The State Fisheries Development Corporation Ltd., Kolkata V. ACIT, CIR-2, KOLKATA, Kolkata

ITA 1281/KOL/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4959 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 27-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMITAVA BHATTACHARYA JCITSRDR
• Assessee Lawyers: SOUMITRA CHOW DHURY
• Keywords: Question of law; Capital receipt
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1281 / KOL / 2009 ASSESSMENT YEAR :2005-06 THE STATE FISHERIES DEVELOPMENT CORPORATION LTD.BIKASH BHAWAN, FIRST FLOOR, NORTH BLOCK, BIDHAN NAGAR, KOLKATA-700 091 [ PAN NO. AABCT 2090 D ] V/S . ACIT, CIRCLE-2, /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SOUMITRA CHOWDHURY, ADVOCATE /BY RESPONDENT SHRI AMITAVA BHATTACHARYA, JCIT-SR-DR /DATE OF HEARING 10-03-2006 /DATE OF PRONOUNCEMENT 19-04-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA IN APPEAL NO.439/CI T(A)-I/CIR-2/07-08 DATED 29.05.2009. ASSESSMENT WAS FRAMED BY ACIT, CI RCLE-2, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 29.06.2007 FOR ASSESSMENT YEAR 2005 -06. ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 2 SHRI SOUMITRA CHOWDHURY, LD. AUTHORIZED REPRESENTAT IVE APPEARING ON BEHALF OF ASSESSEE AND SHRI AMITAVA BHATTACHARYA, LD. DEPA RTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 2. DURING THE COURSE OF HEARING BEFORE US, LD. AR D ID NOT PRESS FOR THE GROUND NO. 4 & 5 SO SAME STAND DISMISSED AS NOT PRE SSED. 3. FIRST ISSUE IN RELATES TO GROUND NO. 2 & 3 RAISE D BY ASSESSEE THAT LD. CIT(A) ERRED IN UPHOLDING THE TREATMENT OF GRANT-IN -AID OF 2,38,41,000/- TOWARDS SALARY & PF AS TAXABLE. 4. THE FACTS IN BRIEF ARE THAT ASSESSEE IS A LIMITE D COMPANY AND ENGAGED IN THE BUSINESS OF PISCICULTURE. THE GOVT. OF WEST BENGAL IS HOLDING 100% SHARES OF ASSESSEE-COMPANY. DURING THE YEAR UNDER C ONSIDERATION, ASSESSEE HAS RECEIVED THE GRANT-IN-AID FROM GOVT. OF WEST BE NGAL FOR THE FOLLOWING PURPOSES AS DETAILED HEREUNDER:- A) THE GRANT-IN-AID FOR 76.77 LACS WAS RECEIVED FOR THE PAYMENT OF ARREARS OF PF OF THE EMPLOYEES, B) THE GRANT-IN-AID FOR 2,06,64,000/- FOR THE PAYMENT OF SALARY AND WAGES OF EMPLOYEES. THE ASSESSEE TREATED THE ABOVE SAID RECEIPTS FROM T HE GOVERNMENT OF WEST BENGAL AS CAPITAL IN NATURE AND THEREFORE NOT TAXAB LE. HOWEVER, AO DURING THE ASSESSMENT PROCEEDINGS HAS DISREGARDED WITH THE CLA IM OF THE ASSESSEE AND TREATED THE SAME AS REVENUE RECEIPT WHICH IS LIABLE TO TAX. THE AO FOR TREATING THE GRANT-IN-AID AS REVENUE IN NATURE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF THE M/S SAHNEY STEEL & PRESS WORKS LTD. VS CIT (1997) 228 ITR 253 (SC) WHEREIN IT WAS HELD THAT GOVERNMEN T GRANT IN AID TO MEET THE REVENUE EXPENSES WILL BE TREATED AS INCOME. THE AO ALSO FOUND DURING THE ASSESSMENT PROCEEDINGS THAT SIMILAR DISALLOWANC E WAS ALSO MADE IN THE PRECEEDING ASSESSMENT YEAR 2003-04 ON ACCOUNT OF GR ANT-IN-AID FOR AN ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 3 AMOUNT OF RS. 48,22,698/- RECEIVED FROM THE GOVERNM ENT OF WEST BENGAL AND THE SAME WAS ALSO CONFIRMED BY THE LEARNED CIT(A) K OLKATA. THE ASSESSEE DID NOT PREFER ANY APPEAL TO THE TRIBUNAL AGAINST T HE ORDER OF THE LD. CIT(A). IN VIEW OF ABOVE, AO HAS MADE THE ADDITION OF RS.2,83, 41,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHERE IT WAS SUBMITTED THAT ASSESSEE IS A SICK PUBLIC SECTOR UNDERTAKING AND THE GRANT WAS RECEIVED FROM THE GOVERNMENT FOR THE PAYMENT OF SALARY AND PF DUES WITH THE PURPOSE TO KEEP WORKMEN IN EMPLOYMENT. THE REFORE IT IS A CAPITAL GRANT-IN-AID AND NOT LIABLE TO TAX. THE ASSESSEE HA S RELIED IN THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HANDICRAFTS AND HANDLOOMS EXPORT CORPORATION OF INDIA LTD. (2014) 360 ITR 130 (DEL). HOWEVER, LD.CIT(A) DISREGARDED THE SUBMISSION OF THE ASSESSEE BY OBSER VING IN PARA-2.3 OF HIS ORDER, WHICH IS REPRODUCED BELOW:- 2.3 I HAVE GONE THROUGH THE SUBMISSION OF THE ASSE SSEE. IT IS AN ADMITTED ACT THAT GRANTS WERE RECEIVED TOWARDS SALA RY AND PF. IT WAS, THEREFORE, AN OPERATIONAL SUBSIDY PROVIDED BY THE S TATE GOVT. AFTER SETTING UP OF THE BUSINESS. IT IS NOT AN AID/SUBSID Y TO CARRY OUT ANY CAPITAL INVESTMENT BUT TO MEET THE REVENUE EXPENSES OF CARRYING OUT BUSINESS. THERE IS A DIFFERENCE BETWEEN SUBSIDIZING THE CAPITAL OUT LAY AND SUBSIDIZING THE RUNNING OF BUSINESS. THE APEX C OURT INCOME SAHNEY STEEL AND PRESS WORK 228 ITR 253 HAS LAID DOWN THE PRINCIPLES FOR DETERMINING THE NATURE OF SUBSIDY/GRANT. IT WAS HELD THAT THE GRANT RECEIVED FOR SETTING UP THE INDUSTRY WAS CAPITAL RE CEIPTS WHEREAS GRANT RECEIVED TOWARDS RUNNING THE INDUSTRY WAS A REVENUE RECEIPT EXIGIBLE TO TAX. THE GRANT-IN-AID RECEIVED BY THE ASSESSEE IS C LEARLY A REVENUE RECEIPT IN THE COURSE OF ITS BUSINESS TO MEET THE O PERATIONAL EXPENSES AND NOT IN THE NATURE OF CAPITAL OUTLAY. SUCH GRANT -IN-AID IS THEREFORE REVENUE RECEIPT AND IS HELD AS TAXABLE. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE GRANT-IN-AID TOWARDS SALARY & PF AS TAXABLE IS UPHELD. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) THE ASS ESSEE CAME IN SECOND APPEAL BEFORE US ON THE FOLLOWING GROUNDS OF APPEAL :- 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN LAW AS WELL AS IN FACT IN UPHOLDING THE TREATMEN T OF GRANT-IN-AID OF ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 4 RS.23841000/- TOWARDS SALARY & PF AS TAXABLE, MADE BY THE ASSESSING OFFICER. 3. THAT THE DISALLOWANCE OF RS.23841000/- REFERRED TO IN GROUND NO.2 ABOVE SHOULD BE ALLOWED IN FULL. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. AR FILED PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 119 AND SUBMITTED THAT THE CASE RELIED BY THE LOWER AUTHORITIES DOES MATCH WITH THE FACTS OF THE CASE OF THE ASSESSEE. THE ABO VE CASE IS APPLICABLE TO THE SITUATIONS WHERE THE GOVERNMENT GRANT WAS GIVEN TO THE CERTAIN CLASS OF INDUSTRIES. ON THE CONTRARY THE LD. DR SUBMITTED TH AT IN THE INSTANT CASE THE GRANT IN AID IS NOT FROM GOVERNMENT TO GOVERNMENT B UT GOVERNMENT TO CORPORATE. THE GRANT WAS GIVEN TO THE ASSESSEE FOR THE PURPOSE OF MEETING THE REVENUE EXPENSES WHICH ARE RECURRING IN NATURE. THE FACTS OF THE CASE CITED BY THE ASSESSEE I.E. HANDICRAFTS AND HANDLOOM EXPORT CORPORATION OF INDI A (SUPRA) ARE DIFFERENT FROM THE INSTANT CASE AS IN T HAT CASE THE HOLDING COMPANY HAS GIVEN CASH ASSISTANCE TO ITS SUBSIDIARY COMPANY THEREFORE THE SAME CANNOT BE RELIED UPON. FINALLY THE LD. DR VEHEMENT LY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 6.1 FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS RECEIVED A GRANT FROM THE GOVERNMENT OF WEST BENGAL WHICH IS H UNDRED PERCENT SOLE SHAREHOLDER OF THE ASSESSEE COMPANY. THE PURPOSE OF THE GRANT WAS TO UTILIZE TOWARDS THE PAYMENT FOR SALARY AND PF OF THE EMPLOY EES. THE AO DURING ASSESSMENT PROCEEDINGS OBSERVED THAT THE GRANT WAS GIVEN TO MEET THE REVENUE EXPENSES THEREFORE IT IS FULLY LIABLE TO TA X. HOWEVER, THE ASSESSEE TREATED THE SAME AS CAPITAL GRANT IN AID AND THEREF ORE NOT LIABLE TO TAX. FROM THE FACTS WE FIND THAT THE LOWER AUTHORITIES HAVE M ADE THE ADDITION ON ACCOUNT OF THE FOLLOWING: ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 5 1) THE LOWER AUTHORITIES RELIED IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF THE SAHNEY STEEL & PRESS WORKS (SUPRA) FOR TREATING THE GRANT IN AID AS THE REVENUE IN NATURE AND THERE FORE LIABLE TO TAX. 2) SIMILAR ADDITION FOR GRANT-IN-AID WAS MADE BY TH E AO IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR THE 2003-04 . NOW LET US SEE THE FACTS OF THE AFORESAID JUDGMENT. THE HONBLE SUPREME COURT HAS REFERRED TO SALIENT FEATURES OF VARIOUS S CHEMES FORMULATED BY THE CENTRAL / STATE GOVERNMENTS AND THE SUBSIDY RECEIVE D THERE-UNDER, THE PURPOSE OF THE SAID SUBSIDY AND THEN DETERMINED WHE THER OR NOT IT WAS TAXABLE AS REVENUE RECEIPT. IT HAS BEEN HELD THAT THE PAYME NT MADE AS INCENTIVES OR SUBSIDIES BY WAY OF REFUND OF SALES TAX, POWER AND ELECTRICITY CONSUMED ON PRODUCTION, WATER RATE ETC. SHOULD BE TREATED AS RE VENUE RECEIPTS. INCENTIVES AND SUBSIDY RECEIVED IN THE NATURE OF PRODUCTION EX PENSES AFTER THE PRODUCTION HAS STARTED WERE NOT DIRECTLY OR INDIREC TLY FOR SETTING UP OF INDUSTRIES AND, HENCE, REVENUE IN CHARACTER. OPERATIONAL SUBSI DIES WOULD BE REVENUE IN NATURE AND THEY AMOUNT TO TRADING RECEIPTS. FROM TH E AFORESAID DECISION WE OBSERVE THAT THAT THE SUBSIDIES WERE GIVEN TO THE C LASS OF INDUSTRIES AS PER THE SCHEMES DESIGNED BY THE RESPECTIVE GOVERNMENTS. THE PURPOSE OF THE AFORESAID SUBSIDIES WAS TO PROMOTE THE CERTAIN CLAS S OF INDUSTRIES PROVIDED, THEY MEET THE ELIGIBILITY CRITERIA LAID DOWN IN THO SE SCHEMES. HOWEVER, IN THE INSTANT CASE WE FIND THAT THE GRANT IN AID WAS GIVE N TO THE ASSESSEE EXCLUSIVELY AND THERE WAS NO SCHEME AS SUCH. THEREF ORE IN OUR CONSIDERED VIEW THE CASE LAW CITED BY AO IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. (SUPRA) ARE DIFFERENT FROM THE INSTANT CASE OF ASSE SSEE, AS IT WAS GIVEN FOR THE SPECIFIC PAYMENT OF SALARY AND PF. THE RELEVANT POR TION OF THE SANCTIONED LETTER OF GOVERNMENT OF WEST BENGAL IS REPRODUCED B ELOW:- GOVERNMENT OF WEST BE NGAL FISHERI ES DEPARTMENT WRITERS BUILDINGS, KOLKATA-1 NO.155-FISH(FS)/C-VI/2C-5/00-PT/1 DATED KOLKATA T HE 30 TH MARCH 2005 FROM: THE JOINT SECRETARY TO THE GOVT. OF WEST BEN GAL TO: THE TREASURY OFFICER, BIDHAN NAGAR TREASURY, ACCOUNTS DEPTT. ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 6 JALSMPAD BHAVAN, SALT LAKE, KOLKATA-91. SUB: SANCTION OF A FUND WORTH RS.76.77 LAKH (RUPEES SEVENTY SIX LAKH AND SEVENTY SEVEN THOUSAND ONLY) AS GRANT-IN-A ID FOR THE PURPOSE OF PAYMENT OF ARREAR PROVIDENT FUND OF THE EMPLOYEES OF THE STATE FISHERIES DEVELOPMENT CORPORATION LTD. MEMORANDUM IN CONTINUATION OF THIS DEPTTS MEMO NO.87-FISH(FS )/C-VI DATED 16.2.2005, THE UNDERSIGNED IS DIRECTED BY ORDER OF THE GOVERNOR TO SAY THAT THE GOVERNOR HAS BEEN PLEASED TO ACCORD SANCTION TO A FURTHER SUM OF RS.76.77 LAKH (RUPEES SEVENTY SIX LAKH SEVENTY SEVE N THOUSAND) ONLY AS GRANT-IN-AID TO THE STATE FISHERIES DEVELOPMENT COR PORATION LTD., A GOVT. COMPANY UNDER THE ADMINISTRATIVE CONTROL OF THE FIS HERIES DEPTT., FOR THE PURPOSE OF PROVIDENT FUND ARREAR DUES IN RESPECT OF THE EMPLOYEES OF SEDC LTD., TO THE REGIONAL PROVIDENT FUND COMMISSIONER. 2. THE GOVERNOR HAS FURTHER BEEN PLEASED TO AUTHORI ZE THE MANAGING DIRECTOR, STATE FISHERIES DEVELOPMENT CORPORATION LTD., TO AC T AS THE DRAWING AND DISBURSING OFFICER FOR THE AMOUNT SANCTIONED HEREIN ABOVE. HE IS ALSO REQUESTED TO DEPOSIT THE AMOUNT IN THE DEPOSIT ACCO UNT OPENED IN TERMS OF FINANCE DEPTT. MEMO NO.1230-F DT. 3.2.84 BY TRANSFE R OF CREDIT UNDER THE HEAD 8499-OTHERE DEPOSITS-00-120-DEOSITS OF GOVERNMENT C OMPANIES AND CORPORATIONS THE ALLOTTED SUM OF RS.76.77 LAKH (RUPEES SEVENTY SIX LAKH SEVENTY SEVEN THOUSAND) ONLY TO BE DRAWN BY HI M FOR THE PURPOSE MENTIONED ABOVE. THE CHANGE OF DEPOSIT ACCOUNT HAS BEEN COMMUNICATED IN TERMS OF FINANCE DEPTT. MEMO NO.8798-F, DATED 23.12 .98 WEF 1.4.99. 3. THE MANAGING DIRECTOR, STATE FISHERIES DEVELOPME NT CORPORATION LTD., WILL PLEASE ENSURE IMMEDIATELY ON MAJOR UTILISATION OF THE ABOVENOTED FUND FOR THE PURPOSE STATED IN PARA 1 ABOVE AND SEND A COMPLIANC E REPORT TO THIS DEPTT. AS EARLY AS POSSIBLE. 4. THE CHARGE INVOLVED WILL PROCEED AGAINST THE HEA D 2405-FISHERIES-00-101- INLAND FISHERIES-NP-NON PLAN-007-STATE CONTRIBUTION AS GRANTS TO SFDC/WBFC FOR PISCICULTURE OPERATION 31-GRANTS-INI- AID-01-SLARY GRANTSN THE BUDGET FOR 2004-2005. 5. THIS ORDER ISSUES WITH THE CONCURRENCE OF THE FI NANCE DEPTT., OF THIS GOVT. VIDE THEIR U.O.NO.1141 GROUP A DT. 30.3.05. 6. THE ACCOUNTANT GENERAL, WEST BENGAL AND OTHERS C ONCERNED ARE BEING INFORMED. SD/-ILLEGIBLE JOINT SECRETARY TO TH E GOVT. OF WEST BENGAL ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 7 FROM THE ABOVE, WE FIND THAT THE GRANT GIVEN BY THE GOVERNMENT TO THE ASSESSEE WAS NOT AS PER THE SCHEME DESIGN FOR THE P ROMOTION OF SOME CLASS OF INDUSTRIES BUT IT WAS GIVEN BY THE GOVERNMENT BE ING A SOLE SHARE HOLDER OF THE ASSESSEE COMPANY. IN OUR CONSIDERED VIEW, THE R ATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HANDICRAFTS AND HANDLOOMS EXPORT CORPORATION OF INDIA LTD. (2014) 360 ITR 130 (DEL) IS APPLICABLE TO THE ASSESSEE. IN OUR VIEW THE CONTENTION OF THE LD. DR THAT IN THIS CASE THE CASH ASSISTANCE WAS GIVEN BY THE HOLDING COMPANY TO THE SUBSIDIARY COMPANY THEREFORE THE FACTS OF THIS CASE ARE DIFFERENT FROM THE ASSESSEE IS NOT TENABLE. THERE IS NO STRAIGHT JACKET PRINCIPLE TO DISTINGUIS H A CAPITAL RECEIPT FROM A REVENUE RECEIPT. IT DEPENDS ON THE FACTS AND CIRCUM STANCES OF EACH CASE. THIS VIEW IS SUPPORTED BY THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF MEPCO INDUSTRIES 319 ITR 208 (SC) WHEREIN THE HON'BLEBLE APEX COUR T HELD THAT IN EACH CASE ONE HAS TO DETERMINE THE NATURE OF SUBSIDY BASED ON THE ITS OWN FACTS. WE FIND THAT IN THE INSTANT CASE THE GOV ERNMENT BEING HUNDRED PERCENT SHAREHOLDER OF THE ASSESSEE COMPANY HAS GIV EN GRANT IN AID FOR HOLDING THE EMPLOYMENT. THE GRANT-IN-AID WAS GIVEN SPECIFICALLY TO THE ASSESSEE COMPANY AND THAT IT WAS NOT FOR CERTAIN CL ASS OF INDUSTRIES. WE ARE ALSO RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF HANDICRAFTS AND HANDLOOMS EXPORT CORPORATION OF IND IA LIMITED (SUPRA) WHEREIN THE RELEVANT PORTION IS REPRODUCED BELOW. WE HAVE HEARD LEARNED COUNSEL ON BOTH SIDES IN REG ARD TO THIS MATTER AND WE AGREE WITH THE CONCLUSION OF THE TRIBUNAL TH AT THE SUM OF RS.11,70,000 STANDS ON NO DIFFERENT FOOTING FROM TH E AMOUNTS RECEIVED FROM THE STC IN EARLIER YEARS. WE HAVE POINTED OUT THAT WHAT HAPPENED IN EARLIER YEARS WAS THAT THE ASSESSEE, HAVING INCU RRED CERTAIN LOSSES IN ITS EXPORT BUSINESS, APPROACHED THE STC FOR ASSISTA NCE TO ENABLE IT TO MEET ITS LIABILITIES CONSEQUENT ON SUCH LOSSES AND THE STC AGREED TO DO SO BY REIMBURSING THE LOSSES INCURRED BY THE ASSESS EE. THERE WAS, THEREFORE, EVEN IN THOSE YEARS AN AGREEMENT ON THE PART OF THE STC TO RECOUP THE LOSSES MADE BY THE ASSESSEE. THE CIRCUMS TANCE, THEREFORE, THAT IN THE PRESENT YEAR, THERE WAS AN AGREEMENT DU RING THE PREVIOUS YEAR BY WHICH THE STC AGREED TO GIVE FINANCIAL ASSI STANCE TO THE ASSESSEE WILL NOT, THEREFORE, MAKE ANY DIFFERENCE I N PRINCIPLE. WE ARE ALSO OF OPINION THAT THE OTHER DISTINGUISHING FEATU RE POINTED OUT BY THE DEPARTMENT DOES NOT ALSO MAKE A DIFFERENCE. AS POIN TED OUT BY THE ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 8 TRIBUNAL THE NATURE AND PURPOSE OF THE PAYMENTS BY THE STC TO THE ASSESSEE IS THE SAME IN EARLIER YEARS AS WELL AS TH IS YEARS. IN ALL THE YEARS THE STC HAS ONLY PROVIDED MONIES TO THE ASSES SEE-CORPORATION WITH THE OBJECT OF ENABLING IT TO OFFSET THE LOSSES WHICH IT HAD INCURRED IN THE CURSE OF ITS BUSINESS. THE FACT THAT THE CONTRI BUTION WHICH THE STC WAS PREPARED TO MAKE TO ENABLE THE ASSESSEE TO DO T HIS WAS MEASURED IN TERMS OF A PERCENTAGE OF ITS EXPORT EARNINGS AND WAS NOT A FLAT OR ROUND SUM OF MONEY AS IN THE PRIOR YEARS DOES NOT, IT SEEMS TO US, MAKE ANY DIFFERENCE. IN ALL THE YEARS IT IS ONLY A CASE OF A CENT PER CENT, HOLDING COMPANY COMING TO THE RESCUE OF ITS SUBSIDI ARY WHICH HAS INCURRED LOSSES AND ENABLING IT TO RECOUP THOSE LOS SES AND CONTINUE TO CARRY ON THE BUSINESS IN SPITE OF SUCH LOSSES. IN T HE CIRCUMSTANCES, WHAT WE HAVE SAID IN OUR EARLIER JUDGMENT IN ITR NO S 17 AND 84/74 (ADDL. CIT V. HANDICRAFTS AND HANDLOOM EXPORT CORPO RATION [1982] 133 ITR 590 (DELHI) WILL EQUALLY APPLY IN REGARD TO THE ASSISTANCE RECEIVED BY THE ASSESSEE FROM THE STC DURING THE CURRENT YEA RS. THE AFORESAID FINDINGS RECORDED BY THE HON'BLE HIGH COURT IN THE EARLIER DECISION I.E., HANDICRAFTS AND HANDLOOM EXPORT CORPORATION OF INDI A V. CIT [1983] 140 ITR 532 (DEL) MERIT ACCEPTANCE, EVEN WHE N WE APPLY THE PURPOSE TEST APPLIED IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) AS EXPLAINED IN PONNI SUGAR AND CHEMICALS LTD. (SUPRA) . IT CANNOT BE SAID THAT THE EARLIER DECISION OF THE DELHI HIGH COURT HAS BE EN OVERTURNED OR OVERRULE BY THE HON'BLE SUPREME COURT IN THE TWO DECISIONS MENT IONED ABOVE. ACCORDINGLY, WE ANSWER THE QUESTION OF LAW AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THE LOWER AUTHORITIES HAVE ALSO MA DE THE ADDITION ON THE GROUND THAT SIMILAR DISALLOWANCE WAS MADE IN THE EARLIER ASSESSMENT YEAR 2003-04. IN THIS CONNECTION, WE FIND THAT THE AO MA DE THE ADDITION OF GRANT IN AID FOR RS. 48,22,698/- IN THE ASSESSMENT YEAR 2003 -04 BUT THE AO IN THE ASSESSMENT YEAR 2004-05 HAS ALLOWED THE RELIEF OF G RANT-IN-AID FOR RS. 44 LACS. FROM THE FACTS OF THE CASE WE FIND THAT GRANT IN AID FOR RS.48,22,698/- PERTAINING TO THE ASSESSMENT YEAR 2003-04 WAS ALLOW ED IN THE IMMEDIATE SUBSEQUENT ASSESSMENT YEAR 2004-05 FOR RS. 44 LACS. THE LEARNED AR HAS PRODUCED THE COPIES OF THE ASSESSMENT ORDERS FOR TH E AYS 2003-04 AND 2004- 05 IN SUPPORT OF ITS CLAIM AND THE SAME ARE PLACED ON THE RECORD. SIMILARLY, WE ALSO FIND THAT THE GRANT-IN-AID RECEIVED BY THE ASS ESSEE IN THE ASSESSMENT ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 9 YEAR 2004-05 WAS NOT DISALLOWED BY THE AO. THE LD. DR FAILED TO BRING ANYTHING ON RECORD CONTRARY TO THE ARGUMENT OF THE LD. AR AND HE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. IN VIEW OF AB OVE AND IN THE INTEREST OF JUSTICE, WE ARE INCLINED TO TREAT THE GRANT-IN-AID AS CAPITAL IN NATURE THEREFORE IT IS NOT LIABLE TO TAX. ACCORDINGLY WE REVERSE THE OR DER OF THE LOWER AUTHORITIES AND GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. NEXT ISSUE RAISED IN GROUND NO. 6 & 7 BY THE ASS ESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER O F ASSESSING OFFICER BY DISALLOWING THE EMPLOYEES CONTRIBUTION FOR RS. 43,3 4,151 UNDER THE PF ACT. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSESSEE HAS NOT DEPOSITED THE EMPLOYEES CONTRIBUT ION TO PROVIDENT FUND FOR AN AMOUNT OF RS.43,34,151/- WITHIN THE DUE DATE. TH EREFORE THE AO HAS DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME O F THE ASSESSEE. 9. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO THE L EARNED CIT(A) WHO HAS UPHELD THE ORDER OF THE AO BY THE OBSERVING AS UNDE R:- 4.1 I AM OF THE OPINION THAT IN VIEW OF THE AMENDE D PROVISION OF SECTION 143B EFFECTIVE FROM 01.04.2004 EMPLOYERS CONTRIBUT ION TO PF IS TO BE HELD AS ADMISSIBLE. THE EMPLOYEES CONTRIBUTION HOWE VER, IS GOVERNED BY SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) AND NOT BY SECTION 43B. THIS SECTION HAS NOT BEEN AMENDED AND THEREFORE EMP LOYEES CONTRIBUTION IS ADMISSIBLE ONLY IF IT IS PAID WITHI N THE DUE DATE AS PRESCRIBED IN THE PF ACT. THE ASSESSEE MADE THE PAY MENT EVEN AFTER THE GRACE PERIOD AS MENTIONED IN THE PF ACT. THEREF ORE, EMPLOYEES CONTRIBUTION TO PF IS NOT ADMISSIBLE TO THE ASSESSE E. THE AO IS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF EMPLOYER S CONTRIBUTION TO PF. THE ADDITION MADE ON ACCOUNT OF EMPLOYEES PF IS UPH ELD. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US ON THE FOLLOWING EFFECTIVE GROUNDS:- 6. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AS WE LL AS IN FACT IN UPHOLDING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTI ON OF RS.4334151/- MADE BY THE ASSESSING OFFICER. ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 10 7. THAT THE DISALLOWANCE OF RS.4334151/-, REFERRED TO IN GROUND NO.6 ABOVE SHOULD BE DELETED. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE AO HAS MADE THE ADDITION O F THE AMOUNT OF THE EMPLOYEE CONTRIBUTION AS THERE WAS A DELAY IN PAYME NT TO PF AUTHORITIES. HOWEVER, FROM THE ASSESSMENT ORDER WE FIND THAT ALL THE PAYMENT OF EMPLOYEES CONTRIBUTION WERE MADE BEFORE THE DUE DAT E OF FILING OF INCOME TAX RETURN AS SPECIFIED U/S.139(1) OF THE ACT. NOW, TH IS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S VIJAY SHREE LIMITED VIDE ITAT NO.245 OF 2011 IN GA NO.2607 OF 2011 DATED 7 TH SEPTEMBER, 2011, WHEREIN IT HAS BEEN HELD AS UNDER:- AFTER HEARING MR. SINHA, LEARNED ADVOCATE, APPEARI NG ON BEHALF OF THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF T HE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD. , WE FIND THAT THE SUPREME COURT IN THE AFORESAID CASE H AS HELD THAT THE AMENDMENT TO THE SECOND PROVISO TO THE SEC. 43(B) O F THE INCOME TAX ACT, AS INTRODUCED BY FINANCE ACT, 2003, WAS CURATI VE IN NATURE AND IS REQUIRED TO BE APPLIED RETROSPECTIVELY WITH EFFECT FROM 1 ST APRIL, 1988. SUCH BEING THE POSITION, THE DELETION OF THE AMOUNT PAID BY THE EMPLOYEES CONTRIBUTION BEYOND DUE DATE WAS DEDUCTI BLE BY INVOKING THE AFORESAID AMENDED PROVISIONS OF SECTION 43(B) O F THE ACT. WE, THEREFORE, FIND THAT NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED IN THIS APPEAL AND CONSEQUENTLY, WE DISMISS THIS APPEAL. FROM THE ABOVE, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN THE CA SE OF M/S VIJAY SHREE LIMITED (SUPRA). AS THE ISSUE IS COVERED, HENCE, WE ALLOW ASSESSEES GROUND OF APPEAL. 11. LAST ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE INTEREST PAID FOR DELAYED DEPOSIT OF PF FOR AN AMOUNT OF RS. 5,51,228/- ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 11 12. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS PAID INTEREST OF RS. 5,51,228/- ON DELAYED PAYM ENT OF PF AMOUNT. THE AO DISALLOWED THE SAME ON THE GROUND THAT THIS INTERES T BEING PANEL IN NATURE AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 13. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER:- THE ASSESSING OFFICER OBSERVED THAT THE TAX AUDIT REPORT MENTIONED THE EXPENSES ON ACCOUNT OF INTEREST FOR DELAYED PAY MENT OF PF AS PENAL IN NATURE. IN EARLIER YEARS, THE CIT(A) HAD UPHELD NOT ADMITTING THIS AS A DEDUCTABLE EXPENDITURE. THE ASSESSING OFFICER, THER EFORE DISALLOWED THE INTEREST PAID TOWARDS DELAYED PAYMENT OF PF. THE AS SESSEE IN APPEAL PROCEEDINGS, HAS RELIED ON CERTAIN DECISION OF THE TRIBUNAL TO CLAIM THAT THIS WAS NOT PENAL IN NATURE AND THEREFORE ADMISSIB LE. HOWEVER, FOLLOWING THE DECISION OF MY PREDECESSOR IN THE CAS E OF THE ASSESSEE FOR EARLIER YEARS, THE DISALLOWANCE IS CONFIRMED. AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE US O N THE FOLLOWING GROUNDS NO 8 AND 9:- 8. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AS W ELL AS IN FACT IN CONFIRMING THE DISALLOWANCE OF RS.551228/- MADE BY THE ASSESSING OFFICER IN THE TOTAL INCOME OF THE APPELLANT BEING THE AMOUNT OF INTEREST PAID FOR DELAYED DEPOSIT OF PF. 9. THAT THE ADDITION OF RS.551228/- REFERRED TO IN GROUND NO.8 SHOULD BE DELETED. 14. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT AO DURING THE COURSE OF ASS ESSMENT ORDER FOUND THAT ASSESSEE HAS PAID A SUM OF RS.5,51,228/- AS INTERES T FOR NON-PAYMENT OF PF AND THIS FACT HAS ALSO BEEN MENTIONED IN ITS TAX AU DIT REPORT AT COLUMN- 17(E)(I) AS EXPENDITURE BY WAY OF PENALTY OR FINE F OR VIOLATION OF ANY LAW AND HE ADDED THE SAME BACK TO THE TOTAL INCOME OF ASSESSEE . CONSIDERING THE SAME, LD. CIT(A) CONFIRMED THE ACTION OF AO. LD. DR RELIE D ON THE ORDERS OF AUTHORITIES BELOW WHEREAS LD. AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. FROM THE FACTS OF THE CASE WE FIND THAT THE INTERES T PAID ON THE LATE DEPOSIT OF ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 12 PF IS COMPENSATORY IN NATURE THEREFORE IT SHOULD NO T BE DISALLOWED ON THE GROUND OF TREATING THE SAME AS PENAL IN NATURE. IN THIS CONNECTION WE ARE PUTTING OUR RELIANCE IN THE FOLLOWING THE DECISION OF HONBLE APEX COURT, IN THE CASE OF PRAKASH COTTON MILLS V. CIT (1993) 2174 AIR 983 (SC) WHEREAS THE HEAD-NOTE :- THE APPELLANT PAID RS.19635 IN THE ACCOUNTING YEAR FOR A.Y. 1966-67, ON ACCOUNT OF INTEREST, UNDER BOMBAY SALES TAX ACT, 19 51, FOR DELAY IN PAYMENT OF SALES TAX, AND FOR DAMAGES FOR DELAYED PAYMENT O F CONTRIBUTION UNDER EMPLOYEES STATE INSURANCE ACT, 1947. THE ASSESSEE- APPELLANT IN THE RETURN OF INCOME, CLAIMED THE AMOUNT AS ALLOWANCE UNDER SE CTION 37(1) OF I.T. ACT. THE APPELLANT, ALSO CLAIMED THE ENTIRE ENTERTAINME NT EXPENSES, AMOUNTING TO RS.3865 AS ALLOWANCE UNDER SECTION 37(2) OF THE I.T . ACT THE INCOME-TAX OFFICER TREATED THE PAYMENT OF RS.19635 AS PENAL INTEREST AND DISALLOWED IT AS ALLOWANCE UNDER SECTION 37(1) OF I.T. ACT. OUT O F THE ENTERTAINMENT, EXPENSES, AMOUNTING TO RS.3865 INCURRED BY THE DI RECTORS OF THE ASSESSEE COMPANY, FOR ENTERTAINMENT AT THE DINERS CLUB AND C.C.1, THE I.T.O. REGARDED RS.1365 ONLY AS PERMISSIBLE DEDUCTION UNDER SECTION 37(2) OF I.T. ACT, TAKING THE VIEW THAT THE REMAINING SUM OF RS.2500 WAS ATTR IBUTABLE TO PERSONAL EXPENSES OF THE DIRECTORS OF THE ASSESSEE COMPANY A ND THEREFORE IMPERMISSIBLE DEDUCTION UNDER SECTION 37(2) OF THE I.T. ACT. THE ASSESSEE APPELLANT DID NOT SUCCEED IN APPEALS BEFORE THE A. A.C. AND IN THE INCOME TAX TRIBUNAL. APPLICATIONS UNDER SECTION 256 (1) OF THE I.T. ACT BEFORE THE TRIBUNAL AND UNDER SECTION 256 (2) IN BOMBAY HIGH C OURT WERE REJECTED. THE ASSESSEE FILED APPEAL BY SPECIAL LEAVE IN SUPREME C OURT. THIS COURT ALLOWED THE APPEAL PARTLY AND, HELD: 'MAT THE AUTHORITY CON CERNED HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) OF THE I.T. ACT, WHER EVER THE CONCERNED IMPOST IS PURELY 983 984 COMPENSATORY IN NATURE. WHEREVER SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE, THAT IS PARTLY COMPE NSATORY AND PARTLY PENAL, THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COM PONENTS OF THE IMPOST AND GIVEN DEDUCTION TO THE COMPONENT, WHICH IS COMPENSA TORY IN NATURE AND REFUSE THE DEDUCTION FOR THE COMPONENT WHICH IS PE NAL IN NATURE. THEREFORE, WHENEVER ANY STATUTORY IMPOST PAID BY ASSESSEE BY W AY OF DAMAGES OR PENALTY OR INTEREST IS AIMED, THE ASSESSING AUTHORI TY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PR OVIDING FOR PAYMENT OF SUCH IMPOST, NOTWITHSTANDING THE NOMENCLATURE OF THE IMP OST AS GIVEN BY THE STATUTE TO FIND, WHETHER IT IS COMPENSATORY OR PENA L IN NATURE. IBIS COURT AGREED WITH THE VIEW TAKEN IN EARLIER DECISIONS BY THIS COURT AND BY THE ANDHRA PRADESH HIGH COURT, WHICH SETTLE THE LAW AS TO WHEN ANY AMOUNT PAID AS INTEREST DAMAGES OR PENALTY COULD BE REGA RDED AS COMPENSATORY (REPARATORY) AS WOULD ENTITLE THE ASSESSEE TO CLAI M ALLOWANCE UNDER SECTION 37 (1) OF I.T. ACT THIS COURT CONCLUDED THAT THE Q UESTION WHETHER THE IMPOST IS IN ESSENCE COMPENSATORY OR IS BY WAY OF PENALTY, HAS TO BE DECIDED HAVING REGARD TO THE RELEVANT PROVISIONS OF THE LAW UNDE R WHICH IT IS IMPOSED, THE REASONS GIVEN IN THE ORDER IMPOSING AND QUANTIFYIN G THE DAMAGES OR PENALTY. THE IMPOSITION THOUGH CALLED A PENALTY MAY BE COMPO SITE IN NATURE COMPRISING PENALTY AS WELL AS COMPENSATION FOR DELA YED PAYMENT. THE NOMENCLATURE OF THE LEVY AS INTEREST, DAMAGES OR PE NALTY IS NOT CONCLUSIVE. ITA NO.1281/KOL/2009 A.Y. 2 005-06 SFDC LTD. V. ACIT CIR-2, KOL. PAGE 13 FROM THE AFORESAID JUDGMENT OF HONBLE SUPREME COUR T, WE FIND THAT THE INTEREST PAID FOR LATE DEPOSIT OF PF WITH THE AUTHO RITIES IS COMPENSATORY IN NATURE, THEREFORE, IT IS ENTITLED FOR DEDUCTION WHI LE COMPUTING THE PROFIT UNDER THE BUSINESS HEAD. IN THIS VIEW OF THE MATTER, WE R EVERSE THE ACTION OF AUTHORITIES BELOW AND GROUND RAISED BY ASSESSEE IN APPEAL IS ALLOWED. 13. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT 19 /04/2016 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 19 / 04 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-THE STATE FISHERIES DEVELOPMENT CORPN. L TD., BIKASH BHAWAN FIRST FLOOR, NO RTH BLOCK, BIDHAN NAGAR, KOLKATA-700 091 2. /RESPONDENT- ACIT, CIRCLE-2, KOLKTA 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,