOVE AMOUNT IN THE COMPUTATION OF INC OME FILED WITH THE ORIGINAL RETURN OF INCOME. 4.2 ON BEING QUESTIONED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT CONSIDERAT ION SO RECEIVED WAS IN THE NATURE OF CAPITAL RECEIPT AS THE SAME WAS RE CEIVED BY THE ASSESSEE FOR SETTING UP WIND MILLS IN THE STATE OF MAHARASHTRA AND HAD BEEN GIVEN TO PROMOTE INVESTMENT IN THIS SECTOR. T HE RESOLUTION PASSED BY THE GOVERNMENT OF MAHARASHTRA WAS PRODUCE D BEFORE THE AO. THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF CIT VS. P.J. CHEMICALS REPORTED IN 210 ITR 830, THE DEC ISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUS TRIES LTD. REPORTED VIDE ITA NO.7554/1989 FOR A.Y. 1985-86 AND THE DECI SION OF THE TRIBUNAL IN THE CASE OF BAJAJ AUTO LTD. VS. ITA NOS . 49 AND 1101/1991 ORDER DATED 31-12-2002 WERE BROUGHT TO TH E NOTICE OF THE AO. IT WAS SUBMITTED THAT IN VIEW OF THE ABOVE DEC ISIONS THE SALES TAX INCENTIVE TO WIND MILLS IN MAHARASHTRA IS A CAPITAL RECEIPT AND ALSO FURTHER THAT IT IS NOT A PORTION OF THE COST OF ASS ETS ACQUIRED IN THE WIND MILL PROJECT. 4.3 HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT A PERUSAL OF THE SCHEME SHOWS THAT THE INCENTIVE RECEIVED BY THE ASSESSEE CANNOT BE SA ID TO HAVE BEEN RECEIVED ON CAPITAL ACCOUNT. UNDER THIS SCHEME THE GOVERNMENT OF MAHARASHTRA HAS OFFERED 2 SETS OF INCENTIVES FOR SE TTING UP OF WIND MILLS IN THE STATE AS PER RESOLUTION NO.NCP-1097/CR -57/NRG-7 DATED 6 12-03-98. CLAUSE 7 SAYS THAT CAPITAL SUBSIDY IS BE ING PROVIDED BY THE STATE GOVT. @30% OF THE FIXED CAPITAL INVESTMENT SU BJECT TO A MAXIMUM LIMIT OF RS.20 LAKHS IN THE WIND POWER PLAN T. THIS INCENTIVE THEREFORE HAS BEEN SPECIFICALLY PROVIDED FOR SETTING UP WIND MILLS. THE ONLY OTHER CONDITION ATTACHED WITH THIS IS THAT THE PLANT MUST BE SUCCESSFULLY OPERATED WITH A MINIMUM 12% PL ANT LOAD FACTOR. THE OTHER SUBSIDY IS ON ACCOUNT OF SALES TAX INCENT IVES. SUCH OTHER ACCOUNT OF SUBSIDY IS NOT LINKED WITH ANY CAPITAL I NVESTMENT AS SUCH. OTHERWISE, THE BENEFIT GRANTED UNDER CLAUSE 7 OF TH E RESOLUTION DATED 12-03-98 WOULD HAVE BEEN FOUND ON A SINGLE PLACE AN D NOT AT 2 DIFFERENT PLACES AS IS THE CASE. MOREOVER, SUCH SA LES TAX INCENTIVE IS GRANTED ONLY WHEN THE WIND MILL IS SUCCESSFULLY RUN IN THE PRECEDING YEAR AT THE MINIMUM PLANT LOAD FACTOR OF 12%. SUCH DIFFERENT CONDITIONS FOR AVAILING THE SALES TAX INCENTIVE CLE ARLY ESTABLISH THAT THE DOMINANT PURPOSE OF GRANTING SUCH INCENTIVE IS OPER ATION OF THE WIND MILL AND NOT SETTING UP THEREOF ALONE. EVEN AFTER ACHIEVING PLANT LOAD FACTOR OF 12%, ONLY 50% OF THE TOTAL INCENTIVE IS A VAILABLE. IN ORDER TO GET FULL SALES TAX INCENTIVE, MINIMUM PLANT LOAD FA CTOR OF 17% MUST BE ACHIEVED. THIS ACCORDING TO THE AO FURTHER GOES TO SHOW THAT THE SALES TAX INCENTIVE IS INDEED RELATED TO THE OPERATIONAL EFFICIENCY AND NOT TO SETTING UP OF WIND MILLS ALONE. RELYING ON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD., REPORTED IN 228 ITR 253 THE AO WAS OF THE OPINION T HAT THE SALES TAX INCENTIVE RECEIVED BY THE ASSESSEE HAS TO BE CONSID ERED AS REVENUE IN 7 NATURE, THE DOMINANT PURPOSE THEREOF BEING RUNNING/ OPERATION OF THE CONCERNED WIND MILLS. 4.4 AS REGARDS THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. REPOR TED IN 88 ITD 273 IS CONCERNED THE AO NOTED THAT THE DEPARTMENT HAS N OT ACCEPTED THE DECISION. FURTHER, IN THE SAID DECISION, THE ITAT HAS NOT CONSIDERED THE FACT THAT THE ASSESSEE WAS SEPARATELY ENTITLED TO CAPITAL SUBSIDY AS IS THE CASE OF THE ASSESSEE. LOOKING TO THE DOMINA NT PURPOSE OF THE SUBSIDY THE AO HELD THAT THE AFORESAID RECEIPT BY T HE ASSESSEE HAS TO BE CONSIDERED AS REVENUE NATURE AND INCLUDIBLE IN T HE TAXABLE INCOME OF THE ASSESSEE. 4.5 BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE AO. IT WAS SUBMITTED THAT DURING T HE YEAR UNDER CONSIDERATION THE ASSESSEE HAS TRANSFERRED THE SALE S TAX BENEFIT FOR A CONSIDERATION OF RS.7,28,71,527 TO TELCO AND CLAIME D IT AS A CAPITAL RECEIPT. THE SALIENT FEATURES OF THIS SCHEME HAS E NCOMPASSED BY THE GOVT. OF MAHARASHTRA RESOLUTION DATED 12-03-1998 AN D 01-10-99 WERE BROUGHT TO THE NOTICE OF THE LD.CIT(A). IT WAS ARG UED THAT THE SCHEME AS INTRODUCED IN FURTHERANCE OF THE STATE GOVT. POL ICY TO PROMOTE GENERATION OF ENERGY THROUGH NON CONVENTIONAL SOURC ES TO SUPPLEMENT THE EVER INCREASING DEMAND OF ELECTRICITY IN THE ST ATE. THE SCHEME HAS BEEN IMPLEMENTED TO PROMOTE WIND ENERGY GENERATION IN THE STATE. THE BENEFIT IS LINKED WITH THE QUANTUM OF QUALIFYIN G INVESTMENT MADE IN THE WIND POWER PROJECT. THE REQUIREMENT OF ACHI EVING A MINIMUM 12% PLANT LOAD FACTOR ENSURES THAT THE POWER PLANT IS OPERATED 8 EFFECTIVELY. IT WAS ARGUED THAT THE SALES TAX BENE FIT HAS NOT BEEN GIVEN FOR ASSESSING IN CARRYING ON BUSINESS RATHER IT HAS BEEN GIVEN FOR THE PURPOSE OF SETTING UP OF THE PROJECT OF WIND MILLS, I.E. GENERATION OF ELECTRICITY WITH NON CONVENTIONAL ENERGY SOURCES. THE SALES TAX INCENTIVE IS PROVIDED IN CONSIDERATION OF THE PROJE CT AND NOT AS AN OPERATIONAL SUBSIDY OR A PRODUCTION INCENTIVE. THE VARIOUS DECISIONS CITED BEFORE THE AO WERE BROUGHT TO THE NOTICE OF T HE LD.CIT(A) AGAIN TO THE PROPOSITION THAT THE SALES TAX SUBSIDY RECEI VED IS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT. 4.6 HOWEVER, THE LD.CIT(A) WAS ALSO NOT SATISFIED W ITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE A CTION OF THE AO BY OBSERVING AS UNDER : 3.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE MATERIALS ON RECORD. I HAVE GONE THRO UGH THE RESOLUTION NO.NCR 1097/CR-57/NRG-7 DATED 12.03.1998 AND RESOLUTION NO.NCP-1099/CR-202/ENERGY 7 DATED 01.10.1 999 OF GOVERNMENT OF MAHARASHTRA. AFTER CAREFULLY CONSIDERAT ION OF THE MATERIAL ON RECORD, I AM OF THE CONSIDERED VIEW THAT SALIENT FEATURES OF SCHEME FOR PROVIDING SUBSIDY AS CONTAINED IN NCR NOS.1 097 AND 1099 DATED 12.03.1998 AND 01.10.1999 ARE THE SAME AS THOSE CONTAINED IN NOTIFICATION ISSUED BY ANDHARA PRADESH GOVERNMENT WHIC H WAS SUBJECT MATTER OF APPEAL BEFORE THE HON.SUPREME COUR T IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS VS. CIT AS REPORTED IN 228 ITR 253. THE MATRIX OF FACTS IN THE CASE OF THE A PPELLANT BEING IDENTICAL TO MATRIX OF FACTS IN THE CASE OF SAHANI ST EEL AND PRESS WORKS LTD. BEFORE THE HON.SUPREME COURT, I AM OF THE CONSI DERED VIEW THAT RATIO DECIDENDI OF DECISION OF HON.SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. IS DIRECTLY APPLICABLE TO T HE FACTS OF THE APPELLANT'S CASE. IN THIS REGARD FOLLOWING POINTS ARE N OTEABLE : [1] AS NOTED BY HON.SUPREME COURT IN THE CASE OF SAHN EY STEEL AND PRESS WORKS LTD., QUOTED SUPRA, THE SALIENT FEATURES OF T HE SCHEME FORMULATED BY THE ANDHARA PRADESH GOVT. WAS THAT THAT INCENTIVES WERE NOT AVAILABLE UNLESS AND UNTIL PRODUCTION HAD CO MMENCED. SIMILAR IS THE SITUATION AS IS CLEAR FROM CLAUSE 7 OF R ESOLUTION DATED 12.03.1998 WHICH READS AS UNDER: 'MEDA SHALL GIVE A SUBSIDY UP TO 30% OF THE FIXED CAPI TAL INVESTMENT [LIMITED TO RS.20 LACS] TO THE PROMOTERS SUBJECT TO CON DITION THAT WINDPOWER PLANT HAS SUCCESSFULLY OPERATED WITH MINIMUM 12% PLANT LOAD FACTOR FOR ATLEAST ONE YEAR' - EMPHASIS SUPPLIED. 9 THUS, IT IS CLEAR THAT LIKE SCHEME OF ANDHARA PRADES H, THE SCHEME OF SUBSIDY OF MAHARASHTRA GOVT. ALSO PROVIDES THAT SUBSIDY IS A VAILABLE ONLY AFTER PRODUCTION HAS NOT ONLY STARTED BUT CONTINUED FOR A TLEAST ONE YEAR WITH A MINIMUM OF PLANT LOAD FACTOR. [2] AS PER SCHEME OF ANDHARAPRADESH GOVT. IN THE CASE OF SAHANEY STEEL AND PRESS WORKS LTD. AND OTHERS VS. CIT BEFORE HON. SUPREME COURT, THE AVAILABILITY OF THE INCENTIVES WOULD BE LIMITED TO A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. AS AGAINST THIS SCHEME OF MAHARASHTRA GOVT. WHICH IS SUBJECT MATTER OF PRESENT APPEAL SAYS THAT 'SALES TAX BENEFIT UP TO AMOUNT QUALIFYING INVESTMENT WOULD BE GIVEN IN S IX EQUAL INSTALLMENTS OVER A PERIOD OF SIX YEARS ONLY UNDER THE CONDITION THAT THE PLANT HAS SUCCESSFULLY OPERATED EVERY YEAR WITH A MINIMUM OF 12% PLANT LOAD FACTOR.' THIS CLEARLY SHOWS THAT NOT ONLY THE SUBSIDY IS AVAILABLE FOR A LIMITED PERIOD OF SIX YEARS, BUT IT IS AVAILAB LE ONLY IF THE PLANT HAS SUCCESSFULLY OPERATED EVERY YEAR WITH A MINIMUM % PLANT LOAD FACTOR. THIS CLEARLY SHOWS THAT THE SUBSIDY IS PRODUCTION RELATE D SUBSIDY. [3] IN CASE OF SAHNEY STEEL AND PRESS WORKS LTD., THE HON.SUPREME COURT NOTED THAT IN THE SCHEME OF ANDHARA PRADESH GOVT. T HE IMPORTANT POINT TO NOTE IS THAT ALL THE INCENTIVES ARE PRODUCTION INCE NTIVES, IN THE SENSE THAT THE COMPANY WILL BE ENTITLED TO THESE INCENTIVES ON LY IF AT GOES INTO PRODUCTION. IT IS ONLY AFTER THE INDUSTRIES HAVE BEEN SET UP AN D PRODUCTION HAD BEEN COMMENCED THAT THE INCENTIVES WERE GIVEN. SIMILARLY, IN CASE OF SALES TAX SUBSIDY GRANTED BY MAHARASHTRA GOVT. IN C ASE OF THE PRESENT APPELLANT, THE SUBSIDY IS IN NATURE OF PRODUCTION I NCENTIVE BECAUSE SUBSIDY IS AVAILABLE FOR SIX YEARS ONLY IF THE PLANT HAS SU CCESSFULLY OPERATED EVERY YEAR WITH A MINIMUM OF 12% PLANT LOAD FACTOR. ACCOR DINGLY, IT IS ABSOLUTELY CLEAR THAT THE CASE OF THE APPELLANT IS IN PARIMATE RIA WITH THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. BEFORE THE HON.SU PREME COURT. [4] THE HON. SUPREME COURT FURTHER HELD IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS VS. CIT THAT IT IS NOT TH E SOURCE FROM WHICH THE AMOUNT IS PAID TO THE ASSESSEE WHICH IS DETERMI NATING FACTOR OF THE QUESTION WHETHER SUBSIDY PAYMENTS ARE OF REVENUE OR CAPITAL NATURE. THE HON. SUPREME COURT ENDORSED THE VIEW TAKEN BY VISCOUNT SIMON IN OSTIME'S CASE THAT IF PAYMENTS IN NATU RE OF SUBSIDY FROM PUBLIC FUNDS ARE MADE TO ASSESSEE TO ASSIST HIM IN CAR RYING ON HIS TRADE OR BUSINESS, THEY ARE TRADE RECEIPT. THE HON. SUPREME COURT NOTED THAT THE SALES TAX UPON COLLECTION FORMS PART OF THE PUBLIC FUNDS OF THE STATE. THE HON. SUPREME COURT FURTHER HELD T HAT IF ANY SUBSIDY IS GIVEN, THE CHARACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENT WILL HAVE TO BE TAKEN BY HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IF IT IS GIVEN BY WAY OF ASSISTANCE TO T HE ASSESSEE FOR CARRYING ON HIS TRADE OR BUSINESS, IT HAS TO BE TREATED AS TRADE RECEIPT. THE HON.SUPREME COURT HELD THAT THE SOURCE OF THE FU ND IS QUITE IMMATERIAL. THE HON. SUPREME COURT FURTHER HELD THA T FOR EXAMPLE IF THE SCHEME WAS THAT THE ASSESSEE WILL BE GIVEN REFUND OF SALES TAX ON PURCHASE OF MACHINERY AS WELL ON RAW MATERIALS TO ENAB LE THE ASSESSEE TO ACQUIRE NEW PLANT AND MACHINERY FOR FURTHER EXTENSION OF ITS MANUFACTURING ACTIVITY IN A BACKWARD AREA, THE E NTIRE SUBSIDY MUST BE HELD TO BE A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE, BUT THE HON. SUPREME COURT CLARIFIED THAT IF MONIES ARE GIVEN TO THE ASSESSEE FOR ASSISTING HIM FOR CARRYING OUT THE BUSINESS OPER ATION AND THE MONEY IS GIVEN ONLY AFTER COMMENCEMENT OF PR ODUCTION, SUCH SUBSIDY MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF TR ADE. ON FACTS, IT IS HELD AS IN THE CASE OF SAHNEY STEEL AND PR ESS WORKS LTD. 10 BEFORE THE HON. SUPREME COURT AND SIMILARLY IN THE C ASE OF THE APPELLANT THE SUBSIDY BY REIMBURSEMENT OF SALES TAX IS B EING GIVEN FOR ASSISTING THE ASSESSEE IN CARRYING OUT THE BUSINESS OPERA TION' WHICH' IS BEING GIVEN FOR A LIMITED PERIOD OF SIX YEA RS AND IT IS CONDITIONAL UPON UTILIZATION OF 12% PLANT LOAD FACT OR FOR A PERIOD OF CONTINUOUS SIX YEARS. THUS, IT IS ABSOLUTELY CLEAR THAT M ATRIX OF FACTS IN THE CASE OF THE APPELLANT AND IN THE CASE OF SAHNEY S TEEL AND PRESS WORKS LTD. AND OTHERS VS. CIT IS THE SAME. [5] IT MAY BE MENTIONED THAT IN THE CASE OF SAHNEY S TEEL AND PRESS WORKS LTD. BEFORE THE HON.SUPREME COURT, THE HON.SUP REME COURT ALSO EXAMINED THE VIEW OF HON. ANDHARA PRADESH HIGH C OURT IN THE CASE OF CIT VS. DUSHAR INDUSTRIES WHERE THE GOVT. FRAMED A SCHEME FOR GRANTING SALES TAX SUBSIDY TO INDUSTRIES SET UP IN BA CKWARD AREAS. IN THAT BEFORE THE HON.MADHYA PRADESH HIGH COURT, 75 % OF THE SALES TAX PAID IN A YEAR FOR A PERIOD OF FIVE YEARS FROM T HE DATE OF STARTING OF PRODUCTION WAS TO BE GIVEN BACK BY THE GOVT. TO THE INDUSTRIES CONCERNED. THE HIGH COURT WAS OF THE VIEW THAT OBVIO USLY THIS SUBSIDY WAS GIVEN BY WAY OF AN INCENTIVE FOR CAPITAL I NVESTMENT AND NOT BY WAY OF ADDITION OF THE PROFITS OF THE ASSESSEE. T HIS VIEW OF HON.MADHYA PRADESH HIGH COURT HAS BEEN REVERSED BY HON . SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD . AND OTHERS VS. CIT, QUOTED SUPRA. THE HON.SUPREME COURT COMMENTED U PON THE VIEWS OF THE MADHYA PRADESH 'HIGH COURT AS UNDER : '...... THE MADHYA PRADESH HIGH COURT HOWEVER FAILED NOTICE THE SIGNIFICANT FACT THAT UNDER THE SCHEME FRAMED BY THE GOVT. NO SUBSIDY WAS GIVEN UNTIL THE TIME THE PRODUCTION WAS ACTUALLY COMMENCED. MERE SETTING UP OF THE INDUSTRY DID NOT QUALIFY AND I NDUSTRIALISTS FOR GETTING ANY SUBSIDY. THE SUBSIDY WAS GIVEN AS HELD NOT FO R SETTING UP OF INDUSTRY WHICH WAS ALREADY THERE, BUT AS AN ASSISTANCE AFTER THE INDUSTRY COMMENCED PRODUCTION. THE VIEW TAKEN BY THE MADHYA PRADESH HIGH COURT IS ERRONEOUS' FROM THE DECISION OF HON. SUPREME COURT, IT IS ABSOLUT ELY CLEAR THAT IN CASE WHERE NO SUBSIDY WAS GIVEN UNTIL THE TIME PR ODUCTION WAS ACTUALLY COMMENCED, IT HAS TO BE INTERPRETED TO MEAN THAT SUCH SUBSIDY WAS GIVEN AS HELP NOT FOR SETTING UP OF THE INDU STRY, BUT AS ASSISTANCE FOR THE PURPOSE OF THE TRADE. THEREFORE, SUCH SUBSIDIES BEAR THE CHARACTER OF REVENUE RECEIPT AND ARE CHAR GEABLE TO INCOME TAX. [6] SINCE THE FACTUAL MATRIX OF THE APPELLANT'S CASE IS FOUND TO BE IDENTICAL WITH THAT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS VS. CIT WHICH WAS BEFORE THE HON. SUPREME C OURT, IT IS NOT CONSIDERED NECESSARY TO GO INTO THE DECISION OF HON. SP ECIAL BENCH ITAT, MUMBAI IN THE CASE OF RELIANCE INDUSTRIES. THE HON.SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. AN D OTHERS VS. CIT NOTED AS UNDER : 'IN THE CASE BEFORE US, THE SUBSIDIES HAVE NOT BEEN GRA NTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW ASSET . THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP O F 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 11 BUSINESS OF THE ASSESSES. APPLYING THE TEST OF VISCOUNT SIM ON IN THE CASE OF OSTIME (1946) 14 ITR (SUPPL) 45 (HL), IT MUST BE HELD THAT THESE SUBSIDIES ARE OF REVENUE CHARACTER AND WILL HAVE TO BE TAXED ACCORDINGLY.' IN CASE OF THE APPELLANT ALSO SUBSIDIES HAVE BEEN GRANTE D YEAR AFTER YEAR ONLY AFTER SETTING UP OF NEW INDUSTRY AND COMMEN CEMENT OF PRODUCTION. THEREFORE AS HELD BY HON.SUPREME COURT S UCH SUBSIDY IS TREATED AS ASSISTANCE GIVEN FOR CARRYING OUT THE BUSINESS OF THE APPELLANT AND THEREFORE HAVING REVENUE CHARACTER. 3.4 IN VIEW OF THE FOREGOING DISCUSSION, IT IS HELD THA T GROUND NO.2 OF THE APPEAL HAS NO MERIT AND IT FAILS. 4.7 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 4.8 THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE CIT(A) . REFERRING TO THE GOVERNMENT RESOLU TION DATED 12-03- 98, A COPY OF WHICH IS PLACED IN PAPER BOOK PAGE 1 HE SUBMITTED THAT THE GOVERNMENT FOR THE PROMOTION OF GENERATION OF E NERGY THROUGH NON CONVENTIONAL SOURCES TO SUPPLEMENT THE EVER INC REASING DEMAND OF ELECTRICITY IN THE STATE ENUNCIATED ITS POLICY I N JANUARY 1996. SINCE THIS POLICY COULD NOT ATTRACT THE PROMOTERS AND SIN CE THE GOVERNMENT OF INDIA HAD ISSUED CERTAIN GUIDELINES REGARDING WI ND ENERGY GENERATION THE GOVERNMENT IN PARTIAL MODIFICATION O F ITS EXISTING POLICY VIDE RESOLUTION DATED 12-03-98 TOOK CERTAIN DECISIONS. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE SAID RESO LUTION DREW THE ATTENTION OF THE BENCH TO THE CLAUSES 7 TO 9 WHICH READ AS UNDER : 7. CAPITAL SUBSIDY : WIND POWER PROJECTS WILL BE GRA NTED STATUS OF SMALL SCALE INDUSTRIES. MEDA SHALL GIVE A SUBSIDY UP TO 3 0% OF THE FIXED CAPITAL INVESTMENT [LIMITED TO RS.20 LACS] TO TH E PROMOTERS SUBJECT TO CONDITION THAT WINDPOWER PLANT HAS SUCCESSFUL LY OPERATED WITH MINIMUM 12% PLANT LOAD FACTOR FOR ATLEAST ONE Y EAR. 8. ENTRY TAX/OCTROI REFUND : ENTRY TAX/OCTROI AS PAI D BY PROMOTERS WHILE MAKING CAPITAL EXPENDITURE WILL BE R EIMBURSED BY MEDA. 12 9. SALES TAX BENEFITS : INVESTMENTS IN PLANT AND MACHIN ERY, NEW BUILDING, LAND DEVELOPMENT, TECHNICAL DEVELOPMENT A ND DESIGN IN A WIND POWER PROJECT WOULD BE CONSIDERED AS QUALIFYING INVESTMENT. PROMOTER SHALL BE ENTITLED TO SALES TAX BENEFITS UPTO THE AMOUNT OF QUALIFYING INVESTMENT. THIS BENEFIT WOULD BE GIVEN I N 6 EQUAL INSTALMENTS OVER A PERIOD OF 6 YEARS (1/6 OF THE QUAL IFYING INVESTMENT AMOUNT EVERY YEAR) ONLY UNDER THE CONDITION THAT TH E PLANT HAS SUCCESSFULLY OPERATED EVERY YEAR WITH A MINIMUM OF 12% PLANT LOAD FACTOR. THIS BENEFIT MAY ALSO BE AVAILABLE TO ANY OT HER COMPANY ASSOCIATED WITH THE PROMOTERS. 4.9 REFERRING TO RESOLUTION DATED 01-10-99, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 4 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE STATE GOVT. CONSIDERING THE DIFF ICULTIES OF THE INDUSTRIES AND WITH A VIEW TO MAKE AVAILABLE SALES TAX BENEFIT DECIDED TO SIMPLIFY THE PROCEDURES. REFERRING TO CLAUSE 3 TO 5 OF THE SAID RESOLUTION THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT SUCH SALES TAX BENEFIT WILL BE AVAILABLE FOR THE PROMOTERS FRO M THE DATE OF OBTAINING ENTITLEMENT CERTIFICATE FOR A PERIOD OF CONTINUOUS 6 YEARS AND FOR EVERY YEAR SUCH BENEFIT WILL BE LIMITED TO 1/6 TH OF THE QUALIFYING INVESTMENT. IF THE ASSESSEE DOES NOT AC HIEVE THE PLANT LOAD FACTOR OF 12% IN ANY ONE YEAR THEN THAT YEARS SALE S TAX BENEFIT WILL GET CANCELLED AND THAT UNIT WILL HAVE TO LOSE SALES TAX BENEFIT FOR THAT YEAR FOR EVER. ACCORDING TO CLAUSE 3 OF THE SAID RESOLU TION ANY 2 YEARS SALES TAX BENEFIT WILL NOT BE ALLOWED TO BE CLUBBED TOGET HER TO CLAIM IN ONE YEAR. AS PER CLAUSE 4 OF THE SAID RESOLUTION THE P ROMOTERS OF THE PROJECT, IF SELL ELECTRICITY TO THE THIRD PARTY, F OR SUCH THIRD PARTY TRANSFERRING OF SALES TAX BENEFIT WILL BE PERMITTED . THE PROMOTERS OF THE PROJECT CAN CHOSE THE THIRD PARTY FOR THIS FACI LITY AND IT WILL BE APPLICABLE FOR THAT YEAR ONLY. HOWEVER, NO PERMISS ION WILL BE GIVEN DURING THAT PERIOD TO CHANGE THE NAME OF THE THIRD PARTY. FURTHER 13 AMOUNT OF SALES TAX BENEFIT IS RELATED TO THE QUALI FYING INVESTMENT AND PLANT LOAD FACTOR. HE SUBMITTED THAT IN VIEW OF TH E ABOVE GOVERNMENT RESOLUTIONS THE ASSESSEE DURING THE IMPUGNED ASSESS MENT YEAR TRANSFERRED THE SALES TAX BENEFIT OF RS.7,28,21,527 /- TO TELCO AND CLAIMED THE SAME AS EXEMPT FROM TAX BEING CAPITAL R ECEIPT. HE SUBMITTED THAT THE AO AS WELL AS THE CIT(A) FOLLOWI NG THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SAHNEY STE EL AND PRESS WORKS LTD., (SUPRA) TREATED THE SAID RECEIPT ON REV ENUE ACCOUNT. 4.10 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T AFTER THE DECISION IN THE CASE OF SAHNEY STEEL AND PRESS WORK S LTD. (SUPRA) VARIOUS OTHER DECISIONS HAVE COME WHICH ARE IN FAVO UR OF THE ASSESSEE. 4.11 REFERRING TO THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD., RE PORTED IN 306 ITR 392 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION AFTER CONSIDERING THE DECISION IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) HAS HELD THAT THE CHARACTE R OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE IN A SCHEME HA S TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY I S GRANTED. IN OTHER WORDS, ONE HAS TO APPLY THE PURPOSE TEST. THE POIN T OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCES I S IMMATERIAL. IF THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS OF REVENUE ACCOUNT. ON THE OTHER HAND IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHE ME IS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND AN EXIST ING UNIT, THEN THE RECEIPT OF THE SUBSIDY WOULD BE ON CAPITAL ACCOUNT. ACCORDINGLY, IT 14 WAS HELD THAT WHEN THE MAIN ELIGIBILITY CONDITION I N THE SCHEME WAS THAT THE INCENTIVE HAD TO BE UTILIZED FOR REPAYMENT OF LOAN TAKEN BY THE ASSESSEE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXP ANSION OF AN EXISTING UNIT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT I N THE COURSE OF A TRADE BUT WAS OF A CAPITAL NATURE. REFERRING TO TH E CASE OF THE ASSESSEE HE SUBMITTED THAT THE OBJECT OF THE SCHEME IS TO PR OMOTE WIND ENERGY GENERATION. THEREFORE, IT IS A CAPITAL RECEIPT AND CANNOT BE TREATED AS REVENUE IN NATURE. 4.12 REFERRING TO THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF MEPCO INDUSTRIES LTD. VS. CIT REPORTED IN 3 19 ITR 208 THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PLACETUM 7 OF THE ORDER AND SUBMITTED THAT THE HON BLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT THE GOVERNMENT G RANTS DIFFERENT TYPES OF SUBSIDIES TO THE ENTREPRENEURS. THE SUBSI DY IN SAHNEY STEEL AND PRESS WORKS LTD., (SUPRA) WAS AN INCENTIVE SUBS IDY LINKED TO PRODUCTION AND IT WAS NOT A SCHEME FOR SETTING UP T HE INDUSTRIES. THE SCHEME WAS ADMISSIBLE ONLY AFTER THE COMMENCEMENT O F PRODUCTION. SIMILARLY, IN THE CASE OF PONNI SUGARS AND CHEMICAL S LTD. (SUPRA) THE SUBSIDY GIVEN BY THE GOVERNMENT WAS FOR REPAYING LO ANS. HE SUBMITTED THAT THE HONBLE COURT NOTED THAT IN THE CASE OF MEPCO INDUSTRIES LTD., (SUPRA) THE SUBSIDY WAS FOR SETTIN G UP INDUSTRY IN THE BACKWARD AREA. IT WAS ACCORDINGLY HELD THAT IN EAC H CASE ONE HAS TO EXAMINE THE NATURE OF SUBSIDY. THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE SAHNEY STEEL AND PRESS WORKS LTD., (SU PRA) WAS ON ITS OWN FACTS AS ALSO THE JUDGMENT OF THE HONBLE SUPRE ME COURT IN THE 15 CASE OF PONNI SUGARS AND CHEMICALS LTD. CASE. IT W AS HELD THAT THE NATURE OF THE SUBSIDIES IN EACH OF THE 3 CASES IS S EPARATE AND DISTINCT. THERE IS NO STRAIGHT JACKET PRINCIPLE IN DISTINGUIS HING A CAPITAL RECEIPT FROM A REVENUE RECEIPT. IT DEPENDS UPON THE CIRCUM STANCES OF EACH CASE. IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD., (SUPRA) THE HONBLE SUPREME COURT HAS OBSERVED THAT THE PRODUCT ION INCENTIVE SCHEME IS DIFFERENT FROM THE SCHEME OF GIVING SUBSI DY FOR SETTING UP INDUSTRIES IN BACKWARD AREAS. IT WAS ACCORDINGLY H ELD THAT THE CASE OF MEPCO INDUSTRIES LTD., WAS A CHANGE OF OPINION. TH EREFORE, THE DEPARTMENT HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 154 OF THE I.T. ACT. 4.13 REFERRING TO THE DECISION OF THE HONBLE GUJAR AT HIGH COURT IN THE CASE OF DCIT VS. INOX LEISURE LTD., REPORTED IN 351 ITR 314 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID D ECISION FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT IN THE C ASE OF PONNI SUGARS AND CHEMICALS LTD.,(SUPRA) AND SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) HAS HELD THAT WHEN THE SALIENT FEATURE S OF THE SCHEME SHOWED THAT THE INCENTIVE WAS BEING OFFERED FOR REC OUPING OR COVERING THE CAPITAL INVESTMENT OR OUTLAY ALREADY MADE BY TH E ASSESSEE THE ENTERTAINMENT TAX EXEMPTION WAS A CAPITAL RECEIPT W HICH WAS NOT EXIGIBLE TO TAX. FOR THE ABOVE PROPOSITION, THE HO NBLE HIGH COURT HAS HELD THAT THE CHARACTER OF RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE P URPOSE FOR WHICH THE SUBSIDY IS GRANTED. IN OTHER WORDS, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME ON WHICH THE SUBSIDY IS PA ID IS NOT RELEVANT. 16 THE SOURCE IS IMMATERIAL. IF THE OBJECT OF THE SUB SIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN T HE RECEIPT IS ON THE REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SCHEME IS TO ENABLE THE ASSESSEE TO SET U P A NEW UNIT OR EXPAND THE EXISTING UNIT, THEN THE RECEIPT OF SUBSI DY WOULD BE ON CAPITAL ACCOUNT. 4.14 REFERRING TO THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. M/S. CHAPHALKAR BROTHERS REPORTED I N 351 ITR 309 HE SUBMITTED THAT THE HONBLE HIGH COURT FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS A ND CHEMICALS LTD., (SUPRA) HAS HELD THAT WHEN THE OBJECT OF THE SUBSIDY WAS TO PROMOTE CONSTRUCTION OF MULTIPLEX THEATRE COMPLEXES , THEREFORE, RECEIPT OF AFORESAID WOULD BE ON CAPITAL ACCOUNT. IT WAS HELD THAT THE FACT THAT THE SUBSIDY WAS NOT MEANT FOR REPAYING TH E LOAN TAKEN FOR CONSTRUCTION OF MULTIPLEXES CANNOT BE A GROUND TO HOLD THAT SUBSIDY RECEIPT WAS ON REVENUE ACCOUNT BECAUSE IF THE OBJEC T OF THE SCHEME WAS TO PROMOTE CINEMA HOUSES BY CONSTRUCTING MULTIP LEX THEATRES, THEN IRRESPECTIVE OF THE FACT THAT THE MULTIPLEXES HAVE BEEN CONSTRUCTED OUT OF OWN FUNDS OR BORROWED FUNDS, THE RECEIPT OF AFORESAID WOULD BE ON CAPITAL ACCOUNT. ACCORDINGLY, THE ORDER OF THE TRIBUNAL HOLDING THE SUBSIDY AS CAPITAL INCOME WAS UPHELD. THE LD. COUN SEL FOR THE ASSESSEE ACCORDINGLY SUBMITTED THAT THE OBJECT BEHI ND THE SCHEME HAS TO BE LOOKED INTO. SINCE THE ASSESSEE IN THE INSTAN T CASE IS GENERATING WIND POWER, THEREFORE, THE SALES TAX SUBSIDY HAS TO BE TREATED AS CAPITAL IN NATURE. 17 4.15 REFERRING TO THE DECISION OF THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. KIRLOSKAR ENGINES LTD. VIDE ITA NO.2646/2011 ORDER DATED 17-04-2014 HE SUBMITTED THAT THE ISSUE BEFORE THE HONBLE HIGH COURT WAS AS TO WHETHER THE SPECIAL CAPITAL IN CENTIVE AMOUNTING TO RS. 25 LAKHS RECEIVED BY THE PREDECESSOR IN TITL E OF THE ASSESSEE FROM THE GOVT. OF MAHARASTRA THROUGH THE STATE INDU STRIAL CORPORATION OF MAHARASHTRA WAS CAPITAL RECEIPT OR A REVENUE REC EIPT. THE AO TREATED THE SAME AS REVENUE RECEIPT. THE CIT(A) AL LOWED THE CLAIM OF THE ASSESSEE TREATING THE SAME AS CAPITAL RECEIPT W HICH WAS UPHELD BY THE ITAT. ON FURTHER APPEAL BY THE REVENUE, THE HO NBLE HIGH COURT DISMISSED THE APPEAL FILED BY THE REVENUE BY OBSERV ING AS UNDER : 5. . . . . . . . . . . . . . . . . . . UNDISPUTEDLY, THE CAPITAL INCENTIVE WAS GIVEN TO THE ASSESSEE. T HAT WAS TO ENABLE THE ASSESSEES PREDECESSOR-IN-TITLE TO SE T UP A NEW UNIT. THIS WAS UNDER THE INCENTIVE PACKAGE OFFERED BY THE STATE GOVT. FOR SETTING UP NEW INDUSTRIES IN THE STATE. THE PREDECESSOR-IN-TIT LE OF ASSESSEE APPLIED FOR SUCH SPECIAL CAPITAL INCENTIVE FROM THE SICOM. THAT WAS IN THE FORM OF LOAN OF RS.20 LACS IN THE YEAR 1992. SIN CE ACTUAL DISBURSEMENT WAS TO TAKE PLACE FROM THE RECEIPT OF FUN DS FROM THE GOVERNMENT OF MAHARASHTRA, THE PREDECESSOR-IN-TITLE OF ASSESSEE TOOK BRIDGE LOAN FROM THE SICOM. LATER ON, THAT BRIDGE LOAN WAS CONVERTED TOGETHER WITH OUTSTANDING INTEREST OF RS.5 LACS INTO SPE CIAL CAPITAL INCENTIVE BY THE SICOM. THAT BEING IN THE NATURE O F CAPITAL RECEIPT, IT WAS DIRECTLY CREDITED TO THE CAPITAL RECEIPT RESERVE ACCOUNT. THE ASSESSEE CLAIMED THE RECEIPT AS A CAPITAL RECEIPT. IT I S THAT STAND OF THE ASSESSEE WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER. T HE MATTER WAS CARRIED IN APPEAL AND THE ASSESSEE SUCCEEDED. HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAI D DECISION AFTER CONSIDERING THE DECISION IN THE CASE OF SAHNEY STEE L AND PRESS WORKS LTD. (SUPRA) AND THE DECISION IN PONNI SUGARS AND C HEMICALS LTD., (SUPRA) AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S.CHHAPHALKAR BROTHERS REPORTED I N 351 ITR 309 (BOM.) HELD THAT THE RECEIPT IS A CAPITAL RECEIPT. 18 4.16 REFERRING TO THE DECISION OF HONBLE GUJARAT H IGH COURT IN THE CASE OF CIT VS. BIRLA VXL LTD. REPORTED IN 215 TAXM ANN 187 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID D ECISION HAS HELD THAT SALES TAX WAIVER/DEFERMENT UNDER SCHEME WAS GR ANTED BY STATE GOVERNMENT TO COVER THE CAPITAL OUTLAY ALREADY MADE BY THE ASSESSEE IN UNDERTAKING SPECIAL MODERNIZATION OF ITS EXISTIN G INDUSTRY IS CAPITAL IN NATURE AND THUS NOT TAXABLE. THE LD. COUNSEL FO R THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE HEADNOTE OF THE D ECISION WHICH READS AS UNDER : INCOME-CAPITAL OR REVENUE RECEIPTSALES TAX EXEMPT ION ASSESSEE HAD RECEIVED INCENTIVES UNDER STATE GOVERN MENT SCHEME IN FORM OF SALES TAX WAIVER/DEFERMENT SCHEMESUCH I NCENTIVES WERE TREATED BY ASSESSEE AS CAPITAL RECEIPTSAO, HO WEVER, HELD THAT SAME WAS REVENUE IN NATURECIT (A) HELD THAT P URPOSE OF INCENTIVES WAS CLEARLY FOR PROMOTING CAPITAL INVEST MENT AND THEREBY TO ACHIEVE INDUSTRIAL DEVELOPMENT AND THERE FORE, INCENTIVE WAS IN NATURE OF CAPITAL RECEIPTTRIBUNAL CONFIRMED ACTION OF CIT(A)HELD, CHARACTER OF SUBSIDY IN HANDS OF RECIP IENT WHETHER REVENUE OR CAPITAL WOULD HAVE TO BE DETERMINED, HAV ING REGARD TO PURPOSE FOR WHICH SUBSIDY WAS GIVENSOURCE OF FUND WAS IMMATERIALIF PURPOSE WAS TO HELP ASSESSEE TO SET U P ITS BUSINESS OR COMPLETE A PROJECT MONIES MUST BE TREATED AS HAV ING BEEN RECEIVED FOR CAPITAL PURPOSES-BUT, IF MONIES ARE GI VEN TO ASSESSEE FOR ASSISTING HIM IN CARRYING OUT BUSINESS OPERATIO NS AND GIVEN AFTER SATISFACTION OF THE CONDITIONS OF COMMENCEMEN T OF PRODUCTION, SUCH SUBSIDY MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE-IN INSTANT CASE PRINCIPLE AIM OF SCHEME WAS T O COVER CAPITAL OUTLAY ALREADY MADE BY ASSESSEE IN UNDERTAKING SPEC IAL MODERNIZATION OF ITS EXISTING INDUSTRY AND WAS NOT MEAN TO GIVE ANY BENEFIT ON DAY-TO-DAY FUNCTIONING OF BUSINESS, OR F OR MAKING INDUSTRY MORE PROFITABLE, THUS WAS CAPITAL IN NATUR E-THUS, ORDER OF TRIBUNAL CONFIRMEDREVENUES' APPEAL DISMISSED 4.17 REFERRING TO THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SIYA RAM GARG (HUF) RE PORTED IN 237 CTR 321 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT SUBSIDY RECEIVED BY THE ASSE SSEE FOR SETTING UP 19 AGRO BASED INDUSTRIAL UNIT IN BACKWARD AREA WHICH W AS DETERMINED WITH REFERENCE TO CAPITAL INVESTMENT IS A CAPITAL R ECEIPT. 4.18 REFERRING TO THE DECISION OF HONBLE JAMMU & K ASHMIR HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS VS. CIT RE PORTED IN 333 ITR 335 (J&K) HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT INCENTIVE SCHEME FORMULATED BY CENTRAL GOVERNMENT FOR JAMMU & KASHMIR TO ACCELERATE INDUST RIAL DEVELOPMENT, GENERATE EMPLOYMENT AND CREATE OPPORTU NITIES FOR SELF EMPLOYMENT WAS FOR THE PURPOSE IN PUBLIC INTEREST. SUCH INCENTIVES DESIGNED TO ACHIEVE A PUBLIC PURPOSE COULD NOT BE C ONSTRUED AS PRODUCTION OR OPERATIONAL INCENTIVES FOR THE BENEFI T OF THE ASSESSEE ALONE. FURTHER, THE INCENTIVES WERE PROVIDED WITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT TO ERADIC ATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT. IT WAS ACCORDINGLY HELD THAT THE EXCI SE DUTY REFUND, INTEREST SUBSIDY AND INSURANCE SUBSIDY ARE CAPITAL RECEIPT IN NATURE. 4.19 REFERRING TO THE DECISION OF THE AMRITSAR SPEC IAL BENCH OF THE TRIBUNAL IN THE CASE OF VINOD KUMAR JAIN VS. ITO RE PORTED IN 140 ITD 1 (SB)(AMRITSAR) HE SUBMITTED THAT THE SPECIAL BENCH HAS HELD THAT REFUND SET OFF OF EXCISE DUTY IS TO BE TREATED AS CAPITAL RECEIPT IN HANDS OF THE ASSESSEE NOT CHARGEABLE TO TAX. 4.20 REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF RASIKLAL M. DHARIWAL (HUF) VS. DCIT VID E ITA NOS. 575/PN/2007 & 150/PN/2008 FOR A.YRS. 2003-04 & 2004 -05 ORDER 20 DATED 31-03-2011 HE SUBMITTED THAT THE ISSUE HAS BE EN DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL. HOWE VER, IN VIEW OF THE VARIOUS DECISIONS CITED ABOVE SOME OF WHICH ARE SUB SEQUENT TO THE DECISION IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD., (SUPRA) THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. REFERRING TO PARA 17 OF THE ORDER OF THE TRIBUNAL, THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE OBSERVATIONS OF THE TRIBUNAL ARE CONTRARY TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F M/S. CHHAPHALKAR BROTHERS REPORTED IN 351 ITR 309 WHICH IS A SUBSEQUENT DECISION. HE ACCORDINGLY SUBMITTED THAT THE AMOUNT RECEIVED ON TRANSFER OF SALES TAX ELIGIBILITY AMOUNTING TO RS.7 ,28,79,527/- BE TREATED AS CAPITAL RECEIPT. 4.21 IN HIS ALTERNATE CONTENTION, THE LD. COUNSEL F OR THE ASSESSEE REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAHESHWARI DEVI JUTE MILLS LTD. REPORTED IN 57 ITR 36 SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT AS THE LOOM HOURS BY THEIR VERY NATURE LET OUT WHILE RETAINING PROPERTY IN THEM AND THE TRANSACTIONS IN THIS CASE WERE THE SAL E OF THE LOOM HOURS, THE RECEIPTS BY SALE OF THE SURPLUS LOOM HOURS WERE CAPITAL RECEIPTS AND NOT INCOME. 4.22 REFERRING TO THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. GANAPATHI RAJU JOGI REPORTED IN 200 ITR 612 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAI D DECISION HAS HELD THAT ROUTE PERMITS ACQUIRED ON THE BASIS OF VA RIOUS FACTORS AND NO AMOUNT PAID FOR SUCH ROUTE PERMIT, THEN IN THAT CAS E CONSIDERATION FOR 21 SALE OF PERMIT IS NOT ASSESSABLE TO TAX AS CAPITAL GAINS. THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING SHORT NOTES (AT PAGE 613 AND 613) : AGAINST THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN CIT (ADDL.) V. GANAPATHI RAJU JEGI, SANYASI RAJU (1979( 119 ITR 715 TO THE EFFECT THAT THOUGH ROUTE PERMITS FOR BUSES GRANTED BY THE ROA D TRANSPORT AUTHORITY WERE CAPITAL ASSETS, WHERE NO AMOUNT WAS PAID BY THE OPERATOR FOR ACQUIRING A ROUTE PERMIT AND IT WAS ONL Y OVER A NUMBER OF YEARS THAT IT ACQUIRED SOME VALUE BECAUSE OF VARIOUS FA CTORS, NAMELY, DEVELOPMENT OF ROADS, PASSENGER TRAFFIC, FREQUENCY OF THE BUSES, THE VALUE OF THE PERMIT COULD NOT BE EVALUATED AS ON THE DATE OF ACQUISITION AND IN SUCH A CASE THE CONSIDERATION IN TER MS OF MONEY REALISED ON ITS TRANSFER COULD NOT BE BROUGHT TO TAX AS CAPITAL GAINS, THE DEPARTMENT PREFERRED AN APPEAL TO THE SUPREME COURT . THE SUPREME COURT DISMISSED THE APPEAL. IN VIEW OF THE ABOVE 2 DECISIONS, HE SUBMITTED THAT THE AMOUNT IS CAPITAL IN NATURE AND CANNOT BE TAXED AS A REVENUE RECEIPT. REFERRING TO PROVISIONS OF SECTION 28(IIIC) TO 28 (IIIC) HE S UBMITTED THAT THE STATUTE SPECIFICALLY PROVIDES FOR TAXABILITY OF CER TAIN ITEMS. HOWEVER, TAXABILITY OF THE NATURE OF RECEIPT RECEIVED BY THE ASSESSEE HAS NOT BEEN SPECIFICALLY PROVIDED U/S.28. THEREFORE, IN VIEW O F THE VARIOUS DECISIONS, THE AMOUNT RECEIVED HAS TO BE TREATED AS CAPITAL RECEIPT. 4.23 IN STILL ANOTHER ALTERNATE CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE SUBSIDY SO RECEIVED SHOULD GO TO REDUCE THE COST OF THE ASSET. FOR THE ABOVE PROPOSITION HE RE LIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF P.J. CHEMIC ALS REPORTED IN 210 ITR 830 AND THE DECISION OF THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASISRI EXTRACTORS LTD. VS . ACIT REPORTED IN 307 ITR 127 (AT). 22 4.24 THE LD. COUNSEL FOR THE ASSESSEE HOWEVER REFER RING TO THE CLARIFICATION ISSUED BY CBDT VIDE LETTER DATED 31-1 2-1998 A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 110 WHICH CLARIF IES THE APPLICABILITY OF EXPLANATION 10 TO SECTION 43(1) OF THE I.T. ACT TO THE SALES TAX INCENTIVES GIVEN BY THE STATE GOVT. FOR W INDMILL OPERATORS. HE SUBMITTED THAT THE CBDT HAS CLARIFIED THAT UNDER EXPLANATION 10 SECTION 43(1) OF THE I.T. ACT THE CAPITAL COST FOR THE PURPOSE OF DEPRECIATION CAN BE REDUCED BY ANY AMOUNT ONLY IF S UCH AMOUNT LEADS TO REDUCTION OF COST FOR SUCH ASSET EITHER DIRECTLY OR INDIRECTLY IN THE FORM OF SUBSIDY, GRANT OF REIMBURSEMENT. IT HAS BE EN EXPLAINED THAT IN THE SCHEME OF GOVT. OF MAHARASHTRA FOR WIND ENERGY ENTREPRENEURS AS WELL AS TAX EXEMPTION IS THERE ON THE SALE OF OTHER GOODS EXCEPT BY THE WINDMILL OPERATOR FOR A PERIOD OF SIX YEARS IN EQUA L INSTALLMENTS AND IS RESTRICTED TO TOTAL INVESTMENT MADE. IT IS OBVIOUS THAT THIS INCENTIVES IS NOT GRANTED TO MEET DIRECTLY OR INDIRECTLY THE COST OF CAPITAL ASSET. ACCORDINGLY, IT WAS STATED THAT THERE IS NO JUSTIFI CATION FOR ANY APPREHENSION THAT THE SALES TAX INCENTIVE WOULD GO TO REDUCE THE COST OF ASSET FOR THE PURPOSE OF DEPRECIATION. IN VIEW OF THE ABOVE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ALTERNA TE CONTENTION OF THE ASSESSEE THAT IT GOES TO REDUCE THE COST OF ASSET B ECOME ACADEMIC IN NATURE. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). REFERRING TO TH E DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF RASIKLAL M. DHARIWAL VS. DCIT VIDE ITA NO.575/PN/2007 AND ITA NO.150/PN/2008 ORDER 23 DATED 31-03-2011 FOR A.Y. 2003-04 AND 2004-05 HE SU BMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD.,(SUPR A) PONNI SUGARS AND CHEMICALS LTD. (SUPRA) HAS DECIDED THE ISSUE AG AINST THE ASSESSEE. FOLLOWING THE AFORESAID DECISION THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF VARIOUS OTHER DECISIONS HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. HE SUBMITTED THAT WHEREVER THE AMOUNT IS GIVEN FOR MEETING FIXED ASSET IT HAS TO GO TO REDUCE THE SAME FROM TH E CAPITAL ASSET. IN OTHER CASES IT HAS TO BE TREATED AS A REVENUE RECEI PT. HE SUBMITTED THAT THE ENTIRE SCHEME HAS BEEN ANALYSED BY THE PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF RASIKLAL M. DHARIWAL (HUF), SISTER CONCERN OF THE ASSESSEE AND IT HAS BEEN HELD AS A REVENUE RECE IPT. 5.1 REFERRING TO THE PREAMBLE OF THE NOTIFICATION T HE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE INCE NTIVE GIVEN TO THE WINDMILLS OPERATORS WAS NOT FOR GENERATION OF EMPLO YMENT OR INDUSTRIES IN BACKWARD AREAS. REFERRING TO CLAUSE 7 OF THE SCHEME DATED 12-03-1998 THE LD. DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT IT WAS CLEARLY MENTIONED THAT IT IS CAPITAL SUBSIDY . THE ONLY CONDITION WAS THAT THE WIND POWER PLANT HAS SUCCESSFULLY OPER ATED FOR A MINIMUM 12% PLANT LOAD FACTOR FOR ATLEAST ONE YEAR. HE SUBMITTED THAT THERE ARE DIFFERENT TYPES OF INCENTIVES, SOME MAY BE CAPITAL IN NATURE AND SOME MAY BE REVENUE IN NATURE. THE INTE NTION FOR GRANTING OF SUCH SUBSIDY HAS TO BE SEEN. IF THE VERSION OF THE LD. COUNSEL FOR THE ASSESSEE IS ACCEPTED, THEN THE ASSESSEE TAKES M ORE BENEFIT THAN WHAT IS GIVEN BY THE GOVERNMENT AS PER THE INTENTIO N. REFERRING TO THE 24 ORDER OF THE CIT(A) FOR A.Y. 2006-07 HE SUBMITTED T HAT THE LD.CIT(A) HAS DEALT WITH ALL CASE LAWS AND HAVE DISTINGUISHED THE DECISIONS. 5.2 REFERRING TO THE DECISION OF THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF SUN-N-SAND HOTELS (P) LTD. VS. DCIT VIDE ORDER DATED 08-01-2014 THE LD. DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT THE HONBLE TRIBUNAL AFTER CONSIDERING THE VARIOUS DECI SIONS NOW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE HAS HELD THA T SALES TAX BENEFIT/SUBSIDY RECEIVED BY THE ASSESSEE UNDER POWE R POLICY OF THE STATE GOVT. AS INCENTIVE FOR SETTING UP OF WINDMILL S IN MAHARASHTRA IS REVENUE IN NATURE. HE SUBMITTED THAT IN THE CASE O F SISTERN CONCERN OF THE ASSESSEE FOR A.Y. 2003-04 AND 2004-05, THE TRIB UNAL HAS ALREADY TAKEN A VIEW ON THE BASIS OF DECISION OF HONBLE SU PREME COURT AND HAS GIVEN A CATEGORICAL FINDING THAT THE SALES TAX BENEFITS RECEIVED BY THE ASSESSEE UNDER THE INSTANT CASE ARE IN THE COUR SE OF CARRYING ON ITS TRADE MORE PROFITABLY FOR WHICH SUCH RECEIPT CANNOT BE CHARACTERIZED AS CAPITAL IN NATURE. THEREFORE, THE ORDER OF THE CIT(A) ON THIS ISSUE HAS TO BE UPHELD AND THE GROUND RAISED BY THE ASSES SEE ON THIS ISSUE HAS TO BE DISMISSED. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DI SPUTE TO BE DECIDED IN THE IMPUGNED GROUND IS REGARDING THE TAXABILITY OF THE AMOUNT RECEIVED ON TRANSFER OF SALES TAX ELIGIBILITY AS CA PITAL OR REVENUE IN NATURE. WE FIND THE ASSESSEE IN THE INSTANT CASE H AS SET UP WINDMILLS 25 IN MAHARASHTRA FOR GENERATION OF WIND POWER. DURIN G THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS TRANSFERRED THE S ALES TAX BENEFIT FOR A TOTAL CONSIDERATION OF RS.7,28,71,527/- AND TREATED THE SAME IN THE NATURE OF CAPITAL SUBSIDY. ALTHOUGH THE SAME WAS C REDITED TO THE PROFIT AND LOSS ACCOUNT AS OTHER INCOME THE ASSES SEE IN THE COMPUTATION OF INCOME CLAIMED THE SAME TO BE IN THE NATURE OF CAPITAL SUBSIDY AND DEDUCTED IN ITS COMPUTATION OF INCOME. WE FIND THE AO REJECTED THE CLAIM OF THE ASSESSEE AND FOLLOWING TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL A ND PRESS WORKS LTD. (SUPRA) TREATED THE SAME AS REVENUE IN NATURE. IN APPEAL THE LD.CIT(A) APART FROM RELYING ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS L TD. (SUPRA) RELIED ON VARIOUS OTHER DECISIONS AND UPHELD THE ACTION OF THE AO. 6.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALTHOUGH THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN NAMELY RASIKLAL M. DHARIWAL (HUF) FO R A.Y. 2003-04 AND 2004-05, HOWEVER, IN VIEW OF THE SUBSEQUENT DEC ISIONS THE SUBSIDIES RECEIVED HAS TO BE TREATED AS CAPITAL IN NATURE. IT IS THE CASE OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT SINCE T HE TRIBUNAL HAS THOROUGHLY ANALYSED THE SCHEME AND HAS GIVEN A CATE GORICAL FINDING THAT THE SALES TAX BENEFITS RECEIVED BY THE ASSESSE E UNDER THE INSTANT SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE M ORE PROFITABLY, THEREFORE, SUCH RECEIPT CANNOT BE CHARACTERISED AS CAPITAL IN NATURE. 6.2 WE FIND THE TRIBUNAL IN THE CASE OF RASIKLAL M. DHARIWAL (HUF) (SUPRA), A SISTER CONCERN OF THE ASSESSEE, HAS DECI DED THE ISSUE FOR 26 A.Y. 2003-04 AND 2004-05 BY HOLDING THAT THE SALES TAX BENEFITS RECEIVED BY THE ASSESSEE UNDER THE INSTANT SCHEME A RE IN THE COURSE OF CARRYING ON ITS TRADE MORE PROFITABLY, THEREFORE, S UCH RECEIPT CANNOT BE CHARACTERISED AS CAPITAL IN NATURE. THE RELEVANT O BSERVATION OF THE TRIBUNAL FROM PARA 8 READS AS UNDER : 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. IN TERMS OF THE POLICY ON WIND POWER GENERATION FORMULATED BY THE G OVERNMENT OF MAHARASHTRA, VIDE RESOLUTIONS DATED 12.3.1998 (SUPR A), AND 1.10.1999 (SUPRA), THE ASSESSEE AVAILED OF SALES-TAX BENEFIT OF A SUM OF RS 63,74,291/-. THE ASSESSEE CLAIMED THAT SUCH AMOUNT IS A CAPITAL RECEIPT NOT SUBJECTED TO TAXATION. ON THE CONTRARY, AS PER THE REVENUE SUCH AMOUNT IS A REVENUE RECEIPT CHARGEABLE TO TAX. 9. BEFORE WE TOUCH UPON THE DIFFERING STANDS OF THE ASSESSEE AND REVENUE ON THE ISSUE, IT WOULD BE APPROPRIATE TO CU LL OUT THE FACTS HAVING A BEARING ON THE ISSUE. THE APPELLANT IS AN HUF WHI CH IS, INTER ALIA, ENGAGED IN A RANGE OF BUSINESS ACTIVITIES VIZ. MANU FACTURE AND SALE OF MANICKCHAND ZARDA, PAN MASALA, CONSTRUCTION ACTIVI TIES, MANUFACTURING OF TILES ETC. INCLUDING GENERATION AND SALE OF POWE R. IN THE COURSE OF ITS ACTIVITIES, THE ASSESSEE COMPANY SET UP WIND MILLS IN THE STATE OF MAHARASHTRA FOR GENERATION OF WIND POWER. THE GOVER NMENT OF MAHARASHTRA IN TERMS OF ITS POLICY ON WIND POWER GE NERATION GRANTED VARIOUS BENEFITS, INCLUDING SALES-TAX BENEFIT. IN TERMS OF THE PROCEDURE FOR AVAILING SALES-TAX BENEFITS ON NON-CONVENTIONAL ENE RGY GENERATING PROJECTS, SUCH AS WIND MILLS, ASSESSEE WAS ALSO ENT ITLED TO THE FACILITY OF TRANSFERRING THE SALES-TAX BENEFIT TO THE THIRD PAR TY. THE ASSESSEE AFTER OBTAINING THE REQUISITE PERMISSION FROM THE STATE G OVERNMENT TRANSFERRED THE SALES-TAX BENEFIT ENTITLEMENTS TO A THIRD PARTY AND THE CONSIDERATION THEREOF AMOUNTING TO RS 63,74,291/- WAS CLAIMED AS A CAPITAL RECEIPT. AT THIS STAGE, IT WOULD BE APPROPRIATE TO BRIEFLY TOUC H UPON THE RESOLUTION OF THE STATE GOVERNMENT DATED 12.3.1998 (SUPRA), THE R ELEVANT PORTION OF WHICH IS REPRODUCED AS UNDER: PREAMBLE THE STATE GOVERNMENT HAS A POLICY TO PROMOTE GENERA TION OF ENERGY THROUGH NON-CONVENTIONAL SOURCES TO SUPPLEMENT THE EVER INC REASING DEMAND OF ELECTRICITY IN THE STATE. IT WAS FOUND AFTER A SURV EY THAT THERE IS AN IMMENSE POTENTIAL FOR GENERATION OF WIND POWER IN THE STATE . SURVEYS CONDUCTED BY MEDA IN ASSOCIATION WITH MNES, NEW DELHI AND IITM, BANGA LORE INDICATE THAT THE POTENTIAL IS ABOUT 300 TO 400 MW. EIGHT DIFFERENT S ITES HAVE BEEN SELECTED FOR THIS PURPOSE AND FURTHER SURVEY IS BEING CARRIED OUT. THE STATE GOVERNMENT HAD ENUNCIATED ITS POLICY ON G ENERATION THROUGH NON- CONVENTIONAL SOURCES IN JANUARY, 1996. THIS POLICY HOWEVER COULD NOT ATTRACT THE PROMOTERS. DURING THE INTERVENING PERIOD, THE GOVER NMENT OF INDIA HAD ISSUED CERTAIN GUIDELINES REGARDING WIND ENERGY GENERATION . THESE GUIDELINES FROM GOVERNMENT OF INDIA, WIND POWER GENERATION POLICIES OF OTHER STATE GOVERNMENTS AND THE PROBLEMS BEING FACED BY PROMOTERS OF WIND E NERGY GENERATION WERE UNDER ACTIVE CONSIDERATION OF THE STATE GOVERNMENT. RESOLUTION : IN PARTIAL MODIFICATION OF ITS EXISTING POLICY TO P ROMOTE WIND ENERGY GENERATION, THE STATE GOVERNMENT HAS TAKEN FOLLOWING DECISIONS TO P ROMOTE WIND ENERGY GENERATION IN THE STATE:- (1) TARIFF : MAHARASHTRA STATE ELECTRICITY BOARD SHALL PURCHASE ENERGY GENERATED FROM WIND POWER PLANTS AT A RATE OF 225 PAISE PER UNIT. THE F INANCIAL YEAR 1994-95 WILL BE TAKEN AS BASE YEAR FOR THIS RATE WHICH WILL BE INCR EASED AT A RATE OF 5% PER ANNUM. THIS 5% ESCALATION WILL BE AVAILABLE TO THE DEVELOPERS FOR THE FIRST 10 27 YEARS OF THE PROJECT LIFE. THE LIABILITY OF THE PRO JECT REDUCES AFTER REPAYMENT OF DEBT. DUE TO THIS, FOR THE NEXT 3 YEARS THERE WILL BE NO ESCALATION AND THE RATE WILL BE KEPT CONSTANT. THEREAFTER, FOR THE BALANCE LIFE OF THE PROJECT (7 YEARS), AN ESCALATION OF 5% PER ANNUM WILL BE AVAILABLE TO THE DEVELOPERS. (2) BANKING IN LINE WITH THE CENTRAL GOVERNMENT POLICY, WIND PO WER DEVELOPERS WOULD BE GIVEN PERMISSION TO BANK THE ENERGY GENERATED FROM WIND P OWER PLANTS WITH MSEB. BANKING CAN BE DONE ANY TIME OF THE DAY AND NIGHT. THE ENERGY BALANCE AT THE END OF ONE YEAR SHALL NOT BE TAKEN INTO ACCOUNT NEX T YEAR. THE BALANCE OF ENERGY ACCOUNT WILL BE SETTLED BETWEEN THE MSEB AND PROMOT ERS AT THE END OF THE YEAR AS PER THE TARIFF APPLICABLE DURING THAT YEAR. (3) TRANSMISSION LOSSES: MSEB SHALL BEAR THE TRANSMISSION LOSSES FOR WIND EN ERGY TRANSMISSION FOR THE FIRST THREE YEARS. THEREAFTER, TRANSMISSION LOSSES WILL BE LEVIABLE AT THE RATE OF 1%. (4) THIRD PARTY SALE : PROMOTERS WILL BE PERMITTED TO SELL EXPORTABLE POWE R TO ANY TWO (INDUSTRIAL OR COMMERCIAL) CONSUMERS PER MW. WHEELING CHARGES FOR THIS WILL BE LEVIABLE AT THE RATE OF 2%. (5) EVACUATION ARRANGEMENT: MSEB SHALL INITIALLY BEAR THE EXPENDITURE FOR ERECT ION OF HIGH TENSION SUB-STATION AND TRANSMISSION INFRASTRUCTURE. MEDA SHALL RECOVER 50% OF THIS EXPENDITURE FROM WIND POWER PROJECT PROMOTERS AND WILL GIVE IT TO MS EB. DEVELOPERS SHALL BEAR THE COST OF TRANSMISSION LINES FROM THE SUB-STATION TO THE PROJECT AND ALL OTHER RELATED EQUIPMENT. (6) APPROACH ROADS : MEDA SHALL BEAR THE COST OF CONSTRUCTION OF ROADS T O THE PROJECT SITES. MEDA WOULD BE ENTITLE TO GOVERNMENT GRANTS FOR THIS EXPE NDITURE. (7) CAPITAL SUBSIDY : WIND POWER PROJECTS WILL BE GRANTED STATUS OF SMALL SCALE INDUSTRIES. MEDA SHALL GIVE A SUBSIDY UPTO 30% OR THE FIXED CAPITAL INVEST MENT (LIMITED TO RS 20 LAKHS) TO THE PROMOTERS SUBJECT TO A CONDITION THAT WIND POWE R PLANT HAS SUCCESSFULLY OPERATED WITH A MINIMUM 12% PLANT LOAD FACTOR FOR A T LEAST ONE YEAR. (8) ENTRY TAX/OCTROI REFUND : ENTRY TAX/OCTROI AS PAID Y PROMOTERS WHILE MAKING C APITAL EXPENDITURE WILL BE REIMBURSED BY MEDA. (9) SALES TAX BENEFITS : INVESTMENTS IN PLANT AND MACHINERY, NEW BUILDING, L AND DEVELOPMENT, TECHNICAL DEVELOPMENT AND DESIGN IN A WIND POWER PROJECT WOUL D BE CONSIDERED AS QUALIFYING INVESTMENT. PROMOTER SHALL BE ENTITLED T O SALES-TAX BENEFITS UPTO THE AMOUNT OF QUALIFYING INVESTMENT. THIS BENEFIT WOULD BE GIVEN IN 6 EQUAL INSTALMENTS OVER A PERIOD OF 6 YEARS (1/6 OF THE QU ALIFYING INVESTMENT AMOUNT EVERY YEAR) ONLY UNDER THE CONDITION THAT THE PLANT HAS SUCCESSFULLY OPERATED EVERY YEAR WITH A MINIMUM OF 12% PLANT LOAD FACTOR. THIS BENEFIT MAY ALSO BE AVAILABLE TO ANY OTHER COMPANY ASSOCIATED WITH THE PROMOTERS. DETAILED INSTRUCTIONS ABOUT THE MODUS OPERANDI ABOU T SALES TAX BENEFITS WILL BE SEPARATELY ISSUED BY THE FINANCE DEPARTMENT. BY ORDER AND IN THE NAME OF THE GOVERNOR OF MAHARAS HTRA. SD/- (L.V.NILESH) DEPUTY SECRETARY TO GOVERNMENT 10. A PERUSAL OF THE PREAMBLE TO SUCH RESOLUTION RE VEALS THAT THE STATE GOVERNMENT HAS A POLICY TO PROMOTE GENERATION OF ENERGY THROUGH NON CONVENTIONAL SOURCES TO SUPPLEMENT THE EVER INC REASING DEMAND OF ELECTRICITY IN THE STATE OF MAHARASHTRA. IT WAS FOU ND THAT THERE IS IMMENSE POTENTIAL FOR GENERATION OF WIND POWER IN THE STATE AND DIFFERENT SITES WERE SELECTED BY THE GOVERNMENT FOR THIS PURPOSE. IT APP EARS THAT THE STATE GOVERNMENT HAD ENUNCIATED ITS POLICY OF GENERATION THROUGH NON CONVENTIONAL SOURCES IN JANUARY 1996, WHICH WAS NOT FOUND ATTRACTIVE BY THE PROMOTERS. IN TERMS OF THE SAID RESOLUTION THE GOVERNMENT MODIFIED ITS EXISTING POLICY TO PROMOTE WIND ENERGY GENERATI ON BY ANNOUNCING 28 CERTAIN CONCESSIONS AS INCENTIVES ENUMERATED THEREI N. SUCH INCENTIVES RELATED TO TARIFF STRUCTURING, BANKING OF POWER GE NERATED BY WIND MILLS WITH MSEB, BEARING OF TRANSMISSION LOSSES BY MSEB, PERMI TTING PROMOTERS TO SELL POWER TO THIRD PARTIES, BEARING INITIAL EXPEND ITURE FOR ERECTION OF HIGH TENSION AND SUB-STATION AND TRANSMISSION INFRASTRUC TURE, BEARING THE COST OF CONSTRUCTION OF ROADS TO PROJECT SITES, REIMBURS EMENT OF ENTRY TAX/OCTROI TO THE PROMOTERS, CAPITAL SUBSIDY UPTO 30% OF THE F IXED CAPITAL INVESTMENT (LIMITED TO RS 20 LAKHS), AND SALES-TAX BENEFITS. S INCE THE PRIMARY DISPUTE BEFORE US IS IN RELATION TO THE SALES-TAX BENEFITS AVAILABLE UNDER THE SCHEME, IT WOULD BE IN THE FITNESS OF THINGS THAT W E MAY LOOK AT IT IN SLIGHT DETAIL. THE SCHEME INTENDED THAT INVESTMENTS IN PLA NT AND MACHINERY, NEW BUILDING, LAND DEVELOPMENT, TECHNICAL DEVELOPME NT AND DESIGN IN A WIND POWER PROJECT WOULD CONSTITUTE QUALIFYING INVE STMENT AND A PROMOTER SHALL BE ENTITLED TO SALES-TAX BENEFITS UPTO THE AM OUNT OF SUCH QUALIFYING INVESTMENT. SUCH SALES-TAX BENEFIT WAS TO BE GIVEN IN SIX EQUAL INSTALMENTS OVER A PERIOD OF SIX YEARS, I.E. 1/6 TH OF THE QUALIFYING INVESTMENT AMOUNT EVERY YEAR ON THE CONDITION THAT THE PLANT SUCCESSFULLY OPERATES EVERY YEAR WITH A MINIMUM OF 12% PLANT LOAD FACTOR. IN TERMS OF SUCH BROAD FRAMEWORK OF THE SALES-TAX B ENEFIT, THE STATE GOVERNMENT ISSUED SEPARATE DETAILED INSTRUCTIONS AB OUT THE MODUS OPERANDI TO AVAIL SUCH BENEFITS, BY WAY OF GOVERNME NT RESOLUTION DATED 1.10.1999 (SUPRA)S. THE RELEVANT PORTION OF THE SAI D RESOLUTION DATED 1.10.1999 IS AS UNDER: PREAMBLE: WITH A VIEW TO ENCOURAGE INSTALLATION OF WIND ENERG Y GENERATOR UNITS, STATE GOVERNMENT HAS PUBLISHED A POLICY VIDE ABOVE MENTIO NED GOVERNMENT RESOLUTION. ACCORDING TO THE SAID POLICY SALES TAX BENEFIT IS AVAILABLE, EQUIVALENT TO THE QUALIFYING INVESTMENT ON WIND ENERGY GENERAT ION PROJECTS. TO AVAIL THE SALES TAX BENEFIT A PROCEDURE HAS BEEN LAID DOWN BY THE FINANCE DEPARTMENT VIDE NOTIFICATION NO. STA 1098/CR-45/TAX ATION 2, DATED 24.8.1998 AND NOTIFICATION NO VKN-1298/CR-33/TAXATION-1 DATED 24.8.1998. HOWEVER, EVEN AFTER RELEASE OF THE SAID NOTIFICATIONS THE IN DUSTRIALISTS HAVE EXPRESSED CERTAIN DIFFICULTIES WHICH HAVE BEEN BROUGHT TO THE NOTICE OF THE GOVERNMENT. TAKING INTO CONSIDERATION THE REQUESTS OF THE WIND POWER PROMOTERS AS WELL AS THEIR DIFFICULTIES, THE PROPOSAL FOR MODIFIED DETAI LED PROCEDURE FOR AVAILING SALES TAX BENEFIT WAS UNDER CONSIDERATION OF THE GOVERNMENT. GOVERNMENT RESOLUTION : CONSIDERING THE DIFFICULTIES OF THE INDUSTRIALISTS AND WITH A VIEW TO MAKE AVAILABLE SALES TAX BENEFIT, GOVERNMENT HAS DECIDED TO SIMPLI FY THE PROCEDURE AS FOLLOWS: 1. THE SALES TAX BENEFIT WILL BE AVAILABLE ON ELECT RICITY GENERATING UNITS IN RELATION TO ACHIEVEMENT OF PLANT LOAD FACTOR AS FOL LOWS: S.NO. PLANT LOAD FACTOR SALES TAX BENEFIT EQUIVALENT OF 1//6 TH OF QUALIFYING INVESTMENT WITHOUT BANK GUARANTEE WITH BANK GUARANTEE 1 12% 60% 50% 2 13% 70% 60% 3 14% 80% 70% 4 15% 90% 80% 5 16% 100% 90% 6 17% 100% 100% THE SALES TAX BENEFIT CAN BE AVAILED BY ALL PROJECT S WHICH ARE COMMISSIONED AS WELL AS CONNECTED TO THE TRANSMISSION LINES FROM TW O MONTHS AFTER THE DATE OF PUBLICATION OF THE GOVERNMENT RESOLUTION. SALES TAX BENEFIT WILL BE AVAILABLE FOR CONTINUOUS 6 YEARS AFTER OBTAINING THE ENTITLEMENT CERTIFICATE FROM THE SALES TAX DEPARTMENT. 2. WHILE DETERMINING THE PLANT LOAD FACTOR, THE AVA ILABILITY OF THE TRANSMISSION LINES DURING THE MONTHS FROM MAY TO SEPTEMBER OF TH AT FINANCIAL YEAR AVERAGE AVAILABILITY OF TRANSMISSION LINES SHALL BE TAKEN I NTO CONSIDERATION AND THIS PERCENTAGE WILL BE INCREASED PROPORTIONATELY TO 100 %, AND THEN THE PLANT LOAD FACTOR WILL BE DETERMINED. FOR EXAMPLE, IF TRA NSMISSION LINES AVAILABILITY 29 IS 85%, THEN THAT YEARS AVERAGE PLANT LOAD FACTOR WILL BE INCREASED PROPORTIONATELY TO CORRESPOND TO 100% AVAILABILITY OF TRANSMISSION LINES AND THE SALES TAX BENEFIT WILL BE INCREASED PROPORTIONA TELY. THE AVAILABILITY OF THE TRANSMISSION LINES DURING THE MONTHS FROM MAY TO SE PTEMBER OF THAT FINANCIAL YEAR WILL BE DECIDED BY MAHARASHTRA ENERGY DEVELOPM ENT AGENCY (MEDA), PUNE. 3. SALES TAX BENEFIT WILL BE AVAILABLE FOR THE PROM OTERS FROM THE DATE OF OBTAINING OR ENTITLEMENT CERTIFICATE, FOR A PERIOD OF CONTI NUOUS 6 YEARS. AND FOR EVERY YEAR, SUCH BENEFIT WILL BE LIMITED TO 1/6 TH OF THE QUALIFYING INVESTMENT. HOWEVER, IN ANY ONE YEAR, PLANT LOAD FACTOR OF 12% IS NOT ACHIEVED THEN THAT YEARS SALES TAX BENEFIT WILL GET CANCELLED AN D THAT UNIT WILL HAVE TO LOSE SALES TAX BENEFIT FOR THAT YEAR FOREVER. ANY TWO YEARS SALES TAX BENEFIT WILL NOT BE ALLOWE D TO DEDUCT TOGETHER TO CLAIM IN ONE YEAR. TO AVAIL THE SALES TAX BENEFITS THE PERIO D WILL BE COUNTED FOR CONTINUOUS 6 (SIX) YEARS. THE FINANCIAL YEAR PERIOD WILL BE FR OM 1 ST APRIL TO 31 ST MARCH. 4. THE FACILITY OF TRANSFERRING THE SALES TAX BENEF IT TO THE THIRD PARTY THE PROMOTERS OF THE PROJECT, IF SELL ELECTRICITY T O THE THIRD PARTY, FOR SUCH THIRD PARTY, TRANSFERRING OF SALES TAX BENEFIT WILL BE PE RMITTED. THE PROMOTERS OF THE PROJECT CAN CHOOSE THE THIRD PARTY FOR THIS FACILIT Y AND IT WILL BE APPLICABLE FOR THAT YEAR ONLY. HOWEVER, NO PERMISSION WILL BE GIVEN DUR ING THAT PERIOD TO CHANGE THE NAME OF THE THIRD PARTY. THIRD PARTY UNITS CAN AVAI L THE BENEFIT UPTO THE AMOUNT MENTIONED IN PARAGRAPH 1. FOR THIS, ELIGIBILITY CE RTIFICATE WILL BE GIVEN BY DIRECTOR, MAHARASHTRA ENERGY DEVELOPMENT AGENCY. PR OMOTERS OF THE PROJECT WILL BE ALLOWED TO CHOOSE, A THE MOST TWO NAMES OF THE T HIRD PARTY UNITS TO GET THE SALES TAX BENEFIT. THE ENTITLEMENT CERTIFICATE FO R UNITS OF THIRD PARTY WILL E CERTIFIED BY COMMISSIONER OF SALES TAX. AMOUNT OF S ALES TAX BENEFIT IS RELATED TO THE WIND ENERGY GENERATION AND THEY ARE NOT RELATED TO THE AMOUNT OF ELECTRICITY SOLD TO THE THIRD PARTY. AFTER OBTAINING THE ENTIT LEMENT CERTIFICATE FOR SALES TAX BENEFIT THE PROMOTERS OF THE PROJECT CAN TRANSFER T O THE THIRD PARTY TO WHOM THEY HAVE SOLD THE ELECTRICITY. AMOUNT OF SALES TAX BENE FIT IS RELATED TO THE QUALIFYING INVESTMENT AND PLANT LOAD FACTOR. THE ELECTRICITY S OLD TO THE UNIT/UNITS OF THIRD PARTY CAN AVAIL SALES TAX BENEFIT LIMITED ONLY TO THE QUA LIFYING INVESTMENT AND PLANT LOAD FACTOR. THE ELECTRICITY SOLD TO THE UNIT/UNITS OF T HIRD PARTY CAN AVAIL SALES TAX BENEFIT LIMITED ONLY TO THE QUALIFYING INVESTMENT AS MENTIO NED IN PARAGRAPH 1. 5. AFTER SATISFYING THE CONDITION OF AVERAGE PLANT LOAD FACTOR, SALES TAX BENEFIT CAN BE AVAILED BY THE ELIGIBLE WIND ENERGY GENERATI ON UNIT IN THE IMMEDIATE FOLLOWING YEAR. HOWEVER, IF SOME PROMOTERS DESIRE T O AVAIL THIS BENEFIT IN THE CURRENT FINANCIAL YEAR IMMEDIATELY ON COMMISSIONING OF WIND ENERGY PROJECT, THEY CAN AVAIL THE BENEFIT ON THE FOLLOWING CONDITI ONS: A) BANK GUARANTEE EQUIVALENT TO QUALIFYING INVESTME NT WILL HAVE TO BE GIVEN EVERY YEAR FOR AVAILING SALES TAX BENEFIT OF FOLLOW ING FINANCIAL YEAR. B) IF THE CONDITION OF PLANT LOAD FACTOR IS NOT FUL FILLED, THE BANK GUARANTEE AMOUNT WILL BE FORFEITED AT THE END OF THE YEAR. THE FORFE ITED AMOUNT OF BANK GUARANTEE WILL BE TRANSFERRED TO SALES TAX DEPARTME NT BY MAHARASHTRA ENERGY DEVELOPMENT AGENCY. 6. FACILITY TO BULK LICENSEES IF THE BULK LICENSEE HAS INSTALLED WIND ENERGY GENE RATION UNIT, PERMISSION WILL BE GRANTED TO AVAIL BY ADJUSTMENT IN THE TAX ON SALE O F ELECTRICITY, SALES TAX BENEFIT DETERMINED ON QUALIFYING INVESTMENT IN THE PROJECT. FOR THAT PURPOSE ENTITLEMENT CERTIFICATE WILL BE GIVEN BY ENERGY DEPARTMENT OF GOVERNMENT OF MAHARASHTRA AND ELIGIBILITY CERTIFICATE WILL BE ISSUED BY MAH ARASHTRA ENERGY DEVELOPMENT AGENCY. 7. IF THE PROMOTERS DO NOT ABIDE BY TERMS AND CONDI TIONS OF MAHARASHTRA ENERGY DEVELOPMENT AGENCY AND SALES TAX DEPARTMENT, THEN T HE DIRECTOR OF MAHARASHTRA ENERGY DEVELOPMENT AGENCY AND COMMISSIO NER OF SALES TAX RESERVE THE RIGHT TO CANCEL THE ENTITLEMENT CERTIF ICATE AND THE ELIGIBILITY CERTIFICATE. 30 8. SALES TAX BENEFIT CAN BE AVAILED ON THE FINISHED PRODUCT AS WELL AS ON THE RAW MATERIALS USED AND ITS PROCEDURE SHALL BE AS PER PA CKAGE SCHEME OF INCENTIVE (PSI), 1993 AND AMENDMENT THEREON FROM TI ME TO TIME. 9. THE PROMOTER WILL NOT BE ELIGIBLE FOR SALES TAX BENEFIT FOR USE OF SECOND HAND MACHINERY AND ON OLD WIND ELECTRIC GENERATOR. IF SU CH CASES ARE NOTICED, THEN THE DIRECTOR, MAHARASHTRA ENERGY DEVELOPMENT AGENCY HAS RIGHT TO CANCEL ENTITLEMENT CERTIFICATE AND ELIGIBLE CERTIFICATE . 10. THE SITES APPROVED BY MINISTRY OF NON-CONVENTIO NAL ENERGY SOURCES, GOVERNMENT OF INDIA, NEW DELHI WILL BE ELIGIBLE FOR SALES TAX BENEFIT. THE NO OBJECTION CERTIFICATE WILL BE ISSUED BY MA HARASHTRA ENERGY DEVELOPMENT AGENCY ONLY AFTER SUBMISSION OF UNDERTAKING FROM TH E CONCERNED MANUFACTURER AND PROMOTER THAT THE MACHINERY USED FOR WIND GENER ATION PROJECT IS NEW. 11. THERE IS NO RESTRICTION FOR EXPANSION OF PROJEC TS. HOWEVER, CAPACITY OF THE WIND ENERGY GENERATOR SHOULD BE MINIMUM 200 KW 12. PROCEDURE FOR AVAILING THE SALES TAX BENEFIT WI LL BE APPLICABLE TO ALL PROJECTS SUCH AS THE WIND ENERGY GENERATOR UNITS/WIND SPV DIESEL HYBRID, SELF STARTING GENERATOR (HYBRID STAND ALONE SYSTEM) AND AS PER MAHARASHTRA GOVERNMENTS DECLARED POLICY PUBLISHED IN THIS CONN ECTION. BY THE ORDER ANDS ON BEHALF OF GOVERNOR OF MAHARASHTRA SD/- (P.D. KARKHANIS) SECTION OFFICER (ENERGY). 11. AS IS EVIDENT, THE SAID RESOLUTION DEALS WITH T HE MANNER IN WHICH THE INTENDED SALES-TAX BENEFITS CAN BE AVAILED OF B Y THE PROMOTERS. IT IS CLEAR THAT THE SALES-TAX BENEFITS CAN BE AVAILED BY ALL PROJECTS WHICH ARE COMMISSIONED AS WELL AS CONNECTED TO THE TRANSMISSI ON LINES FROM TWO MONTHS AFTER THE DATE OF PUBLICATION OF THE SAID RE SOLUTION. IT IS ALSO PROVIDED THAT THE SALES-TAX BENEFIT IS AVAILABLE ON ELECTRICITY GENERATING UNITS IN RELATION TO ACHIEVEMENT OF PLANT LOAD FACT OR. THE PROCEDURAL REQUIREMENT ALSO ENTAILS THAT THE SALES-TAX BENEFIT WILL BE AVAILABLE FOR THE PROMOTERS FROM THE DATE OF OBTAINING OF ENTITLEMEN T CERTIFICATE FOR A PERIOD OF CONTINUOUS SIX YEARS, AND FOR EVERY YEAR SUCH BENEFIT WILL BE LIMITED TO 1/6 TH OF THE QUALIFYING INVESTMENT. IT IS ALSO PROVIDED THAT IN ANY ONE YEAR, IF PLANT LOAD FACTOR OF 12% IS NOT ACHIEV ED, THEN THAT YEARS SALES-TAX BENEFIT WILL GET CANCELLED AND THAT SUCH UNIT WOULD LOOSE SALES- TAX BENEFIT OF THAT YEAR FOR EVER. ANOTHER PERTINEN T PROCEDURE OUTLINED IN THE RESOLUTION PERMITTED THE FACILITY OF TRANSFERRI NG THE SALES-TAX BENEFIT TO THIRD PARTIES. IN TERMS OF SUCH FACILITY, THE PROM OTERS OF THE PROJECT WERE PERMITTED TO TRANSFER SALES-TAX BENEFIT TO THIRD PA RTY, IF IT SOLD ELECTRICITY TO SUCH THIRD PARTY. SUCH TRANSFER WAS SUBJECT TO ISS UANCE OF THE ENTITLEMENT CERTIFICATE TO BE ISSUED BY THE COMMISSIONER OF SAL ES-TAX. THE SAID RESOLUTION ALSO PROVIDED THAT THE SALES-TAX BENEFIT CAN BE AVAILED ON THE FINISHED PRODUCT AS WELL AS ON THE RAW MATERIALS US ED. IT IS FURTHER NOTIFIED BY THE STATE GOVERNMENT THAT THE PROMOTER WILL NOT BE ELIGIBLE FOR SALES- TAX BENEFIT FOR USE OF SECOND HAND MACHINERY AND ON OLD WIND ELECTRIC GENERATOR. THE POLICY FURTHER PROVIDED THAT THERE W AS NO RESTRICTION FOR EXPANSION OF PROJECT. HOWEVER, THE MINIMUM CAPACITY OF WIND MILL GENERATION WAS STATED TO BE 200 KW. IN TERMS OF THE AFORESAID SCHEME, THE ASSESSEE OBTAINED THE ENTITLEMENT CERTIFICATE AND TRANSFERRED THE SALES-TAX BENEFIT TO A THIRD PARTY. THE ASSESSEE AV AILED THE SALES-TAX BENEFIT FOR ITS WIND POWER PROJECT INSTALLED AT VIL LAGE KUSHI (VANKUSAWADE) TAL. SATARA, DIST. SATARA AND SUCH BENEFIT AMOUNTIN G TO RS 63,74,291/- PERTAINING TO THE YEAR UNDER CONSIDERATION HAS BEEN CLAIMED AS A CAPITAL RECEIPT. FACTUALLY SPEAKING, ON THE ASPECT OF THE A SSESSEE HAVING RECEIVED THE SAID AMOUNT IN TERMS OF THE SCHEME OF THE STATE GOVERNMENT AS SALES-TAX BENEFIT UNDER THE AFORESAID GOVERNMENT RESOLUTIONS, IS NOT IN DISPUTE. 31 12. IN ORDER TO EXAMINE THE TAXABILITY OF SUCH AMOU NT, IT WOULD BE APPROPRIATE TO REFER TO THE PROPOSITIONS BASED ON T HE CASE LAWS REFERRED TO US. IN THE CASE OF SAHNEY STEELS (SUPRA), THE QUES TION BEFORE THE HONBLE SUPREME COURT WAS WHETHER THE SUBSIDY RECEIVED BY T HE ASSESSEE THEREIN FROM ANDHRA PRADESH GOVERNMENT WAS TAXABLE AS A REVENUE RECEIPT OR NOT. THE ANDHRA PRADESH GOVERNMENT HAD NOTIFIED CERTAIN FACILITIES AND INCENTIVES FOR ALL THE NEW INDUSTRIA L UNDERTAKINGS COMMENCING PRODUCTION ON OR AFTER 1.9.1969 WITH INV ESTMENT CAPITAL (EXCLUDING WORKING CAPITAL) NOT EXCEEDING RS 5 CROR ES. THE INCENTIVES WERE TO BE ALLOWED FOR A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION AND SUCH CONCESSION WAS ALSO AVAILABLE FOR SUBSEQUENT EXPANSION OF 50% AND ABOVE OF THE EXISTI NG CAPACITIES, PROVIDED SUCH EXPANSION WAS LOCATED IN A CITY OR TO WN OR PANCHAYAT AREA OTHER THAN THAT IN WHICH THE EXISTING UNIT WAS LOCA TED. THE HONBLE SUPREME COURT NOTICED THAT THE SALIENT FEATURE OF T HE SCHEME FORMULATED BY THE ANDHRA PRADESH GOVERNMENT WAS THAT THE INCEN TIVES WERE NOT AVAILABLE UNLESS AND UNTIL PRODUCTION HAD COMMENCED AND THAT THE SAME WAS LIMITED TO A PERIOD OF 5 YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. THE HONBLE SUPREME COURT NOTED THAT AL L THE INCENTIVES ARE PRODUCTION INCENTIVES IN THE SENSE THAT THE COMPANY WOULD BE ENTITLED TO THESE INCENTIVES ONLY AFTER IT GOES INTO PRODUCTION AND THAT THE SCHEME WAS NOT TO MAKE ANY PAYMENT DIRECTLY OR INDIRECTLY FOR THE SETTING UP OF INDUSTRIES. ON FACTUAL ANALYSIS OF THE SCHEME, IT WAS INFERRED THAT THE SUBSIDIES WERE OPERATIONAL SUBSIDIES, INASMUCH AS T HEY 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. THE HONBLE SUPREME COURT OBSERVED TH AT THE CHARACTER OF SUBSIDY WHETHER REVENUE OR CAPITAL WILL HAVE TO BE DETERMINED, HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVE N. THE FOLLOWING OBSERVATIONS ARE RELEVANT: IF ANY SUBSIDY IS GIVEN, THE CHARACTER OF THE SUBS IDY 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 GIVE N. IF IT IS GIVEN Y WAY OF ASSISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TR ADE OR BUSINESS, IT HAS TO E TREATED AS TRADING RECEIPT. THE SOURCE OF THE FUND IS QUITE IMMATERIAL. FOR EXAMPLE, IF THE SCHEME WAS THAT THE ASSESSEE WI LL BE GIVEN REFUND OF SALES TAX ON PURCHASE OF MACHINERY AS WELL AS ON RA W MATERIALS TO ENABLE THE ASSESSEE TO ACQUIRE NEW PLANT AND MACHINERY FOR FUR THER EXPANSION OF ITS MANUFACTURING CAPACITY IN A BACKWARD AREA, THE ENTI RE 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 TREATED 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 HARBOUR DOCK CO.S CASE (193 1) 16 TC 333 (HL), THE MONIES MUST BE TREATED AS HAVING BEEN RECEIVED FOR A 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 CON DITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH SUBSIDIES MUST BE TREATED AS AS SISTANT FOR THE PURPOSE OF THE TRADE.. IN THE CASE BEFORE US, THE SUBSIDIES HAVE NOT BEEN GRANTED FOR PRODUCTION OR FOR BRINGING INTO EXISTENCE ANY NEW A SSET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF TH E NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ON LY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. APPLYING THE TEST OF VISCOUNT SIMON IN THE CASE OF OSTIME (1946) 14 ITR (SUPPL) 45 (HL), IT MUST BE HELD THAT THESE SUBSIDIES ARE O F REVENUE CHARACTER AND WILL HAVE TO BE TAXED ACCORDINGLY. 13. ANOTHER DECISION WHICH HAS BEEN REFERRED TO IS THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA). IN THIS CASE ALSO, THE ISSUE RELATED TO TH E CHARACTER OF SUBSIDY RECEIVED BY SUGAR FACTORIES . THE HONBLE SUPREME C OURT REITERATED THE PARAMETERS APPLIED IN THE EARLIER JUDGMENT OF SAHNE Y STEEL (SUPRA). AS PER THE HONBLE SUPREME COURT, THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE RECIPIENT HAS TO BE DETERMINED WITH REGARD TO THE 32 PURPOSE FOR WHICH THE SUBSIDY HAS BEEN GRANTED. TH E FOLLOWING DISCUSSION IS IMPORTANT TO NOTICE: ON THE FACTS OF THAT CASE, IT WAS HELD THAT THE SU BSIDY GIVEN WAS TO MEET RECURRING EXPENSES. IT WAS NOT FOR ACQUIRING THE CA PITAL ASSET. IT WAS NOT TO MEET PART OF THE COST. IT WAS NOT GRANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES IN THAT CASE WERE GRANTED YEAR AFTER YEAR ONLY 6 AFTER SETTING UP OF THE NEW INDUSTRY AND ONLY AFTER COMME NCEMENT OF PRODUCTION AND, THEREFORE, SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE . CONSEQUENTLY THE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE ON THE FACTS OF THAT CASE STOOD REJECTED AND IT WAS HELD THAT THE SUBSIDY RECEIVED BY SAHNEY STEEL COULD NOT BE REGARDED AS ANYTHING BUT A REVENUE RECEIPT. ACCORDI NGLY, THE MATTER WAS DECIDED AGAINST THE ASSESSEE. THE IMPORTANCE OF THE JUDGMEN T OF THIS COURT IN SAHNEY STEEL CASE LIES IN THE FACT THAT IT HAS DISCUSSED A ND ANALYSED THE ENTIRE CASE LAW AND IT HAS LAID DOWN THE BASIC TEST TO BE APPLIED I N JUDGING THE CHARACTER OF A SUBSIDY. THAT TEST IS THAT THE CHARACTER OF THE REC EIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FO R 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 INC ENTIVE 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 ASPECT THERE I S NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN TH E BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHE R HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE T HE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RE CEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WH ICH 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 IR RELEVANT ONE MORE ASPECT NEEDS TO BE MENTIONED. IN SAHNEY S TEEL AND PRESS WORKS LTD. THIS COURT FOUND THAT THE ASSESSEE WAS F REE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED. IT WAS NOT OBLIGED T O 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 AS PECT IS VERY IMPORTANT. IN THE PRESENT CASE ALSO, RECEIPT OF THE SUBSIDY WAS CAPIT AL IN NATURE AS THE ASSESSEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONLY FOR REPAYME NT 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 PRESE NT CASE AND KEEPING IN MIND THE OBJECT BEHIND THE PAYMENT OF THE INCENTIVE SUBSIDY, WE ARE SATISFIED THAT SUCH PAYMENT RECEIVED BY THE ASSESSEE UNDER THE SCH EME WAS NOT IN THE COURSE OF A TRADE BUT WAS OF CAPITAL NATURE. 14. ANOTHER DECISION RELIED UPON BY THE APPELLANT IS IN THE CASE OF RELIANCE INDUSTRIES LTD. (SUPRA). IN THIS CASE, THE FACTS WERE THAT THE PATALGANGA UNIT OF THE ASSESSEE WAS LOCATED IN A NO TIFIED BACKWARD AREA. THE SALES-TAX LIABILITY OF THE ASSESSEE WAS EXEMPTE D BY THE STATE GOVERNMENT AND UNDER THE SCHEME OF INCENTIVES, ASSE SSEE WAS NOT REQUIRED TO PAY ANY SALES-TAX TO THE GOVERNMENT. TH E CONTENTION OF THE ASSESSEE WAS THAT NON-PAYMENT OF SALES-TAX BE CONSI DERED AS A SUBSIDY BY THE GOVERNMENT, WHICH IS OF CAPITAL IN NATURE. T HE SPECIAL BENCH OF THE TRIBUNAL FOUND THAT THE INCENTIVES WERE PROVIDED FO R FOLLOWING FOUR OBJECTS, NAMELY, DEVELOPMENT OF BACKWARD REGIONS OF THE STAT E OF MAHARASHTRA; DISPERSAL OF INDUSTRIES; PROMOTION OF INDUSTRIES FO R EMPLOYMENT ORIENTED UNITS; AND, PROVIDING LOCAL EMPLOYMENT TO SC/ST. T HE TRIBUNAL OBSERVED THAT IN ORDER TO DECIDE THE CHARACTER OF RECEIPT TH E PURPOSE OF GRANTING SUBSIDY WAS RELEVANT, WHILE THE MODE OF PAYMENT AND THE APPLICATION OF MONEY FOR CAPITAL OR REVENUE PURPOSES WAS IRRELEVAN T. THEREFORE, AS PER THE SPECIAL BENCH THE DECISIVE FACTOR WAS THE OBJEC TS WITH WHICH THE INCENTIVE WAS GIVEN AND, THEREFORE, SUCH SUBSIDY WA S HELD TO BE A CAPITAL RECEIPT. THE SAID DECISION HAS ALSO BEEN FURTHER AP PROVED BY THE HONBLE HIGH COURT VIDE ORDER DATED 15.4.2009 (SUPRA). THE HONBLE HIGH COURT APPLIED THE PURPOSE TEST AND FOUND THAT THE OBJECT OF THE SUBSIDY BEING TO 33 SET UP UNITS IN BACKWARD AREAS FOR GENERATION OF EM PLOYMENT, COULD CONSTRUE THE SUBSIDY AS A CAPITAL RECEIPT. 15. ON THE BASIS OF THE AFORESAID DECISIONS AN UNDI SPUTED PREMISE WHICH CAN BE DEDUCED IS THAT IN ORDER TO DETERMINE THE CHARACTER OF THE IMPUGNED RECEIPT WHETHER CAPITAL OR REVENUE, THE SAME HAS TO BE DECIDED IN THE LIGHTS OF THE OBJECTS AND PURPOSE FO R WHICH THE SCHEME HAS BEEN FORMULATED BY THE STATE GOVERNMENT. IT IS QUIT E CLEAR THAT THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID OR THE FORM OF IN CENTIVE GRANTED UNDER A SCHEME ARE IMMATERIAL CONSIDERATIONS. IN A CASE WHE RE THE SUBSIDY/INCENTIVE UNDER A SCHEME IS GRANTED TO ENCO URAGE SETTING UP OF NEW INDUSTRIES THE SAME IS LIABLE TO BE CHARACTERIZ ED AS A CAPITAL RECEIPT, WHILE AN INCENTIVE/SUBSIDY GRANTED IN THE COURSE OF TRADE FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE, THE SA ME IS LIABLE TO BE REGARDED AS A REVENUE RECEIPT. 16. IN THIS BACKGROUND, WE MAY NOW REVERT BACK AND EXAMINE THE SCHEME UNDER WHICH THE ASSESSEE HAS AVAILED OF THE SALES-TAX BENEFIT. IN THE PRESENT CASE, AS NOTED EARLIER, THE STATE GOVER NMENT VIDE ITS RESOLUTION DATED 12.3.1998 MODIFIED ITS EXISTING PO LICY FOR THE PURPOSES OF PROMOTING WIND ENERGY GENERATION IN THE STATE OF MA HARASHTRA. THIS POLICY HAS BEEN FORMULATED IN THE BACKGROUND OF THE FACT T HAT THE EARLIER POLICY OF THE STATE GOVERNMENT ON GENERATION THROUGH NON CONV ENTIONAL SOURCES IN JANUARY, 1996 DID NOT ACHIEVE THE DESIRED RESULTS. IN THE SAID POLICY, NINE DIFFERENT INCENTIVES HAVE BEEN LAID OUT, WHICH HAVE BEEN EXTRACTED BY US IN EARLIER PART OF THIS ORDER. THE DISPUTE BEFORE U S IS IN RELATION TO THE SALES-TAX BENEFITS. THE PREAMBLE OF THE POLICY ITSE LF REFLECTS THE AREA WHICH IS SOUGHT TO BE ADDRESSED BY THE POLICY WHICH IS THE PROBLEMS BEING FACED BY PROMOTERS OF WIND ENERGY GENERATION . IT IS QUITE CLEAR THAT THE SALES-TAX BENEFIT IS NOT INTENDED TO BE GRANTED FOR CREATION OF OR BRINGING INTO EXISTENCE ANY NEW ASSET. IT IS ALSO C LEAR THAT THERE IS NO PRESCRIBED CRITERIA AS TO THE MANNER IN WHICH SUCH INCENTIVES ARE TO BE UTILIZED. THE CLAIM OF THE ASSESSEE IS THAT THE SAL ES-TAX BENEFIT IS GRANTED HAVING REGARD TO THE QUALIFYING INVESTMENT, WHICH I S STATED TO BE TOWARDS INVESTMENTS IN PLANT AND MACHINERY, NEW BUILDING, L AND DEVELOPMENT, TECHNICAL DEVELOPMENT AND DESIGN OF WIND PRODUCTS. ACCORDING TO THE APPELLANT, THE INCENTIVE BEING LINKED TO THE QUALIF YING INVESTMENT SHOWS THAT IT IS INTENDED AS A RECOUPMENT OF THE FIXED CO ST ALREADY INCURRED BY THE ASSESSEE AND, THEREFORE, SUCH INCENTIVES ARE TO BE REGARDED AS CAPITAL IN NATURE. IN OUR CONSIDERED OPINION, SUCH PURPOSE , AS ARTICULATED ON BEHALF OF THE APPELLANT IS NOT EMERGING FROM THE SC HEME OF THE STATE GOVERNMENT. RATHER, THE EMPHASIS ON OF THE GRANT O F SALES-TAX BENEFIT IS ON ACTUAL RUNNING OF THE PLANT AND THAT TOO UNDER P RESCRIBED EFFICIENCY LEVELS. IN FACT, IN THE RESOLUTION DT 1.10.1999 STA GGERED PLANT LOAD FACTORS ACHIEVED BY THE UNIT ENTITLED THE UNIT TO VARYING L EVELS OF SALES-TAX BENEFIT. THEREFORE, IT COULD NOT BE SAID THAT THE SALES-TA X BENEFIT IS AVAILABLE MERELY ON COMMENCEMENT OF GENERATION. WE ARE CONSCI OUS THAT MERE TIMING OF THE GRANT OF SUBSIDY IS NOT RELEVANT. HOW EVER, IN THE PRESENT CASE, IT IS NOT THE TIMING OF THE SUBSIDY ALONE BUT THE GRANT IS LINKED TO ACHIEVING OPERATIONAL EFFICIENCIES AND THAT TOO FOR ONLY SIX CONTINUOUS YEARS. IF A UNIT WHICH IS OTHERWISE ELIGIBLE FOR IN CENTIVE, DOES NOT ACHIEVE THE PLANT LOAD FACTOR OF 12% OR ABOVE, IT WOULD NOT BE ENTITLED TO RECEIVE THE SALES TAX BENEFIT. THEREFORE, IN OUR CONSIDERED OPINION, THOUGH THE OBJECT OF THE SCHEME IS TO PROMOTE GENERATION OF EN ERGY THROUGH NON CONVENTIONAL SOURCES BUT THE SAME IS SOUGHT TO BE A CHIEVED BY THE GOVERNMENT IN THE FORM OF SUPPORTING THE UNITS TO PERFORM MORE EFFICIENTLY AND PROFITABLY. 17. IN FACT THE HONBLE SUPREME COURT IN THE CASE O F PONNI SUGARS & CHEMICALS LTD. (SUPRA) CLEARLY NOTED THAT THE SUBSI DY RECEIVED THEREIN WAS TO BE UTILIZED ONLY FOR REPAYMENT OF TERM LOANS TAK EN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXISTING BUSINESS . IN THE PRESENT CASE, THERE IS NO SUCH RESTRICTION OR OBLIGATION ON THE P ART OF THE ASSESSEE TO UTILIZE THE INCENTIVES AVAILED. IN FACT, ON THIS AS PECT THE INSTANT SCHEME IS 34 AKIN TO THE SCHEME NOTED BY THE HONBLE SUPREME COU RT IN THE CASE OF SAHNEY STEELS (SUPRA) WHEREIN THE ASSESSEE WAS FOUN D FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED. IN THE PRESENT CASE ALSO, THE ASSESSEE IS NOT OBLIGED TO SPEND THE MONEY FOR ANY PARTICULAR PURPOSE. THUS, APPLYING THE PURPOSE TEST TO THE FACTS OF THE PRESENT CASE AND KEEPING IN MIND THE OBJECTS BEHIND THE PAYMENT OF I NCENTIVE SUBSIDY, WE ARE SATISFIED THAT THE SALES-TAX BENEFITS RECEIVED BY THE ASSESSEE UNDER THE INSTANT SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE MORE PROFITABLY AND THEREFORE SUCH RECEIPT CANNOT BE CHA RACTERIZED AS CAPITAL IN NATURE. THUS, THE ASSESSEE FAILS ON THIS GROUND. 6.3 THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD. (SUPRA) HAS HELD THAT THE CHARACTER OF A RECEIPT ON A SUBSIDY IN THE HANDS OF AN ASSESSEE UNDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SAID SUBSIDY IS GRANTED. IN OTHER WORDS, ONE HAS TO APPLY THE PURP OSE TEST. THE POINT OF TIME ON WHICH THE SUBSIDY IS PAID IS NOT RELEVAN T. THE SOURCE IS IMMATERIAL. IF THE OBJECT OF THE SUBSIDY IS TO ENA BLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT IS O N REVENUE ACCOUNT. ON THE OTHER HAND IF THE OBJECT OF THE ASSISTANCE U NDER THE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO SET UP A NEW UN IT OR TO EXTEND AN EXISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY WOUL D BE ON CAPITAL ACCOUNT. BASED ON THE ABOVE DECISION, THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE HAS GIVEN A CATEGORI CAL FINDING THAT THE SALES TAX BENEFITS RECEIVED BY THE ASSESSEE UNDER T HE INSTANT SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE MORE PRO FITABLY AND THEREFORE, SUCH RECEIPT CANNOT BE CHARACTERISED AS CAPITAL IN NATURE. THEREFORE, THIS DECISION RELIED ON BY LD. COUNSEL FOR THE ASSE SSEE IS OF NO HELP TO THE ASSESSEE. 35 6.4 SO FAR AS THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEPCO INDUSTRIES LTD. (SUPRA) IS CONCERNED, THE REL EVANT OBSERVATION OF THE HONBLE APEX COURT AT PLACETUM 7 AT PARA 213 IS MATERIAL : ON THE FACTS OF THE PRESENT CASE, WE ARE OF THE VI EW THAT THE PRESENT CASE INVOLVES CHANGE OF OPINION. IN THIS CONNECTION, IT MUST BE NOTED THAT GOVERNMENT GRANTS DIFFERENT TYPES OF SUBSIDIES TO T HE ENTREPRENEURS. THE SUBSIDY IN SAHNEY STEEL AND PRESS WORKS LTD. [1997] 228 ITR 253 (SC) WAS AN INCENTIVE SUBSIDY LINKED TO PRODUCTION. IN F ACT, IN SAHNEY STEEL AND PRESS WORKS LTD. [1997] 228 ITR 253 (SC) (AT PAGE 2 57), THIS COURT CATEGORICALLY STATED THAT THE SCHEME IN HAND WAS AN INCENTIVE SCHEME AND IT WAS NOT A SCHEME FOR SETTING UP THE INDUSTRI ES. IN THE SAID CASE, THE SALIENT FEATURES OF THE SCHEME WERE EXAMINED AND IT WAS NOTICED THAT THE SCHEME FORMULATED BY THE GOVERNMENT OF ANDHRA PRADE SH WAS ADMISSIBLE ONLY AFTER THE COMMENCEMENT OF PRODUCTIO N. IN INCOME-TAX MATTERS, ONE HAS TO EXAMINE THE NATURE OF THE ITEM IN QUESTION, WHICH WOULD DEPEND ON THE FACTS OF EACH CASE. IN THE PRESENT CASE, WE ARE CONCERNED WITH POWER SUBSIDY WHEREAS IN THE CASE OF CIT V. PONNI SUGARS AND CHEMICALS LTD. REPORTED IN [2008] 306 IT R 392, THE SUBSIDY GIVEN BY THE GOVERNMENT WAS FOR REPAYING LOANS. THE REFORE, IN EACH CASE, ONE HAS TO EXAMINE THE NATURE OF SUBSIDY. THIS EXERCISE CANNOT BE UNDERTAKEN UNDER SECTION 154 OF THE ACT. THERE IS O NE MORE REASON WHY SECTION 154 IN THE PRESENT CASE WAS NOT INVOKABLE B Y THE DEPARTMENT. ORIGINALLY, THE COMMISSIONER OF INCOME-TAX, WHILE P ASSING ORDERS UNDER SECTION 264 OF THE ACT ON APRIL 30, 1997, HAD TAKEN THE VIEW THAT THE SUBSIDY IN QUESTION WAS A CAPITAL RECEIPT NOT TAXAB LE UNDER THE ACT. AFTER THE JUDGMENT OF THIS COURT IN SAHNEY STEEL AND PRES S WORKS LTD. [1997] 228 ITR 253, THE COMMISSIONER OF INCOME-TAX HAS TAK EN THE VIEW THAT THE SUBSIDY IN QUESTION WAS A REVENUE RECEIPT. THEREFOR E, IN OUR VIEW, THE PRESENT CASE IS A CLASSIC ILLUSTRATION OF CHANGE OF OPINION. (UNDERLINE PROVIDED BY US) 6.5 SINCE THE TRIBUNAL IN THE CASE OF THE SISTER CO NCERN HAS ALREADY ANALYSED THE SCHEME AND HAS GIVEN A CATEGORICAL FIN DING THAT THE SALES TAX BENEFITS RECEIVED BY THE ASSESSEE UNDER THE INS TANT SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE MORE PROFITABLY , SUCH RECEIPT CANNOT BE CHARACTERIZED AS CAPITAL IN NATURE. THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE FINDING GIVEN BY THE TRIBUNAL REGARDING THE NATURE OF THE RECEIPT, T HE ABOVE DECISION OF HONBLE APEX COURT IN CASE OF MEPCO INDUSTRIES LT. (SUPRA) IS OF NO HELP TO THE ASSESSEE. 36 6.6 SO FAR AS THE OTHER DECISIONS ARE CONCERNED, WE FIND IN THE CASE OF INOX LEISURE LTD., (SUPRA) THE ISSUE BEFORE THE HONBLE GUJARAT HIGH COURT WAS TAXABILITY OF ENTERTAINMENT TAX EXEM PTION IN RESPECT OF THE MULTIPLEXES AS CAPITAL RECEIPT OR REVENUE RE CEIPT. IN THAT CASE, THE EXEMPTION WAS FOR GIVING BOOST TO TOURISM SECTO R. THE SALIENT FEATURES OF THE SCHEME IN THAT CASE HAD SHOWED THAT THE INCENTIVE WAS BEING OFFERED FOR RECOUPING OR COVERING A CAPITAL I NVESTMENT OR OUTLAY ALREADY MADE BY ASSESSEE. THE HONBLE HIGH COURT F OLLOWING THE DECISION IN THE CASE OF PONNY SUGARS AND CHEMICALS LTD. (SUPRA) HELD THAT CHARACTER OF RECEIPT OF THE SUBSIDY HAS TO BE DETERMINED WITH RESPECT TO PURPOSE FOR WHICH SUBSIDY WAS GRANTED. ACCORDINGLY, IT WAS TREATED AS CAPITAL IN NATURE. HOWEVER, IN THE I NSTANT CASE IT IS NOT SO. THERE IS NO SUCH STIPULATION THAT IT IS FOR RE COUPING OR RECOVERING A CAPITAL INVESTMENT OR OUTLAY ALREADY MADE. THE TRI BUNAL HAS ALREADY GIVEN A FINDING THAT SUBSIDY RECEIVED UNDER THE INS TANT SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE MORE PROFITABLY . THEREFORE, THIS DECISION HAS NO APPLICATION TO THE FACTS OF THE PRE SENT CASE. 6.7 SO FAR AS THE DECISION OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF CHHAPALKAR BROTHERS (SUPRA) IS CONCERNED, T HE OBJECT OF THE SUBSIDY WAS TO PROMOTE CONSTRUCTION OF MULTIPLEX TH EATRE COMPLEX FOR WHICH IT WAS HELD THAT THE SAME IS CAPITAL IN NATUR E. HOWEVER, THE FACTS OF THE INSTANT CASE ARE DIFFERENT AS ALREADY HELD. THEREFORE, THE ABOVE DECISION ALSO CANNOT HELP THE ASSESSEE. 37 6.8 SO FAR AS THE DECISION OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF KIRLOSKAR ENGINES LTD., (SUPRA) IS CONCERNE D, HERE ALSO, THE PREDECESSOR-IN-TITLE WAS GIVEN THE INCENTIVE SO AS TO SET UP A NEW INDUSTRY. THE HONBLE HIGH COURT IN THE SAID DECIS ION FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F PONNI SUGARS AND CHEMICALS LTD. (SUPRA) HAS EMPHASIZED THAT THE CHARACTER OF RECEIPT IN THE HANDS OF THE ASSESSEE HAS TO BE DETE RMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE PURPOSE TEST HAS TO BE APPLIED. THE POINT OF TIME ON WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. THE SOURCE IS IMMATERIAL. THE FORM OF SUBSIDY IS IMMATERIAL. THE MAIN CONDITION AND WITH WHICH THE COURT SHOULD BE CONCERNED IS THAT THE INCENTIVE MUST BE UTILIZED BY THE ASSESSEE TO SET UP A NEW UNIT OR FOR SUBSTANTIAL EXPANSION OF EXIST ING UNIT. IF THE OBJECT OF THE SUBSIDY SCHEME IS TO ENABLE THE ASSES SEE TO RUN THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT IS ON TH E 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 U NIT, THEN THE RECEIPT OF SUBSIDY WAS ON THE CAPITAL ACCOUNT. SIN CE IN THE CASE BEFORE HONBLE BOMBAY HIGH COURT, THE OBJECT WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT, IT WAS HELD THAT THE RECEIPT IS IN THE NATURE OF CAPITAL. HOWEVER, IN THE INSTANT CASE THE TRIBUNAL HAS ALREA DY HELD IN THE CASE OF THE SISTER CONCERN THAT THE SUBSIDY RECEIVED UND ER THE SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE MORE PROFITABLY , THEREFORE, THIS DECISION IS ALSO OF NO HELP TO THE ASSESSEE. 38 6.9 IN THE CASE OF BIRLA VXL LTD. (SUPRA) RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO, THE SALES TAX WAIVER /DEFERMENT UNDER SCHEME WAS GRANTED BY STATE GOVERNMENT TO COVER THE CAPITAL OUTLAY ALREADY MADE BY THE ASSESSEE IN UNDERTAKING SPECIAL MODERNIZATION OF ITS EXISTING INDUSTRY. IT WAS THEREFORE HELD THAT SUCH SUBSIDY IS CAPITAL IN NATURE AND NOT TAXABLE. HOWEVER, IN THE INSTANT CASE, IT IS NOT SO. THEREFORE, THIS DECISION IS ALSO OF NO HELP TO THE ASSESSEE 6.10 SO FAR AS THE DECISION OF HONBLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF SIYA RAM GARG (HUF) (SUPRA) IS CONCE RNED, HERE ALSO SUBSIDY WAS RECEIVED FOR SETTING UP AGRO BASED INDU STRIAL UNIT IN BACKWARD AREA WHICH WAS DETERMINED WITH REFERENCE T O CAPITAL INVESTMENT. IT WAS ACCORDINGLY HELD THAT IT IS A C APITAL RECEIPT. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS NOT RECEIVED THE SUBSIDY FOR SETTING UP OF THE UNIT BUT FOR CARRYING ON ITS BUSINESS, THEREFORE, THIS DECISION IS ALSO NOT APPLICABLE TO THE FACTS O F THE PRESENT CASE. 6.11 IN THE CASE OF SHREE BALAJI ALLOYS (SUPRA) THE ISSUE BEFORE THE HONBLE JAMMU & KASHMIR HIGH COURT WAS THAT THE INC ENTIVE SCHEME WAS FORMULATED BY CENTRAL GOVT. FOR JAMMU & KASHMIR TO ACCELERATE INDUSTRIAL DEVELOPMENT, GENERATE EMPLOYMENT AND CRE ATE OPPORTUNITIES FOR SELF EMPLOYMENT AND THE PURPOSE IN PUBLIC INTER EST AND THE ISSUE WAS EXCISE DUTY REFUND AND INTEREST SUBSIDY WHICH W AS IN PURSUANCE OF THE NEW INDUSTRIAL POLICY INTRODUCED IN THE STAT E OF JAMMU & KASHMIR. THE INCENTIVES WERE PROVIDED WITH THE OBJ ECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT TO ERADICATE THE S OCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT. 39 UNDER THESE CIRCUMSTANCES THE HONBLE HIGH COURT HE LD THAT IT IS CAPITAL IN NATURE. HOWEVER, HERE THE SUBSIDY IS FOR SETTING UP WIND MILLS AND NOT FOR GENERATING EMPLOYMENT. THEREFORE , THIS DECISION IS ALSO OF NO HELP TO THE ASSESSEE. 6.12 AS REGARDS THE DECISION IN THE CASE OF MAHESWA RI DEVI JUTE MILLS LTD. (SUPRA) THE ISSUE WAS RECEIPT ON SALE OF SURPLUS LOOM HOURS. IN THE CASE OF GANAPATHI RAJU JOGI (SUPRA) THE ISSU E WAS SALE OF ROUTE PERMIT. THEREFORE, THESE DECISIONS ARE ALSO OF NO HELP TO THE ASSESSEE. AS MENTIONED EARLIER THE HONBLE COURTS IN VARIOUS DECISIONS HAVE HELD THAT THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE IN A SCHEME HAS TO BE DETERMINED WITH RESP ECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED. SINCE THE PURPOS E TEST HAS ALREADY BEEN ANALYSED BY THE TRIBUNAL IN THE CASE OF THE SI STER CONCERN AND IT HAS BEEN CATEGORICALLY HELD THAT THE SUBSIDY RECEIV ED BY THE ASSESSEE WAS IN THE COURSE OF CARRYING ON ITS TRADE MORE PRO FITABLY FOR WHICH IT CANNOT BE HELD AS CAPITAL RECEIPT. 6.13 IN VIEW OF THE ABOVE DISCUSSION, THE VARIOUS D ECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISH ABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SINCE THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE, I.E. RA SIKLAL M. DHARIWAL (HUF) HAS ALREADY GIVEN A CATEGORICAL FINDING THAT THE SALES TAX BENEFITS RECEIVED BY THE ASSESSEE UNDER THE INSTANT SCHEME ARE IN THE COURSE OF CARRYING ON ITS TRADE MORE PROFITABLY, TH EREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE FINDING OF THE TRIBUNAL, WE FOLLOWING THE DECISION OF THE C OORDINATE BENCH OF 40 THE TRIBUNAL, UPHOLD THE ORDER OF THE CIT(A) ON THI S ISSUE. THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE AC CORDINGLY DISMISSED. 7. GROUND OF APPEAL NO.3 BY THE ASSESSEE READS AS U NDER : 3. IN FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMI SSIONER OF INCOME TAX (APPEALS) HAS ERRED LEGALLY AND FACTUALLY IN RE-C OMPUTING THE BOOK PROFITS U/S.115-JB OF THE I.T. ACT ON THE ALLEGED REA SONING THAT THE ADJUSTMENT SOUGHT BY THE APPELLANT COMPANY CANNOT BE SAID TO BE WITHIN THE PURVIEW OF SECTION 139(5) OF THE INCOME TAX ACT AND THAT THE REVISED RETURN FILED BY THE APPELLANT IS NON-EST AND THAT AS PER PROVISIONS OF COMPANIES ACT ALSO, THE LOSS OF MERGING COMPANIES CANNOT BE SET-OFF AGAINST INCOME OF APPELLANT COMPANY. THE CIT (APPEALS) HAS FAILED TO FULLY APPRECIATE THE FACTS AND HAS THUS DRAWN INCORRECT CONCLUSIONS, THE TAX PAYABLE U/S.115-J B AS SUBMITTED BY THE COMPANY IS CORRECT AND OUGHT NOT TO HAVE BEEN RE -COMPUTED. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ORIGI NAL RETURN OF INCOME DECLARING TOTAL INCOME OF RS.10,11,10,220/- WAS FIL ED BY THE ASSESSEE ON 27-11-2003. THE SAME WAS PROCESSED U/S.143(1) O N 31-03-2004 WITHOUT ANY ADJUSTMENTS. SUBSEQUENTLY, THE ASSESSE E FILED THE REVISED RETURN ON 02-07-2004 WHEREIN THE TOTAL INCOME WAS S HOWN AT NIL. THE RETURN WAS ALSO PROCESSED U/S.143(1) ON 10-02-2 005. SUBSEQUENTLY, THE AO COMPLETED THE ASSESSMENT ON 31 -03-2006 DETERMINING THE TOTAL INCOME AT RS.33,30,682/-. IN THE SAID YEAR THE AO COMPUTED THE INCOME U/S.115JB AT RS.16,20,55,646 /-. WHILE DOING SO HE DID NOT ALLOW CARRY FORWARD OF LOSSES U /S.72A OF THE I.T. ACT IN RESPECT OF MERGING COMPANIES TO BE SET OFF W ITH THE INCOME OF THE ASSESSEE. 7.2 THE ASSESSEE CHALLENGED THE COMPUTATION OF INCO ME U/S.115JB BEFORE CIT(A). IT WAS SUBMITTED THAT THE DISALLOWA NCE HAS BEEN MADE ON AN ERRONEOUS AND UNTENABLE GROUND. THE ASSESSEE ARGUED THAT THE 41 ASSESSEE HAS NOT CLAIMED BENEFIT OF SECTION 72A OF THE ACT WHILE COMPUTING THE BOOK PROFITS U/S.115JB OF THE ACT. A CCOUNTS OF THE ASSESSEE HAVE BEEN REVISED AS A RESULT OF MERGER OF THE COMPANIES AND THE RESULTANT BOOK PROFIT HAS BEEN REDUCED ON ACCOU NT OF ACCUMULATED BOOK LOSSES AND DEPRECIATION OF THE MERGING COMPANI ES. THEREFORE, NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF SECTION 72A OF THE ACT WHILE COMPUTING BOOK PROFITS. FOR THE ABOVE PROPOS ITION THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 273. 7.3 HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH T HE ARGUMENTS ADVANCED BY THE ASSESSEE. HE OBSERVED THAT THE SCO PE OF REVISED RETURN U/S.139(5) OF THE I.T. ACT, 1961 IS LIMITED TO DISCOVER OF ANY OMISSION OR WRONG STATEMENT THEREIN AT THE POINT OF TIME WHEN THE FIRST RETURN U/S.139(1) WAS FILED. THE ADJUSTMENT/SET OF F BY THE ASSESSEE OF LOSSES OF MERGING COMPANIES AGAINST THE INCOME OF T HE ASSESSEE COMPANY CANNOT BE SAID TO BE WITHIN THE PURVIEW OF SECTION 139(5) OF THE I.T. ACT. HE, THEREFORE, HELD THAT THE REVISED RETURN FILED BY THE ASSESSEE IS NONEST AND THEREFORE THE AO HAD CORRECT LY IGNORED THE RETURN AND COMPUTATION OF BOOK PROFIT ENCLOSED ALON G WITH IT. WITHOUT PREJUDICE TO THE ABOVE, THE LD.CIT(A) FURTHER HELD THAT FOR THE PURPOSE OF PROFIT U/S.115JB EVERY ASSESSEE HAS TO PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF PART-II AND PART-III OF SCHEDULE-VI O F THE COMPANIES ACT, 1956. AS PER THE SAID PROVISIONS, THE LOSS OF MERGING COMPANIES CANNOT BE SET OFF AGAINST THE INCOME OF THE ASSESSE E. THEREFORE, THE 42 ADJUSTMENT CARRIED OUT BY THE ASSESSEE IS OUTSIDE T HE PROVISIONS AS CONTAINED IN SECTION 115JB OF THE I.T. ACT. HE ACC ORDINGLY REJECTED THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. 7.4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 7.5 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 27-11-2003. THE HON BLE BOMBAY HIGH COURT APPROVED THE 2 SCHEME OF AMALGAMATION W.E.F. 31-03-2003 AND THE TWO OTHER COMPANIES NAMELY M/S. MANIKCHAND PACK ING PRIVATE LIMITED AND DHARIWAL ELECTRICALS PVT. LTD. WERE MER GED WITH THE ASSESSEE COMPANY. ACCORDINGLY, THE ASSESSEE FILED THE REVISED RETURN ON 02-07-2004 AND CLAIMED THAT LOSS OF THE ABOVE 2 COMPANIES BE ALLOWED TO BE SET OFF FOR NORMAL COMPUTATION AS WEL L AS COMPUTATION U/S.115JB. REFERRING TO PARA 4.1 OF THE ASSESSMENT ORDER THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE OBSERVATIONS OF THE AO WHICH READ AS UNDER : 4.1 THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CONS IDERED. IN VIEW OF THE SPECIFIC DIRECTIONS OF THE HON'BLE MUMB AI HIGH COURT IN PARA 3.9, THE UNABSORBED DEPRECIATION AND UNABSORBE D ACCUMULATED LOSSES IN THE CASES OF M/S. MANIKCHAND PACKAGING PVT. LTD. AND M/S. DHARIWAL ELECTRICALS PVT. LTD. FROM T HE 'APPOINTED DATE ', BEING 'CLOSE OF BUSINESS AS OF 31 ST DAY OF MARCH, 2003' ARE TO BE TREATED AS UNABSORBED DEPRECIATION AND UNABSORBE D ACCUMULATED LOSSES OF M/S. DHARIWAL INDUSTRIES LTD. AS ON THE 'APPOINTED DATE' ITSELF AND M/S. DHARIWAL INDUSTRIES LTD. ARE CONSIDERED AS ENTITLED TO SET OFF AND / OR CARRY FORWARD TH E UNABSORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSSES OF THE TRANSFEROR COMPANIES. ACCORDINGLY, THE LOSSES Q UANTIFIED IN THE ASSESSMENT ORDERS U/S. 143(3) FOR A.Y.2003-04 IN TH E CASES OF M/S. MANIKCHAND PACKAGING PVT. LTD. AND M/S. DHARIWAL EL ECTRICALS PVT. LTD. SHALL BE SET OFF FROM THE BUSINESS PROFITS COM PUTED IN THE CASE OF M/S. DHARIWAL INDUSTRIES HEREUNDER AND THE UNABS ORBED DEPRECIATION AND LOSS SHALL BE ALLOWED TO BE CARRIE D FORWARD BY THE ASSESSEE COMPANY. 43 7.6 REFERRING TO PAGE 30 OF THE ASSESSMENT ORDER TH E LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO ALLOWED SUCH DEPRECIATION FOR NORMAL COMPUTATION OF INCOME. HOWEVER, THE AO DID NOT ALLOW THE BENEFIT FOR CALCULATION OF BOOK PROFIT U/S.115JB. REFERRING TO PARA 5.3 OF THE ORDER OF THE CIT(A) AT PAGE 28 HE SUBMITTED THAT THE FINDINGS OF THE LD.CIT(A) ARE CONTRARY. HE HAS NOT DISTURBED T HE NORMAL ADJUSTMENT IN THE REVISED RETURN. HOWEVER, HE UPHE LD THE ACTION OF THE AO IN REJECTING THE CLAIM OF LOSS OF MERGING COMPAN Y TO BE SET OFF AGAINST THE INCOME OF THE ASSESSEE COMPANY. REFERR ING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD., REPORTED IN 349 ITR 336 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID D ECISION HAS HELD THAT APPELLATE AUTHORITIES HAVE POWER TO CONSIDER C LAIM NOT MADE IN THE RETURN. REFERRING TO THE ACCOUNTING STANDARDS 14 I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HE DREW THE ATTENTION OF THE BENCH TO PARA 21 OF THE AS14 AND SUBMITTED THAT THE INSTITUTE IN THE SAID GUIDELINES HAS DIRECTED AS UNDER : 21. IN THE CASE OF AN AMALGAMATION IN THE NATURE OF MERGER THE BALANCE OF THE PROFIT AND LOSS ACCOUNT APPEARING IN T HE FINANCIAL STATEMENTS OF THE TRANSFEROR COMPANY IS AGGREGATED WITH THE CORRESPONDING BALANCE APPEARING IN THE FINANCIAL STAT EMENTS OF THE TRANSFEREE COMPANY. ALTERNATIVELY, IT IS TRANSFERRED TO THE GENERAL RESERVE, IF ANY. HE SUBMITTED THAT THE ABOVE STANDARD CAME INTO EFFE CT IN RESPECT OF ACCOUNTING PERIOD COMMENCING ON OR AFTER 01-04-1995 AND IS MANDATORY IN NATURE. 44 7.7 REFERRING TO PARA 4 OF THE SAID ACCOUNTING STAN DARD THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING PARAGRAPHS : EXPLANATION 4. GENERALLY SPEAKING, AMALGAMATIONS FALL INTO TWO BR OAD CATEGORIES. IN THE FIRST CATEGORY ARE THOSE AMALGAMATIONS WHERE THERE IS A GENUINE POOLING NOT MERELY OF THE ASSETS AND LIABILITIES OF THE AMALGAMATING COMPANIES BUT ALSO OF THE SHAREHOLDERS' INTERESTS AND OF THE BUSINESSES OF THESE COMPANIES. SUCH AMALGAMATIONS ARE AMALGAMATIONS WHICH ARE IN THE NATURE OF MERGER A ND THE ACCOUNTING TREATMENT OF SUCH AMALGAMATIONS SHOULD ENSURE THAT THE RESULTANT FIGURES OF ASSETS, LIABILITIES, CAPITAL AND RESERVES MORE OR LESS REPRESENT THE SUM OF THE RELEVANT FIGURES OF THE AMALGAMATING C OMPANIES. IN THE SECOND CATEGORY ARE THOSE AMALGAMATIONS WHICH ARE IN E FFECT A MODE BY WHICH ONE COMPANY ACQUIRES ANOTHER COMPANY AND, A S A CONSEQUENCE, THE SHAREHOLDERS OF THE COMPANY WHICH IS A CQUIRED NORMALLY DO NOT CONTINUE TO HAVE A PROPORTIONATE SHA RE IN THE EQUITY OF THE COMBINED COMPANY, OR THE BUSINESS OF THE COMPAN Y WHICH IS ACQUIRED IS NOT INTENDED TO BE CONTINUED. SUCH AMAL GAMATION ARE AMALGAMATIONS IN THE NATURE OF PURCHASE. 7.8 THE LD. COUNSEL FOR THE ASSESSEE ALSO DREW THE ATTENTION OF THE BENCH TO EXPLANATION 1 & 3 TO PROVISIONS OF SECTION 115JB(2). REFERRING TO THE ORDER OF THE HONBLE HIGH COURT AL LOWING THE SCHEME, A COPY OF WHICH IS PLACED AT PAGES 42 TO 55 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PARA 3.9 OF THE ORDER WHICH READ AS UNDER : WITH EFFECT FROM THE APPOINTED DATE AND UPON THIS S CHEME BECOMING EFFECTIVE, THE UNABSORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSSES OF THE TRANSFEROR COMPANIES SHALL BE TREATED AS THE UNABSORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSSES OF THE T RANSFEREE COMPANY AS ON THE APPOINTED DATE AND THE TRANSFEREE C OMPANY SHALL BE ENTITLED TO SET OFF AND/OR CARRY FORWARD THE UNAB SORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSSES OF THE T RANSFEROR COMPANIES. 7.9 HE SUBMITTED THAT THE AO REJECTED THE CLAIM OF SET OFF OF BROUGHT FORWARD LOSS OF THE MERGING COMPANIES U/S.7 2A OF THE I.T. ACT. REFERRING TO THE DECISION OF THE HONBLE SUP REME COURT IN THE 45 CASE OF CIT VS. T. VEERABHADRA RAO AND K. KOTESWARA RAO AND COMPANY REPORTED IN 155 ITR 152 HE SUBMITTED THAT T HE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT BA D DEBT IS TO BE ALLOWED TO THE SUCCESSOR COMPANY EVEN THOUGH THE DE BT WAS SHOWN BY THE PREDECESSOR COMPANY. IT HAS FURTHER BEEN HELD THAT EVEN IF THE DEBT HAD BEEN TAKEN INTO ACCOUNT INTO IN COMPUTING THE I NCOME OF THE PREDECESSOR FIRM ONLY AND HAD SUBSEQUENTLY BEEN WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE SUCCESSOR THE SUCCESSOR WOULD STILL HAVE BEEN ENTITLED TO DEDUCTION OF THE AMOUNT WRITT EN OFF AS BAD DEBT. THE HONBLE SUPREME COURT HELD THAT IT IS NOT IMPER ATIVE THAT THE ASSESSEE REFERRED TO IN SUB-CLAUSE (A) OF SECTION 3 6(2) MUST NECESSARILY MEAN THE IDENTICAL ASSESSEE REFERRED TO IN SUB-CLAU SE (B) A SUCCESSOR TO THE PERTINENT INTEREST OF A PREVIOUS ASSESSEE WO ULD BE COVERED WITHIN THE TERMS OF SUB-CLAUSE (B). A SUCCESSOR AS SESSEE IN EFFECT, STEPS INTO THE SHOES OF HIS PREDECESSOR. HE ACCORD INGLY SUBMITTED THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN REJECTI NG THE REVISED COMPUTATION OF BOOK PROFITS. 7.10 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE BURDEN IS ON THE PART OF THE ASSESSEE TO GIVE DETAILS OF BROUGHT FORWARD DEPRECIATION. REFERRING TO PAGE 31 OF THE PAPER BOOK WHICH CONTAI NS THE STATEMENT OF TOTAL INCOME HE SUBMITTED THAT THERE IS NO MENTI ON OF BROUGHT FORWARD DEPRECIATION. HE SUBMITTED THAT AS PER THE ORDER OF HIGH COURT THE APPOINTED DATE IS 31-03-2003. THEREFORE, SINCE THE ASSESSEE IN THE ORIGINAL RETURN HAS NOT CLAIMED SUCH BROUGHT FORWARD LOSSES OF 46 THE MERGING COMPANIES, THEREFORE, THE REVISED RETUR N FILED BY THE ASSESSEE IS NONEST. THE AO AND THE CIT(A) WERE FUL LY JUSTIFIED IN DENYING THE SET OFF OF SUCH BROUGHT FORWARD LOSS FO R COMPUTING THE INCOME U/S.115JB OF THE I.T. ACT. 7.11 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE FILED THE ORIGINAL RE TURN OF INCOME ON 27- 11-2003 DECLARING TOTAL INCOME OF RS.10,11,10,220/- AS PER THE NORMAL PROVISION AND RS.16,20,43,718/- U/S.115JB OF THE I. T. ACT. WE FIND THE ASSESSEE FILED THE REVISED RETURN ON 02-07-2004 DECLARING TOTAL INCOME AT NIL AND BOOK PROFIT U/S.115JB WAS DETERMI NED AT RS.5,91,71,806/-. IN THE REVISED RETURN THE ASSESS EE SET OFF THE BROUGHT FORWARD LOSSES. THE AO COMPUTED THE BOOK PROFIT U/ S.115JB AT RS.16,20,55,646/- WHICH WAS THE ORIGINAL BOOK PROFI T COMPUTED BY THE ASSESSEE. THUS, HE REJECTED THE SET OFF OF BROUGHT FORWARD LOSSES OF THE MERGING COMPANIES U/S.72A OF THE I.T. ACT. IN APPE AL THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON TWO COUNTS (A) THE A DJUSTMENT SOUGHT BY THE ASSESSEE OF LOSSES OF MERGING COMPANIES AGAI NST INCOME OF THE ASSESSEE COMPANY CANNOT BE SAID TO BE WITHIN THE PU RVIEW OF SECTION 139(5) OF THE I.T. ACT AND (B) THE LOSS OF MERGING COMPANIES CANNOT BE SET OFF AGAINST THE INCOME OF THE ASSESSEE COMPANY IN VIEW OF THE PROVISIONS OF PART-II AND PART-III OF SCHEDULE-VI T O THE COMPANIES ACT, 1956. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE 47 THAT WHEN THE AO ALLOWED THE UNABSORBED DEPRECIATIO N AND UNABSORBED ACCUMULATED LOSSES IN THE CASE OF M/S. M ANIKCHAND PACKING PVT. LTD. AND M/S. DHARIWAL ELECTRICALS PVT . LTD. AS UNABSORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSS OF DHARIWAL INDUSTRIES LTD. AS ON THE APPOINTED DATE ITSELF AND HELD THAT M/S. DHARIWAL INDUSTRIES LTD. IS ENTITLED TO SET OF F THE LOSS SO COMPUTED IN THE CASE OF THE MERGING COMPANIES AND Q UANTIFIED THE LOSS IN THE ASSESSMENT ORDERS U/S.143(3) FOR A.Y. 2 003-04 IN THE CASE OF THE ASSESSEE, THEREFORE, HE CANNOT DENY THE SET OFF OF SUCH BROUGHT FORWARD LOSS FOR COMPUTATION OF THE BOOK PROFIT. I T IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALTHOUGH THE ASSESSEE HAS NOT CONSIDERED THE SAME IN THE ORIGINA L RETURN, HOWEVER, IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD., (SUP RA) THE ASSESSEE IS ENTITLED TO CLAIM THE SAME BEFORE THE LOWER AUTHORI TIES. 7.12 WE FIND CONSIDERABLE FORCE IN THE SUBMISSION O F THE LD. COUNSEL FOR THE ASSESSEE. AS REPRODUCED EARLIER IN THE PRECEDING PARAGRAPHS THE AO AT PARA 4.1 OF THE ORDER FOLLOWIN G THE DIRECTION OF THE HONBLE BOMBAY HIGH COURT HELD THAT THE UNABSORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSSES IN T HE CASES OF M/S. MANIKCHAND PACKAGING PVT. LTD. AND M/S. DHARIW AL ELECTRICALS PVT. LTD. FROM THE 'APPOINTED DATE', BE ING 'CLOSE OF BUSINESS AS OF 31 ST DAY OF MARCH, 2003' ARE TO BE TREATED AS UNABSORBED DEPRECIATION AND UNABSORBED ACCUMULATED LOSSES OF M/S. DHARIWAL INDUSTRIES LTD. AS ON THE 'APPOINTED DATE' ITSELF AND 48 M/S. DHARIWAL INDUSTRIES LTD. IS CONSIDERED AS ENTI TLED TO SET OFF AND/OR CARRY FORWARD THE UNABSORBED DEPRECIATION AN D UNABSORBED ACCUMULATED LOSSES OF THE TRANSFEROR COMPANIES. ACCORDINGLY, THE LOSS QUANTIFIED IN THE ASSESSMENT ORDER U/S.143(3) FOR A.Y. 2003-04 IN THE CASE OF THE MERGING COMPANIES WAS SET OFF FROM THE BUSINESS PROFIT COMPUTED IN THE CASE OF M/S. DHARIWAL INDUSTRIES LT D. FURTHER, WE FIND THE ACCOUNTING STANDARD-14 RELATING TO ACCOUNT ING OF AMALGAMATIONS STATES AT CLAUSE 21 THAT IN THE CASE OF AN AMALGAMATION IN THE NATURE OF MERGER THE BALANCE OF THE PROFIT AND LOSS ACCOUNT APPEARING IN THE FINANCIAL STATEMENTS OF THE TRANSFEROR COMPANY IS AGGREGATED WITH THE CORRESPONDING BALANC E APPEARING IN THE FINANCIAL STATEMENTS OF THE TRANSFEREE COMPANY. ALTERNATIVELY, IT IS TRANSFERRED TO THE GENERAL RESERVE IF ANY. 7.13 FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. T. VEERABHADRA RAO AND K. KOTESHWARA RAO AND COMPANY H AS HELD THAT BAD DEBTS IS ALLOWABLE TO A SUCCESSOR COMPANY EVEN THOUGH THE DEBT WAS SHOWN BY THE PREDECESSOR COMPANY. THE RELEVANT OBSERVATIONS OF THE HONBLE SUPREME COURT AT PAGE 156 AND 157 READ AS UNDER: SECTION 28, REFERRED TO IN SUB-S. (1) OF S. 36, PROVI DES THAT INCOME UNDER THE HEAD ' PROFITS AND GAINS OF BUSINESS OR PROFESSI ON ', SHALL BE CHARGEABLE TO INCOME-TAX. THE PROFITS AND GAINS OF A BUSINESS ARE CHARGED TO INCOME-TAX. TO COMPUTE THE PROFITS AND GA INS SO CHARGEABLE, S. 36 PRO VIDES FOR ALLOWING A NUMBER OF DEDUCTIONS. EACH OF THE DEDUCTIONS MUST RELATE TO THE BUSINESS. IF THE SA ME ASSESSEE WAS CARRYING ON A BUSINESS AND HE WROTE OFF A DEBT RELATIN G TO THE BUSINESS AS IRRECOVERABLE, HE WOULD WITHOUT DOUBT BE ENTITLED TO A CORRESPONDING DEDUCTION UNDER CL. (VII) OF SUB-S. (1) OF S. 36 SUBJECT TO THE FULFILMENT OF THE CONDITIONS SET FORTH IN SUB-S. (2 ) OF S. 36. IF A BUSINESS, ALONG WITH ITS ASSETS AND LIABILITIES, IS TRANSFERR ED BY ONE OWNER TO ANOTHER, WE SEE NO REASON WHY A DEBT SO TRAN SFERRED SHOULD NOT BE ENTITLED TO THE SAME TREATMENT IN THE HANDS O F THE SUCCESSOR. THE RECOVERY OF THE DEBT IS A RIGHT TRANSFERRED ALONG WITH THE NUMEROUS OTHER RIGHTS COMPRISING THE SUBJECT OF THE TR ANSFER. IF THE 49 LAW PERMITS THE TRANSFEROR TO TREAT THE WHOLE OR PART OF THE DEBT AS IRRECOVERABLE AND TO CLAIM A DEDUCTION ON THAT ACCO UNT, IT SEEMS DIFFICULT TO ACCEPT THAT THE SAME RIGHT SHOULD NOT BE RECOGNISED IN THE TRANSFEREE. IT IS MERELY AN INCIDENT FLOWING FROM TH E TRANSFER OF THE BUSINESS, TOGETHER WITH ITS ASSETS AND LIABILITIES, FROM TH E PREVIOUS OWNER TO THE TRANSFEREE. IT IS A RIGHT WHICH SHOULD, O N A PROPER APPRECIATION OF ALL THAT IS IMPLIED IN THE TRANSFER O F A BUSINESS, BE REGARDED AS BELONGING TO THE NEW OWNER. UNLESS THE LAN GUAGE OF THE STATUTE PLAINLY AND CLEARLY COMPELS A CONSTRUCTION TO THE CONTRARY, THE NORMAL RULE OF THE LAW SHOULD BE GIVEN ITS PROPER PL AY. IT IS TRUE THAT CL. (I) OF SUB-S. (2) OF S. 36 DECLARES THAT A DEDUCTION CA N BE ALLOWED ONLY IF THE DEBT, OR PART THEREOF, HAS BEEN TAKEN INTO ACCOU NT IN COMPUTING THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR OR AN EARLI ER PREVIOUS YEAR AND THAT IT HAS ALSO BEEN WRITTEN OFF AS IRRECOVE RABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THAT PREVIOUS YEAR. IN THE PRESENT CASE, THE DEBT WAS TAKEN INTO ACCOUNT IN THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1963-64 WHEN THE INTEREST INCOME ACCRUIN G THEREON WAS TAXED IN THE HANDS OF THE ASSESSEE. THE INTEREST WAS TA XED AS INCOME BECAUSE IT REPRESENTED AN ACCRETION ACCRUING D URING THE EARLIER YEAR ON MONEY OWED TO THE ASSESSEE BY THE DEBTO R. THE ITEM CONSTITUTED INCOME BECAUSE IT REPRESENTED INTEREST ON A LOAN. THE NATURE OF THE INCOME INDICATED THE TRANSACTION FROM WHICH IT EMERGED. THE TRANSACTION WAS THE DEBT AND THAT DEBT WAS TAKEN I NTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE RELEVANT PR EVIOUS YEAR. IT IS THE SAME ASSESSEE WHO HAS SUBSEQUENTLY, PURSUANT TO A SETTL EMENT, ACCEPTED PART PAYMENT OF THE DEBT IN FULL SATISFACTIO N AND HAS WRITTEN OFF THE BALANCE OF THE DEBT AS IRRECOVERABLE IN HIS A CCOUNTS. IT APPEARS, THEREFORE, THAT THE CONDITIONS IN BOTH SUB-CLAUSES (A) AND (B) OF CL. (I) OF SUB-S. (2) OF S. 36 ARE SATISFIED IN THE PRESENT CASE AND THE HIGH COURT AS WELL AS THE APPELLATE TRIBUNAL AND THE AAC A RE RIGHT IN THE VIEW WHICH THEY TOOK. IT SEEMS TO US THAT EVEN IF THE DEBT HAD BEEN TAKEN IN TO ACCOUNT IN COMPUTING THE INCOME OF THE PREDECESSOR FIRM ONLY AND HAD SUBSEQUENTLY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THE ASSESSEE WOULD STILL HAVE BEEN ENTITLED TO A D EDUCTION OF THE AMOUNT WRITTEN OFF AS A BAD DEBT. IT IS NOT IMPER ATIVE THAT THE ASSESSEE REFERRED TO IN SUB-CL. (A) MUST NECESSARILY MEAN THE IDENTICAL ASSESSEE REFERRED TO IN SUB-CL. (B). A SUCCESSOR TO THE PER TINENT INTEREST OF A PREVIOUS ASSESSEE WOULD BE COVERED WITHIN THE TERMS OF SUB-CL. (B). THE SUCCESSOR ASSESSEE, IN EFFECT, STEPS INTO THE SHOES OF HIS PREDECESSOR. 7.14 FOLLOWING THE SAME ANALOGY AND IN VIEW OF THE DIRECTION OF THE HONBLE BOMBAY HIGH COURT AND THE FINDINGS OF THE A O AT PARA 4.1 OF THE ASSESSMENT ORDER, WE FIND FORCE IN THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT BROUGHT FORWARD BUSIN ESS LOSSES AND DEPRECIATION OF THE MERGING COMPANIES IS A PART OF THE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION OF DHARIWAL INDUSTRIES LTD AND 50 THE ASSESSEE IS ENTITLED TO TAKE INTO ACCOUNT THE S AME FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S.115JB. 8. IN VIEW OF THE ABOVE DISCUSSION THE GROUND OF AP PEAL NO.3 BY THE ASSESSEE IS ALLOWED. 9. THE ASSESSEE HAS TAKEN AN ADDITIONAL GROUND WHIC H READS AS UNDER : IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO GROUND NO.1 IN THE APPEAL, IF THE SALES TAX INCENTIVE IS REGARDED AS A REVENUE REC EIPT CHARGEABLE TO TAX, THEN, THE APPELLANT SHOULD BE ALLOWED DEDUCTION IN RESPECT OF SUCH RECEIPT UNDER SECTION 80-IA OF THE ACT. 9.1 AFTER HEARING BOTH SIDES AND CONSIDERING THAT T HE ADDITIONAL GROUND IS A LEGAL ONE, THE SAME IS ADMITTED FOR ADJ UDICATION. 9.2 THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND STATING THAT EVEN AFTER CONSIDERING THE SUBSIDY AS REVENUE RECEIPT STILL THERE WILL BE LOSS AND THE ASSESSEE WILL NOT BE ENT ITLED FOR ANY DEDUCTION U/S.80IA AND THEREFORE IT IS ONLY ACADEMI C IN NATURE. IN VIEW OF THE ABOVE SUBMISSION BY LD. COUNSEL FOR THE ASSESSEE, THE ADDITIONAL GROUND IS DISMISSED. 10. IDENTICAL ADDITIONAL GROUNDS HAVE BEEN RAISED B Y THE ASSESSEE IN THE REMAINING YEARS. IN VIEW OF THE ABOVE DISCUSSI ON, THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE IN THE REMAINING YEARS ARE ALSO DISMISSED. 51 ITA NO.1559/PN/2007 (BY ASSESSEE) (A.Y. 2004-05) : 11. GROUND OF APPEAL NO. 1 BY THE ASSESSEE RELATES TO THE ORDER OF THE CIT(A) IN REJECTING THE CLAIM OF THE ASSESSEE T HAT AMOUNT RECEIVED ON TRANSFER OF SALES TAX ELIGIBILITY OF RS.10,61,66 4/- ARE NOT LIABLE FOR ANY TAXATION BEING CAPITAL RECEIPTS. 11.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUND IS IDENTICAL TO GROUND OF APPEAL NO.2 IN ITA NO.489PN/ 2007. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME REASONINGS THE GROUND OF APPEAL NO.1 BY THE ASSESSEE IS DISMISSED. 12. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. IN FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED LEGALLY AND FACTUALLY IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION OF HYDERABAD UNIT OF RS.18,98,807/- AND INCORRECTLY DRA WING CONCLUSION THAT THE ASSESSEE HAS NOT USED ITS PAN MASALA (GUTKA) PLA NT & ESTABLISHMENT AT HYDERABAD AT ALL DURING THE RELEVANT PREVIOUS YEAR. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT ONCE THESE ASSETS HAVE FORMED A PART OF TOTAL BLOCK OF ASSETS, THEY HAVE LOST THEIR INDIVIDUAL IDENTITY AND FOR CLAIM OF DEPRECIATION THEREAFTER, USER OF BLOCK OF ASSETS IS REQUIREMENT OF LAW AND NOT USER OF INDIVIDUAL ASSETS THEREIN. THE CIT(A) HAS NOT FULLY APPRECIATED THE MATTER AND HAS INCORRECTLY APPLIED THE RATIO OF DINESH AGARWAL VS. CIT [267 ITR 768] AND DRAWN INCORRECT CONCLUSIONS. ASSESSEE HAS RIGHTLY CLAIMED DEPRE CIATION OF HYDERABAD UNIT IS ALLOWABLE. 12.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION HAS CLAIMED DEPRECIATION AS PER I.T. ACT AT RS.13,45,44,935/- IN THE COMPUTATION OF INCOME. TH E AO NOTED THAT THE ASSESSEE HAS NOT USED ITS PAN MASALA/GUTKHA PL ANT & MACHINERY 52 ESTABLISHMENT AT HYDERABAD UNIT AT ALL DURING THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . THEREFORE, DEPRECIATION ON THE RELATED ASSET TO THE EXTENT OF RS.18,98,807/- WAS DISALLOWED BY THE AO. 12.2 BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESS EE HAS SET UP A UNIT IN HYDERABAD FOR MANUFACTURE OF GUTKHA AND PAN MASALA IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1995- 96. THE DEPRECIATION ON THE PLANT AND MACHINERY INSTALLED I N THE HYDERABAD UNIT WAS TAKEN INTO ACCOUNT WHILE COMPUTING THE TOT AL INCOME OF THE ASSESSEE. THE MANUFACTURING OPERATIONS HAVE BEEN T EMPORARILY SUSPENDED AT HYDERABAD UNIT IN THE PREVIOUS YEAR RE LEVANT TO A.Y. 2004-05. THE AO DISALLOWED THE DEPRECIATION OF RS. 18,98,807/- OUT OF THE TOTAL DEPRECIATION CLAIMED ON THE GROUND THA T THE PLANT AND MACHINERY AT THE HYDERABAD UNIT IS NOT USED AT ALL DURING THE PREVIOUS YEAR. IT WAS SUBMITTED THAT THE AO DISALLOWED DEPR ECIATION IN RESPECT OF SOME OF THE ASSETS FORMING PART OF THE BLOCK ASS ETS AND ALLOWED DEPRECIATION ON THE REMAINING BLOCK OF ASSETS. 12.3 IT WAS SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION. THE ASSTS WERE ACQUIRED AND PUT TO USE BY THE ASSESSEE IN THE EARLIER PREVIOUS YEARS AND THE SAME HAD ENTERED INTO THE BLOCK OF ASSETS IN THOSE YEARS ITSELF. THIS BEING THE POSITION THE ASSETS HAD LOST THEIR IDENTITY AND FOR THE PURPOSE OF ALLO WING DEPRECIATION THEREON THE REQUIREMENT OF LAW IS TO ESTABLISH THE USER OF THE BLOCK OF ASSETS AND NOT OF THE INDIVIDUAL ASSETS THEREIN. T HEREFORE, THE DEPRECIATION ON THE ENTIRE BLOCK OF ASSETS IS ALLOW ABLE WITHOUT 53 REDUCING THERE FROM DEPRECIATION IN RESPECT OF THE ASSETS NOT USED DURING THE YEAR. RELYING ON VARIOUS DECISIONS IT W AS SUBMITTED THAT THE DEPRECIATION ON THE ASSETS OF THE HYDERABAD UNI T CANNOT BE DISALLOWED. 12.4 ALTERNATIVELY IT WAS ARGUED THAT THE STOPPAGE OF OPERATIONS AT THE HYDERABAD UNIT IS A TEMPORARY ONE AND THE HYDER ABAD UNIT CONTINUES TO BE REMAINED IN A PERFECTLY OPERATIVE P OSITION EXCEPT FOR MANPOWER AND PLANT AND MACHINERY AND OTHER FACILITI ES ARE AVAILABLE AT THE UNIT. THUS, THE MACHINERY AND PLANT IS READY T O USE. IT WAS CONTENDED THAT DEPRECIATION IS ALLOWABLE EVEN IF TH E MACHINE IS KEPT READY TO USE AT ANY MOMENT AND THE ACTUAL USER OF T HE ASSET IS NOT REQUIRED. THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WHITTLE ANDERSON LTD. VS. CIT REPORTED IN 79 ITR 613 AND THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT IN TH E CASE OF VINDHYACHAL DISTILLERIES PVT. LTD. REPORTED IN 272 ITR 583 WERE RELIED UPON. 12.5 HOWEVER, THE LD.CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE AC TION OF THE AO BY OBSERVING AS UNDER : 3.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED MATERIAL ON RECORD. ON THIS ISSUE THERE IS A DIRECT DE CISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF DINESH AGARWAL V S. CIT & ANOTHER AS REPORTED IN 267 ITR 768 WHEREIN THE HON'B LE HIGH COURT HAS ENDORSED THE VIEW OF THE HON'BLE I.T.A.T. THAT TH E EXPRESSION 'USED' OCCURRING IN SECTION 32(1) MEANS 'ACTUALLY USED FOR TH E PURPOSE OF BUSINESS'. AS REGARDS THE CASE LAWS RELIED UPON BY THE APP ELLANT, THE CASE OF ARTIC VS. ACIT AS REPORTED IN 68 ITD 462 IS IN THE CONTEXT OF CAPITAL GAINS AND THEREFORE, HAS NO DIRECT APPLICABI LITY TO THE FACTS OF THE APPELLANT'S CASE. HOWEVER, THE CASE OF PACKWELL PR INTERS VS. ACIT IS APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE BECA USE IN THAT CASE DEPRECIATION WAS HELD TO BE ALLOWABLE IN RESPECT OF T RUCK WHICH WAS 54 USED FOR THE PURPOSE OF BUSINESS. WITH THIS VIEW OF THE H ON'BLE I.T.A.T, I AM NOT IN AGREEMENT WITH IN VIEW OF THE CLEAR CUT DECISION ON THE SAME ISSUE BY HON'BLE BOMBAY HIGH COURT AS QUOTED SUPRA . ACCORDINGLY, DENIAL OF DEPRECIATION IS HELD TO BE JU STIFIED. GROUND NO. 2 OF APPEAL FOR ASSESSMENT YEAR 2004-05 IS HELD TO HAVE NO MERIT AND IT FAILS. 