ITO, Tiruppur V. Tirupur Industrial Waste Water Recycling Company Ltd., Tiruppur

ITA 1463/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8063 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 24-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYACIT
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1463MDS/2016 ( / ASSESSMENT YEAR: 2011-12) THE INCOME TAX OFFICER, WARD-2(2), TIRUPUR. VS M/S. TIRUPUR INDUSTRIAL WASTE WATER RECYCLING COMPANY LTD. 275/2, KUPPANDAMPALAYAM, VEERAPANDI,TIRUPUR-641 605. PAN:AACCT4121C ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. PATHLAVATH PEERYA,CIT /RESPONDENT BY : MR. T.BANUSEKAR, C.A. /DATE OF HEARING : 9 TH AUGUST, 2016 /DATE OF PRONOUNCEMENT : 2 ND NOVEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 3, COIMBATORE DATED 23.02.2016 IN ITA NO.156/14-15 UNDER SECTION 143(3) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER TREATING THE SUBSIDY RECEIVED BY THE ASSESSEE AS CAPITAL IN NATURE. 2 ITA NO. 1463/MDS/2016 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF EFFLUENT TREATM ENT AND WATER RECYCLING FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 07.07.2012 DECLARING LOSS OF ` 60.54 CRORES. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT DATED 06.03.2013 WAS ISSUED TO TH E ASSESSEE ON 17.08.2013. SUBSEQUENTLY, THE ASSESSMEN T WAS COMPLETED BY THE LEARNED ASSESSING OFFICER UNDER SE CTION 143(3) OF THE ACT ON 31.03.2014 WHEREIN HE MADE ADD ITION OF ` 3,10,91,000/- BY TREATING THE SUBSIDY AMOUNT RECE IVED BY THE ASSESSEE FROM THE GOVERNMENT OF TAMIL NADU AS REVENUE RECEIPT. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) WAS OF THE VIEW THAT SINCE THE SUBSIDY WA S EXTENDED BY GOVERNMENT OF TAMIL NADU TO THE ASSESSE E FOR REPAYMENT OF ITS LOAN OBTAINED FOR THE PURPOSE OF S ETTING UP EFFLUENT TREATMENT PLANT AND RELATED ACTIVITIES WHI CH WOULD AMOUNT TO ENDURING BENEFIT TO THE INDUSTRY AND THE ENVIRONMENT, IT WILL FALL IN THE CAPITAL FIELD AND THEREFORE WOULD NOT BE LIABLE TO TAX. 3 ITA NO. 1463/MDS/2016 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE DECISION CITED BY THE LEARNED AS SESSING OFFICER IN THE CASE SAHANEY STEELS & PRESS WORKS VS . CIT REPORTED IN 288 ITR 253 OF THE HONBLE APEX COURT W OULD BE APPLICABLE TO THE FACTS OF THIS CASE WHEREIN THE HO NBLE APEX COURT HELD AS FOLLOWS:- HELD, DISMISSING THE APPEAL, THAT, UNDER THE NOTIFICATION IN QUESTION THE PAYMENTS WERE MADE TO ASSIST THE NEW INDUSTRIES AT THE COMMENCEMENT OF BUSINESS TO CARRY ON THEIR BUSINESS. THE PAYMENTS WERE NOTHING BUT SUPPLEMENTARY TRADE RECEIPTS. IT WAS TRUE THAT THE ASSESSEE COULD NOT USE THIS MONEY FOR DISTRIBUTION AS DIVIDEND TO ITS SHAREHOLDERS. BUT THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED AND WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. THE SUBSIDIES HAD NOT BEEN GRANTED FOR PRODUCTION OF, OR BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR, ONLY AFTER THE SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE. THE SUBSIDIES WERE OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER ARG UED STATING THAT THE RELIANCE PLACED BY THE LEARNED ASS ESSING OFFICER IN THE CASE OF GURUDASPUR CO-OP. 3 ITR TR IB) 101 WILL ALSO BE APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE 4 ITA NO. 1463/MDS/2016 WHEREIN IT WAS HELD THAT THE CONVERSION OF THE LOAN INTO GRANT IN AID BY THE STATE GOVERNMENT WOULD AMOUNT TO REVE NUE RECEIPT. IT WAS THEREFORE ARGUED THAT THE ORDER OF THE LEARNED ASSESSING OFFICER IS APPROPRIATE IN THE CASE OF THE ASSESSEE AND THE SAME MAY BE UPHELD. 