3.4 THE FACTS AND LEGAL POSITION FOR ASSESSMENT YEAR 200 5-06 IN RESPECT OF GROUND OF APPEAL NO. 2 WHICH RELATES TO DI SALLOWANCE OF DEPRECIATION BY THE LEARNED ASSESSING OFFICER IN RESPECT OF HYDERABAD UNIT REMAINS THE SAME. ACCORDINGLY, FOR ASSESSMENT YEAR 2005-06 ALSO, THE CLAIM OF THE APPELLANT IS HELD TO HAVE NO MERIT AND ACCORDINGLY, DISMISSED. 12.6 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 12.7 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ASSESSEE HAD SET UP A UNIT IN HYDERABAD FOR MANUFACTURE OF G UTKHA AND PAN MASALA. VIDE NOTIFICATION DATED 19-02-2002 THE GOV ERNMENT OF ANDHRA PRADESH DIRECTED FOR CLOSURE OF THE UNIT. T HE ASSESSEE CHALLENGED SUCH NOTIFICATION ISSUED BY THE ANDHRA P RADESH GOVERNMENT IN COURT AND THE HONBLE SUPREME COURT V IDE ORDER DATED 02-08-2004 DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE BY HOLDING THAT SUCH NOTIFICATION IS INVALID. THE AO AND THE CIT(A ) DISALLOWED THE CLAIM OF DEPRECIATION ON THE GROUND THAT THE ASSESS EE HAS CLOSED DOWN ITS OPERATIONS AND THE PLANT AND MACHINERIES ARE NO T USED DURING THE YEAR. 12.8 RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF G.R. SHIPPING LTD. VIDE ITA NO.598/2009 ORDER DATED 28- 07-2009 HE SUBMITTED THAT THE HONBLE HIGH COURT FO LLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF WHITTLE ANDERSON LTD. REPORTED IN 79 ITR 613 AND CIT VS. G. N. AGARWAL 55 REPORTED IN 217 ITR 250 HAS UPHELD THE DECISION OF THE TRIBUNAL IN THE CASE OF G.R. SHIPPING LTD. VS. DCIT WHERE THE TRIBU NAL ALLOWED THE CLAIM OF DEPRECIATION ON ASSETS WHICH WERE NOT USED DURING THE RELEVANT ASSESSMENT YEAR. 12.9 REFERRING TO THE ABOVE DECISION, THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT IN THAT CASE THE ASSESSEE W AS ENGAGED IN SHIPPING BUSINESS AND WAS OWNING ONE BARGE WHICH WA S INCLUDED IN THE BLOCK OF ASSETS. IT SUFFERED AN ACCIDENT ON 06 -03-2000 AND SUNK. THOUGH THE ASSESSEE RETRIEVED THE BARGE IT DID NOT GET IT REPAIRED FINDING IT UNECONOMICAL AND THEREFORE THE SAME WAS SOLD AS ON WHERE IS BASIS FOR RS.55 LAKHS IN THE MONTH OF MAY/JUNE 2 001. THE ASSESSEE CLAIMED DEPRECIATION ON THE BARGE FOR A.Y. 2001-02. THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON THE GROUND THAT THE BARGE WAS NOT USED FOR THE PURPOSE OF THE BUSINESS DURING THE WHOLE YEAR AS IT MET WITH AN ACCIDENT AND WAS NON-OPERATIONAL NOR WA S SENT FOR ANY REPAIRS. THE CIT(A) UPHELD THE ACTION OF THE AO. ON FURTHER APPEAL BY THE ASSESSEE THE TRIBUNAL VIDE ORDER DATED 17-07 -2008 ALLOWED THE CLAIM OF DEPRECIATION. WHILE DOING SO, THE TRIBUNA L OBSERVED THAT THE BLOCK OF ASSETS HAS BEEN DEFINED TO INCLUDE THE GRO UP OF ASSETS FALLING WITH THE SAME CLASS OF ASSETS. HENCE, AFTER THE AM ENDMENT W.E.F. 01- 04-88, THE INDIVIDUAL ASSETS HAVE LOST ITS IDENTITY AND FOR THE PURPOSE OF ALLOWING DEPRECIATION ONLY THE BLOCK OF ASSETS H AS TO BE CONSIDERED. IT WAS HELD THAT IF A BLOCK OF ASSETS IS OWNED BY T HE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS DEPRECIATION WILL BE AL LOWED. THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH 56 COURT IN THE CASE OF DINESH KUMAR GULABCHAND AGARWA L VS. CIT REPORTED IN 267 ITR 867 DISTINGUISHED THE SAME AND HELD THAT THE ASSESSEE HAS ALREADY USED THE ASSET FOR THE PURPOSE OF BUSINESS AND IT HAS ALREADY ENTERED INTO BLOCK OF ASSETS. ACCORDIN GLY, THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE WAS ALLOWED. 12.10 REFERRING TO THE DECISION OF THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. OSWAL AGRO MILLS LTD. (SUPRA) REPOR TED IN 341 ITR 467 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT DEPRECIATION HAS TO BE ALLOWED ON ASSETS FORMING PART OF BLOCK OF ASSETS EVEN THOUGH NOT USED IN RELEVANT YE AR. 12.11 REFERRING TO THE DECISION OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF CIT VS. SONAL GUM INDUSTRIES THE LD. CO UNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FOL LOWING OBSERVATION OF THE HONBLE HIGH COURT : IT IS NOT POSSIBLE TO FIND ANY LEGAL INFIRMITY IN THE AFORESAID VIEW ADOPTED BY THE FIRST APPELLATE AUTHORITY AND CONFIRM ED BY THE TRIBUNAL. IN FACT THE ASSESSMENT ORDER ITSELF REVEALS T HAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSETS WERE NOT PUT TO USE AT ALL. ONCE THE FACTORY BUILDING IS PUT TO USE IT IS NOT POSSIB LE TO RESTRICT THE DEPRECIATION ON THE SAID BUILDING BY STATING THAT A P ORTION THEREOF HAS BEEN PUT TO USE. SIMILARLY, IN RELATION TO THE BLOC K OF ASSETS, IT IS NOT POSSIBLE TO SEGREGATE ITEMS FALLING WITHIN THE BLOCK FO R THE PURPOSES OF GRANTING DEPRECIATION OR RESTRICTING THE CLAIM THERE OF. ONCE IT IS FOUND THAT THE ASSETS ARE USED FOR BUSINESS, IT IS NOT NECESSARY TH AT ALL THE ITEMS FALLING WITHIN PLANT AND MACHINERY HAVE TO BE SIMULTANEOUSLY USED FOR BEING ENTITLED TO DEPRECIATION. IN THE RESULT, IN THE ABSENCE OF ANY ERROR COMMITTED BY THE TRIBUNAL, THE QUESTION REFERRED FOR THE OPINION OF THIS COURT, IS ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE REFERENCE STANDS DISPOSED OF ACCORDINGLY WITH NO ORDER AS TO COSTS. HE ACCORDINGLY SUBMITTED THAT THE CIT(A) WAS NOT JU STIFIED IN DENYING THE CLAIM OF DEPRECIATION. 57 12.12 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO IN THE INSTANT CASE DISALLOWED THE CLAIM OF DEPRECIATION OF RS.18, 98,807/- BEING DEPRECIATION ON THE RELATED ASSETS OF HYDERABAD UNI T ON THE GROUND THAT ASSESSEE HAS NOT USED ITS PLANT & MACHINERY RELATIN G TO PAN MASALA/GUTKHA ESTABLISHMENT AT HYDERABAD AT ALL DUR ING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2004-05. THE LD.CIT(A) UP HELD THE DISALLOWANCE SO MADE BY THE AO. FROM THE SUBMISSI ONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND ALTHOUGH THE PLANT WAS CLOSED BECAUSE OF THE NOTIFICATION OF THE GOVERNMENT OF AN DHRA PRADESH VIDE NOTIFICATION DATED 19-02-2002, HOWEVER, THE ASSESSE E CHALLENGED THE SAME BEFORE THE HONBLE SUPREME COURT WHO VIDE CIVI L APPLICATION NO.4674/2004 ORDER DATED 02-08-2004 QUASHED THE NOT IFICATION HOLDING THE SAME AS BAD IN LAW, VOID, ILLEGAL AND U NENFORCEABLE. THEREFORE, UNDER THESE CIRCUMSTANCES THE QUESTION T HAT ARISE IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO DEPRECIATION ON ASSETS WHICH HAVE ENTERED INTO THE BLOCK OF ASSETS BUT THE UNIT WAS T EMPORARILY CLOSED DOWN BECAUSE OF THE GOVERNMENT NOTIFICATION. WE FI ND THE HONBLE DELHI HIGH COURT IN THE CASE OF OSWAL AGRO MILLS LT D. (SUPRA) HAS HELD THAT DEPRECIATION HAS TO BE ALLOWED ON ASSETS FORMING PART OF BLOCK OF ASSETS EVEN IF NOT USED IN THE RELEVANT YE AR. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SONAL GUM INDUSTR IES (SUPRA) HAS ALSO HELD THAT ONCE THE FACTORY BUILDING WAS PUT TO USE IT WAS NOT 58 POSSIBLE TO RESTRICT THE DEPRECIATION ON THE BUILDI NG BY STATING THAT ONLY A PORTION THEREOF HAD BEEN PUT TO USE. IT HAS FURT HER BEEN HELD THAT IN RELATION TO BLOCK OF ASSETS IT IS NOT POSSIBLE TO S EGREGATE ITEMS FALLING WITHIN THE BLOCK FOR THE PURPOSE OF GRANTING DEPREC IATION OR RESTRICTING THE CLAIM THEREOF. ONCE IT WAS FOUND THAT THE ASSE TS WERE USED FOR BUSINESS IT WAS NOT NECESSARY THAT ALL THE ITEMS FA LLING WITHIN THE PLANT AND MACHINERY HAVE TO BE SIMULTANEOUSLY USED FOR BE ING ENTITLED TO DEPRECIATION. IT WAS ACCORDINGLY HELD THAT THE ASS ESSEE WAS ENTITLED TO DEPRECIATION ON THE BLOCK OF ASSETS FOR THE A.Y. 19 88-89 ALTHOUGH THE ENTIRE FACTORY BUILDING AND ALL THE ITEMS INCLUDING BLOCK OF ASSETS AND PLANT AND MACHINERY WERE NOT ACTUALLY PUT TO USE DU RING THE RELEVANT ASSESSMENT YEAR. 12.13 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF G.R. SHIPPING LTD., (SUPRA) UPHELD THE DECISION OF THE T RIBUNAL WHERE THE TRIBUNAL ALLOWED THE DEPRECIATION ON THE BARGE WHIC H HAD ENTERED INTO BLOCK OF ASSET BUT WAS NOT AT ALL PUT TO USE FOR TH E PURPOSE OF BUSINESS DURING THE WHOLE YEAR AS IT MET WITH AN ACCIDENT AN D WAS NON OPERATIONAL. 12.14 IN THE INSTANT CASE ALTHOUGH THE ASSETS WERE NOT PUT TO USE DUE TO RESTRAINT BY STATE GOVT. DUE TO THE NOTIFICATION WH ICH WAS SUBSEQUENTLY HELD TO BE ILLEGAL BY THE HONBLE SUPREME COURT, HO WEVER, THE ASSETS WERE READY FOR USE AND IT HAS ALREADY ENTERED INTO THE BLOCK OF ASSETS. THEREFORE, IN VIEW OF THE DECISIONS CITED (SUPRA) W E HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE ASSETS OF HYDERABAD UNIT WHICH HAVE ALREADY ENTERED INTO THE BLOCK OF ASSETS . ACCORDINGLY, THE 59 ORDER OF THE CIT(A) IS SET ASIDE AND THE GROUND RAI SED BY THE ASSESSEE IS ALLOWED. ITA NO.1560/PN/2007 (BY ASSESSEE) (A.Y. 2005-06) : 13. GROUND OF APPEAL NO.1 BY THE ASSESSEE RELATES T O THE ORDER OF THE CIT(A) IN REJECTING THE CLAIM OF THE ASSESSEE C OMPANY THAT THE AMOUNT RECEIVED ON TRANSFER OF SALES TAX ELIGIBILIT Y OF RS.11,65,02,989/- ARE NOT LIABLE FOR ANY TAX BEING CAPITAL RECEIPTS 13.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUND IS IDENTICAL TO GROUND OF APPEAL NO.2 IN ITA NO.489/PN /2007. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE HAS BEEN DISMISSED. FOLLOWING THE SAME REASONING THIS GROUND BY THE ASSESSEE IS DISMISSED. 14. GROUND OF APPEAL NO.2 BY THE ASSESSEE RELATES T O DISALLOWANCE OF DEPRECIATION OF RS.15,30,660/- ON ACCOUNT OF ASS ETS OF HYDERABAD UNIT. 14.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUND IS IDENTICAL TO GROUND OF APPEAL NO.2 IN ITA NO.1559/P N/2007. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISE D BY THE ASSESSEE HAS BEEN ALLOWED. FOLLOWING THE SAME REASONING THI S GROUND BY THE ASSESSEE IS ALLOWED. 60 ITA NO.1230/PN/2010 (BY ASSESSEE) (A.Y. 2006-07) : 15. GROUNDS OF APPEAL NO.1 BY THE ASSESSEE READ AS UNDER : 1. IN FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A), PUNE HAS ERRED LEGALLY AND FACTUALLY IN REJECTING THE CLAIM OF THE ASSESSEE COMPANY THAT THE AMOUNT OF RS.11,05,60,540/- IS A CAP ITAL RECEIPT NOT LIABLE TO TAX. 15.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUND IS IDENTICAL TO GROUND OF APPEAL NO.2 IN ITA NO.489/PN /2007. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE HAS BEEN DISMISSED. FOLLOWING THE SAME REASONINGS THIS GROUND BY THE ASSESSEE IS DISMISSED. 16. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. IN FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) O UGHT TO HAVE HELD THAT THE AMOUNT OF RS.20 LAKHS RECEIVED AS CAPITA L SUBSIDY FROM MEDA IS NOT LIABLE TO TAX AND IN ANY EVENT COULD NOT BE BROUGHT TO TAX FOR THE YEAR UNDER CONSIDERATION. 16.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THERE IS NO DISCUSSION OF THIS ISSUE BY THE AO. BEFORE CIT(A) IT WAS SUBMITTED TH AT THE ASSESSEE IS ENTITLED TO CAPITAL SUBSIDY BY THE STATE GOVERNMENT @30% OF THE FIXED CAPITAL INVESTMENT SUBJECT TO A MAXIMUM LIMIT OF RS .20 LAKHS. THE AMOUNT WAS RECEIVED BY THE ASSESSEE DURING THE YEAR AND AS SUCH HAD NOT BEEN OFFERED TO TAX. IT WAS POINTED OUT THAT T HIS AMOUNT HOWEVER WAS ADDED BY THE AO TO THE TOTAL INCOME WHILE PASSI NG THE ORDER FOR A.Y. 2002-03 AND REDUCED FROM THE WDV OF THE BLOCK OF ASSETS DESPITE THE FACT THAT ASSESSEE CHOSE TO OFFER THE S AME TO TAX IN THE YEAR OF RECEIPT. IT WAS POINTED OUT THAT WHILE DOING SO , THE AO HAD NOT 61 FOLLOWED ACCRUAL METHOD OF ACCOUNTING. IT WAS ARGU ED THAT IN ANY CASE AS THIS AMOUNT WAS ALREADY SUBJECTED TO TAX EARLIE R, THEREFORE, BY NOT EXCLUDING THE CAPITAL SUBSIDY FROM THE CURRENT YEAR S INCOME IT HAS RESULTED INTO DOUBLE TAXATION. IT WAS FURTHER POIN TED OUT THAT DURING APPEAL PROCEEDINGS THE TRIBUNAL HAS RESTORED THE IS SUE TO THE FILE OF THE CIT(A) WHO HAS PASSED EXPARTE ORDER OF THE A.Y.2002 -03. 16.2 IN APPEAL THE LD.CIT(A) DISMISSED THE GROUND R AISED BEFORE HIM BY OBSERVING AS UNDER : 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE C ONTENTION OF THE APPELLANT IS THAT THE CAPITAL SUBSIDY OF RS.20 LAKHS FOR THE ASSESSMENT YEAR 2002-03 WAS ALREADY REDUCED FROM THE WDV OF THE BLOCK OF ASSETS ON ACCRUAL BASIS IN THAT YEAR AND THE SAME AMOUNT CANNOT BE TAXED ONCE AGAIN FOR THE YEAR UNDER CONSIDERATION ON RECEIPT BASIS. IT IS SEEN THAT THE MATTER IN DISPUTE FOR THE ASSESSMENT YEAR 2002-03 WAS REMITTED BACK TO THE FILE OF THE CIT(A) VIDE ORD ER OF THE ITAT DATED 22-04-2008. THE CLAIM OF THE APPELLANT AT TH IS JUNCTURE IS PREMATURE AND IT CAN BE DECIDED ONLY AFTER THE ORDE R IS PASSED BY THE CIT(A) FOR THE ASSESSMENT YEAR 2002-03 CONSEQUENT TO TH E ORDER OF THE ITAT, PUNE. FOR THE PURPOSE OF STATISTICS, THIS GRO UND SHALL BE TAKEN AS DISMISSED. 16.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 16.4 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT SINCE THE APPEAL FOR A.Y. 2002-03 IS STILL PENDING BEFORE THE CIT(A), THEREFORE, THIS ISSUE MAY BE SET ASIDE TO THE FILE OF CIT(A) FOR DECIDING THE ISSUE AFRESH. THE LD. DEPARTMENTAL REPRESENTAT IVE ON THE OTHER HAND HAD NO OBJECTION FOR THE SAME. IN VIEW OF THE FACT THAT THE APPEAL FOR A.Y. 2002-03 IS STILL PENDING BEFORE THE CIT(A) , THEREFORE, WE, IN THE INTEREST OF JUSTICE, REMIT THIS ISSUE TO THE FI LE OF THE CIT(A) TO 62 ADJUDICATE THE ISSUE AFTER THE APPEAL FOR A.Y. 2002 -03. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1267/PN/2010 (BY REVENUE) (A.Y. 2006-07) : 17. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF R S.10,73,655/- MADE ON ACCOUNT OF DISALLOWANCE OF THE DEPRECIATION ON THE PAN MASALA (GUTKHA) PLANT AND MACHINERY ESTABLISHMENT AT HYDERABAD SET UP. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN NOT APPRECIATING THE FACT T HAT THE PLANT AND MACHINERY ESTABLISHMENT AT HYDERABAD SET UP WAS NOT PUT TO USE ANY TIME DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. 3. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(APPEALS) ERRED 'IN NOT APPRECIATING THE FACT THA T IN THE EARLIER YEARS, THE ADDITION MADE ON ACCOUNT OF DEPRECIATION WAS UPHELD BY HIS LEARNED PREDECESSOR. 4. THE ORDER OF THE CIT (APPEALS) MAY BE VACATED AN D THAT OF A.O. BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND ALT ER ANY OF GROUNDS OF APPEAL. 17.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D ISALLOWED DEPRECIATION OF RS.10,73,655/- BEING DEPRECIATION O F PLANT AND MACHINERY OF THE PAN MASALA/GUTKHA ESTABLISHMENT AT HYDERABAD WHICH WAS NOT USED DURING THE RELEVANT ASSESSMENT Y EAR. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF G.R. SHIPPING LTD., (SUPRA), THE DEC ISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.SWATI SYNT HETICS LTD., VIDE ITA NO.1165/MUM/2006 ORDER DATED 17-12-2009 FOR A.Y . 2001-02, DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT ALUMINUM COMPANY LTD. VIDE ITA NO.1489/2008 AND 323/2009 ORD ER DATED 15- 63 10-2009 ALLOWED THE CLAIM OF DEPRECIATION OF ASSETS OF HYDERABAD UNIT WHICH WERE NOT USED DURING THE YEAR. AGGRIEVED WIT H SUCH ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 17.2 AFTER HEARING BOTH SIDES, WE FIND WE HAVE ALRE ADY DECIDED IDENTICAL ISSUE IN GROUND OF APPEAL NO.2 IN ITA NO. 1559/PN/2007 FILED BY THE ASSESSEE FOR A.Y. 2004-05 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE SAME REASONINGS THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUNDS RAIS ED BY THE REVENUE ARE DISMISSED. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 29-05-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED 29 TH MAY, 2015 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLAT E TRIBUNAL, PUNE