6. THE LEARNED AUTHORIZED REPRESENTATIVE ON THE OTH ER HAND ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED THA T THE SAME MAY BE SUSTAINED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, I T IS APPARENT THAT THE SUBSIDY IS GIVEN BY THE STATE GOVERNMENT T O THE ASSESSEE COMPANY IN ORDER TO FACILITATE THE REPAYME NT OF LOAN AND INTEREST OBTAINED FROM THE BANKS. IT IS ALSO EV IDENT THAT THE ASSESSEE HAD OBTAINED THE LOAN FOR SETTING UP T HE EFFLUENT TREATMENT PLANT. THE TEXTILE INDUSTRIES WERE DIRECT ED BY THE COURT TO SET UP EFFLUENT TREATMENT PLANT AND THEREF ORE COLLECTIVELY THEY HAVE FORMED THE ASSESSEE COMPANY FOR SETTING UP THE EFFLUENT TREATMENT PLANT. SUBSEQUENT LY, THE 5 ITA NO. 1463/MDS/2016 ASSESSEE COMPANY HAD INCURRED LOSS AND SINCE THE AS SESSEE COMPANY WAS NOT ABLE TO REPAY THE LOAN THE STATE GOVERNMENT HAD GRANTED THE SUBSIDY TO THE ASSESSEE COMPANY IN ORDER TO REPAY THE LOAN. THEREFORE IT IS CLEAR THAT EFFECTIVELY THE SUBSIDY WAS RECEIVED BY THE ASSESSE E TO TIDE OVER THE LOAD WHICH WAS OBTAINED TO SECURE ASSET FO R THE ASSESSEE COMPANY. IN THE CASE OF THE ASSESSEE THE S UBSIDY IS ALSO NOT RECEIVED YEAR AFTER YEAR FOR ANY DAY TO DAY OPERATION AS IN THE CASE SAHNEY STEELS & PRESS WORK S LTD., SUPRA RELIED BY THE LD.A.O. HENCE AS HELD BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE CASE O F THE ASSESSEE THE SUBSIDY RECEIVED WILL FALL IN THE CAPI TAL FIELD AND CANNOT BE TREATED AS REVENUE RECEIPT. WHILE ARRIVIN G AT THIS DECISION WE DRAW STRENGTH FROM THE ORDER OF THE HON BLE APEX COURT IN THE CASE CIT V/S. PONNI SUGARS & CHEMICALS LTD. & ORS REPORTED IN 306 ITR 0392 WHERE IN IT WAS HELD T HAT IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIP T IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT O F THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE T HE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXIS TING UNIT 6 ITA NO. 1463/MDS/2016 THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCO UNT. THEREFORE IT IS THE OBJECT FOR WHICH THE SUBSIDY/AS SISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF THE INCENTIVE SUBSIDY. THE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. THEREFORE DRAWING STRENGTH FROM THE ABOVE DECISION OF THE HONBLE HIGH COURT, WE ARE OF THE VIEW THAT IF THE ASSESSEE HAS UTILIZED THE SUBSIDY RECEI VED FOR REPAYMENT OF LOAN OBTAINED FOR ACQUIRING ASSETS AS DIRECTED BY THE STATE GOVERNMENT , THEN THE SUBSIDY RECEIVED SHOULD BE TREATED AS CAPITAL RECEIPT AS HELD BY THE LD.CIT (A), OTHERWISE IT HAS TO BE TREATED AS REVENUE RECEIPTS. ACCORDINGLY WE HEREBY REMIT THE MATTER BACK TO THE FILE OF THE LD.A.O TO VERIFY WHETHER THE ASSESSEE HAD REPAID TH E LOAN OBTAINED FOR ACQUIRING ASSETS TO THE EXTENT OF THE SUBSIDY RECEIVED DURING THE RELEVANT PREVIOUS YEAR AND IF F OUND SO TREAT THE SUBSIDY RECEIVED AS CAPITAL RECEIPT OTHER WISE TREAT IT AS REVENUE RECEIPT AND BRING IT TO THE AMBIT OF TAX . WE ALSO MAKE IT CLEAR THAT IF SUCH LOAN IS PARTIALLY REPAID THEN TO THAT EXTEND IT SHALL BE TREATED AS CAPITAL RECEIPT. IT I S ORDERED ACCORDINGLY. 7 ITA NO. 1463/MDS/2016 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSE AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 2 ND NOVEMBER, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 2 ND NOVEMBER, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF