DCIT, New Delhi V. M/s. Sutlej Textiles and Industries Ld., Bhawanimandi

ITA 5142/DEL/2013

• Counselvise Citation: 514220114 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 30-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 09-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S MINHAS ACIT
• Keywords: Capital receipt; Revised return
• Section: 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G, NEW DELHI) BEFORE SHRI D. MANMOHAN, HONBLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A. NO. 5142/DEL/2013 ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE 9(1), VS. M/S. SUTLEJ TEXTILES AND IN DUSTRIES LTD., NEW DELHI PACHPAHAR ROAD, BHAWNIMANDI (RAJASTHAN) GIR / PAN:AAJCS1850N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J. S. MINHAS, ACIT DR RESPONDENT BY : SHRI ROHIT JAIN, ADV. SHRI SAMHBAV JAIN, CA DATE OF HEARING : 03.07.2015 DATE OF PRONOUNCEMENT : 03.07.2015 ORDER PER D.MANMOHAN, VP: THIS APPEAL IS FILED AT THE INSTANCE OF REVENUE AN D IT PERTAINS TO ASSESSMENT YEAR 2009-10. THE ONLY GROUND URGED BEF ORE US READS AS UNDER: THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS IN DE LETING THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF RECRUITMEN T AND TRAINING EXPENSE AMOUNTING TO RS.15,84,215/-. 2. FACTS NECESSARY FOR THE DISPOSAL OF THIS APPEAL ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND TRADING IN YARN AND FABRICS. ON 29.09.2009, THE ASSESSEE DECL ARED A LOSS OF RS.49.81 CRORES FOR THE YEAR UNDER CONSIDERATION. THEREAFTE R, I.E. ON 30.03.2011, THE ASSESSEE FILED REVISED RETURN DECLARING LOSS OF RS. 79.56 CRORES. THE REVISED ITA NO.5142/DEL/2013 2 RETURN WAS ADMITTEDLY FILED U/S 139(5) OF THE ACT. FOLLOWING SUBSIDIES WERE RECEIVED BY THE ASSESSEE UNDER VARIOUS SCHEMES OF C ENTRAL AND STATE GOVERNMENTS: I) 3% CENTRAL INTEREST SUBSIDY UNDER THE CENTRAL IN TEREST SUBSIDY SCHEME, 2002 OF GOVERNMENT OF INDIA IN FAVOUR OF KA THUA UNIT; -RS.3,36,53,526/-. II) 2.5% INTEREST SUBSIDY UNDER RAJASTHAN INVESTMEN T PROMOTION SCHEME, 2003 BY RAJASTHAN GOVERNMENT IN FAVOUR OF B HAWANIMANDI UNIT; - RS.44,64,000/-. III) INTEREST SUBSIDY UNDER TECHNOLOGY UP-GRADATION FUND SCHEME BY MINISTRY OF TEXTILES, GOVERNMENT OF INDIA IN FAV OUR OF ALL THE UNITS OF THE COMPANY; - RS.25,90,32,252/-. 3. AS NOTICED FROM THE PAPER BOOK FILED BY THE ASSE SSEE, COPY OF CENTRAL INTEREST SUBSIDY SCHEME 2002, RAJASTHAN GOVERNMENT PROMOTION SCHEME 2003, AND TECHNOLOGY UPGRADATION SCHEME OF MINISTRY OF TEXTILES WERE PLACED BEFORE THE A.O., BEFORE THE COMPLETION OF AS SESSMENT PROCEEDINGS PURSUANT TO REVISED RETURN FILED ON 30.03.2011. PA GES 6-10 OF THE PAPER BOOK CONTAIN THE REVISED RETURN AND ANNEXURES. PAGES 23 6-238 OF THE PAPER BOOK REFER TO DETAILED WRITTEN SUBMISSIONS FILED BEFORE THE A.O. (VIDE LETTERS DATED 10.05.2011 AND 16.11.2011) WHEREIN THE ASSESSEE CLA RIFIED THAT IT HAD RECEIVED INTEREST SUBSIDY UNDER THE ABOVE SCHEMES W HICH DESERVE TO BE CAPITALISED, BY APPLYING THE PURPOSE TEST LAID DO WN RECENTLY BY HON'BLE SUPREME COURT IN THE CASE OF PONNI SUGARS AND CHEMI CALS LTD. VS CIT 306 ITR 392 WHEREIN, THE HON'BLE SUPREME COURT OBSERVED THAT THE TEST TO DETERMINE THE CHARACTER OF RECEIPT HAS TO BE WITH R ESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN; THE POINT OF TIME AT WH ICH THE SUBSIDY IS PAID, SOURCE THEREOF AND THE FORM OF SUBSIDY IS NOT MATER IAL. THE HONBLE COURT FURTHER OBSERVED THAT IF THE INCENTIVE IS UTILISED FOR REPAYMENT OF LOAN TAKEN ITA NO.5142/DEL/2013 3 BY THE ASSESSEE TO SET UP NEW UNIT OR FOR SUBSTANTI AL EXPANSION OF THE EXISTING UNIT, IT HAS TO BE TREATED AS CAPITAL IN NATURE. I T WAS FURTHER CLARIFIED THAT ONLY IN CASES WHERE THE OBJECT OF SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO MAKE THE BUSINESS MORE PROFITABLE THE RECEIPT, UNDE R THOSE CIRCUMSTANCES, CAN BE TREATED AS REVENUE IN CHARACTER. ON THE OTH ER HAND IF THE OBJECT WAS TO ENABLE THE ASSESSEE TO SET UP THE UNIT OR FOR EXPAN SION OF THE UNIT, ANY AMOUNT GIVEN TO SUCH ASSESSEE BY WAY OF ASSISTANCE, IN THIS REGARD, SHOULD BE TREATED AS CAPITAL IN NATURE WITHOUT LOOKING INTO T HE FORM AND MECHANISM THROUGH WHICH SUBSIDY IS GIVEN. 4. IT WAS ALSO SUBMITTED BEFORE THE AO THAT ON 31.0 1.2011 THE HONBLE JAMMU AND KASHMIR HIGH COURT, IN THE CASE OF BALAJI ALLOYS VS CIT 198 TAXMAN 122, OBSERVED THAT INTEREST SUBSIDY RECEIVED UNDER THE CENTRAL INTEREST SUBSIDY SCHEME 2002 DESERVE TO BE TREATED AS CAPITAL IN NATURE IN THE HANDS OF RECIPIENT. 5. THE ASSESSEE COMPANY FURNISHED DETAILS OF SUBSID IES RECEIVED UNDER VARIOUS SCHEMES TO HIGHLIGHT THAT THE PURPOSE OF SU BSIDIES WAS TO ASSIST IN SETTING UP OF INDUSTRY / EXPANSION OF INDUSTRIAL UN ITS AND HENCE IT HAS TO BE TREATED AS CAPITAL SUBSIDY. 6. THE A.O. OMITTED TO CONSIDER REVISED RETURN THUS THE CLAIM OF ASSESSEE, IN THE REVISED RETURN, WAS NOT CONSIDERED. 7. AGGRIEVED, THE ASSESSEE CONTENDED BEFORE LD. CIT (A) THAT THE A.O. ERRED IN NOT CONSIDERING THE CLAIM OF ASSESSEE THAT THE SUBSIDIES RECEIVED ARE OF CAPITAL IN NATURE AND FURTHER CONTENDED THAT ALL THE DETAILS WERE FURNISHED BEFORE THE A.O. AND HENCE HE OUGHT TO HAVE CONSIDER ED THE SAME ON MERITS. ITA NO.5142/DEL/2013 4 8. LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS FILED VALID REVISED RETURN AND THE A.O. WAS NOT JUSTIFIED IN IGNORING THE REVI SED RETURN WHILE COMPLETING THE ASSESSMENT WITHOUT ASSIGNING ANY VAL ID REASONS. 9. ON MERITS, LD. CIT(A) EXAMINED EACH SCHEME AND T HE MODE OF RECEIPT OF AMOUNT BY THE ASSESSEE, IN THE LIGHT OF RATIO LA ID DOWN IN THE FOLLOWING CASES: (A) SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS V S CIT 228 ITR 253 (S.C.) (B) PONNI SUGARS & CHEMICALS LTD. VS CIT 306 ITR 3 92 (S.C.) (C) M/S. SHREE BALAJI ALLOYS VS CIT 198 TAXMAN 122 (J&K H.C.) (D) CITVS SHAM LAL BANSAL 200 TAXMAN 14 (P&H H.C.) 9.1 WITH REGARD TO INTEREST SUBSIDY, UNDER THE INTE REST SUBSIDY SCHEME 2002, LD. CIT(A) NOTICED THAT THE ASSESSEE COMPANY HAD RECEIVED INTEREST SUBSIDY TO THE EXTENT OF 3% OF THE WORKING CAPITAL ADVANCED BY THE BANKS / FINANCIAL INSTITUTIONS. THE AMOUNT OF SUBSIDY SO R ECEIVED WAS SHOWN AS PART OF MISCELLANEOUS INCOME IN SCHEDULE XV. THE SUBS IDY WAS GRANTED FOR INDUSTRIAL DEVELOPMENT IN THE STATE OF JAMMU & KASH MIR FOR CREATING EMPLOYMENT OPPORTUNITIES. BY APPLYING THE PURPOSE TEST, LAID DOWN BY HONBLE APEX COURT IN THE CASE OF PONNI SUGARS & CH EMICALS LTD. (SUPRA) AND ALSO IN THE LIGHT OF OTHER JUDGEMENTS, WHICH HA VE CONSIDERED THE SCHEMES, LD . COMMISSIONER OBSERVED THAT PRIMARY CO NSIDERATION OF CENTRAL GOVERNMENT IN GRANTING INCENTIVES WAS TO GENERATE E MPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DEVELOPMENT AND THUS EAC H INCENTIVE CAN BE SAID TO HAVE BEEN DESIGNED TO ACHIEVE PUBLIC PURPOSE AND TH EREFORE, IT IS NOT BY ANY STRETCH OF IMAGINATION CONSTITUTE AS PRODUCTION INC ENTIVE FOR THE BENEFIT OF ASSESSEE ALONE. THEREFORE, THE INTEREST SUBSIDY IS IN THE NATURE OF CAPITAL RECEIPT. ITA NO.5142/DEL/2013 5 10. WITH REGARD TO 2.5% CAPITAL INVESTMENT SUBSIDY, UNDER RAJASTHAN INVESTMENT PROMOTION SCHEME, 2003, LD. CIT(A) OBSER VED THAT SUBSIDY WAS PROVIDED FOR PROMOTING INVESTMENT IN THE STATE OF R AJASTHAN AND WAS LINKED TO CAPITAL INVESTMENT/ AND HENCE THE SCHEME WAS IN THE LARGER PUBLIC INTEREST, THEREFORE, IT CONSTITUTES CAPITAL RECEIPT AND NOT L IABLE TO TAX. 11. SIMILARLY, WITH REGARD TO 5% INTEREST SUBSIDY G RANTED BY MINISTRY OF TEXTILES, LD. CIT(A) PERUSED THE OBJECTS OF THE SCH EME WHILE COMING TO THE CONCLUSION THAT IT WAS INTRODUCED TO PROMOTE TECHNO LOGICAL UPGRADATION IN THE INDIAN TEXTILE INDUSTRY AND ALSO NOTED THAT THE ISSUE IS SQUARELY COVERED BY PUNJAB & HARYANA HIGH COURT DECISION IN THE CASE OF SHYAM LAL (SUPRA) WHEREIN IT WAS HELD THAT SUCH SUBSIDY RECEIVED UNDE R THE SAID SCHEME IS CAPITAL IN NATURE. 12. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S IN APPEAL BEFORE US. AT THE OUTSET, IT MAY BE NOTED THAT THOUGH THE COMM ISSIONER HAS CATEGORICALLY MENTIONED THAT THE AO WAS NOT CORRECT IN IGNORING THE REVISED RETURN AND COULD NOT HAVE PROCEEDED TO COMPLETE ASS ESSMENT WITHOUT ADJUDICATING UPON THE CLAIM MADE BY THE ASSESSEE IN ITS REVISED RETURN, THE REVENUE DID NOT CHALLENGE THIS FINDING. 13. LD. D.R. MERELY SUBMITTED THAT THE A.O. HAS NOT LOOKED INTO THE SCHEMES. HENCE, IN THE INTEREST OF SUBSTANTIAL JU STICE, THE MATTER DESERVES TO BE RESTORED TO THE FILE OF AO FOR DE NOVO CONSIDERA TION. HE FURTHER SUBMITTED THAT THE SCHEME FOR TECHNOLOGICAL UPGRADATION AND O THER SCHEMES WERE NOT MERELY MEANT FOR THE PURPOSE OF BUSINESS AND SETTIN G UP OF NEW BUSINESS BUT ALSO AIMED AT INCREASING OF EMPLOYMENT OPPORTUNITIE S ETC. WHICH FALL UNDER THE CAPITAL FIELD. ITA NO.5142/DEL/2013 6 14. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO PAGES 61, 62, 70, 302, 316 AND 317 OF THE PAPER BOOK TO SUBMIT THAT ON IDENTICAL FACTS AND CIRCUMSTANCES, THE HONBLE COUR TS HAVE TAKEN A VIEW THAT PURPOSE TEST IS THE ONLY RELEVANT TEST AND BY APP LYING THE SAME TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, LD. CIT(A) HAD COME TO THE CONCLUSION THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS NOT ASSESSA BLE TO TAX SINCE IT FALLS IN THE CAPITAL FIELD. HE THUS STRONGLY RELIED UPON TH E ORDER PASSED BY LD. CIT(A). 15. WE HAVE CAREFULLY GONE THROUGH THE RIVAL SUBMIS SIONS AND PERUSED THE MATERIAL PLACED ON RECORD. WE HAVE ALSO GONE THROU GH THE CLAIM MADE BY ASSESSEE AND THE SCHEMES, UNDER WHICH THE ASSESSEE WAS ENJOYING THE BENEFIT OF SUBSIDIES, TO APPRECIATE THE PURPOSE FOR WHICH S UBSIDIES WERE GRANTED. IN OUR CONSIDERED OPINION, THE SUBSIDIES RECEIVED BY T HE ASSESSEE FALL IN THE CAPITAL FIELD AND LD. CIT(A) HAS GIVEN EXHAUSTIVE R EASONS IN COMING TO THE CONCLUSION THAT THE SUBSIDIES ARE IN THE CAPITAL FI ELD AND IT IS NOT NECESSARY FOR US TO REITERATE THE FACTS IN GREAT DETAIL. HOW EVER, FOR THE SAKE OF COMPLETENESS, WE EXTRACT THE RELEVANT OBSERVATIONS OF LD. CIT(A) AS UNDER: I) REGARDING 3% CENTRAL INTEREST SUBSIDY:- INTEREST SUBSIDY UNDER THE CENTRAL INTEREST SUBS IDY SCHEME, 2002:- THE AFORESAID SUBSIDY WAS INTRODUCED BY THE GOVERNM ENT OF INDIA VIDE NOTIFICATION DATED 22.10.2002, A COPY WHEREOF IS PLACED AT PAGES 55 TO 57 OF THE APPELLANT'S PAPER BOOK. ON PERUSAL OF THE SAID NOTIFICATION, IT IS NOTICED THAT THE VERY FIRST PAR A OF THE SAID NOTIFICATION PROVIDES THAT- 'THE GOVERNMENT OF INDIA IS PLEASED TO MAKE THE FOL LOWING SCHEME OF INTEREST SUBSIDY ON WORKING CAPITAL LOANS FOR INDUSTRIAL UNITS IN THE STATE OF JAMMU & KASHMIR WITH A VIEW TO ACCELERATIN G THE INDUSTRIAL DEVELOPMENT IN THE STATE'. ITA NO.5142/DEL/2013 7 IT IS ALSO NOTICED THAT SUBSEQUENTLY ANOTHER NOTIFI CATION DATED 28 TH NOVEMBER, 2003 WAS ISSUED, A COPY WHEREOF IS PLACED AT PAGE 59 OF THE APPELLANT'S PAPER BOOK. THE SAID NOTIFICATION M AKES IT VERY CLEAR THAT THE PURPOSE OF THE SUBSIDY BEING GRANTED WAS C REATION OF EMPLOYMENT OPPORTUNITIES IN THE STATE OF JAMMU & KASHMIR. THE RELEVANT EXTRACTS OF THE SAID NOTIFICATION ARE AS U NDER: 'NO.1 (111)/20 I2-NER -IN PURSUANCE OF THE ANNOUNCE MENT BY THE PRIME MINISTER ON 19TH APRIL, 2003 AT SRINAGAR FOR CREATION OF ONE LAKH EMPLOYMENT AND SELF EMPLOYMENT OPPORTUNITIES I N JAMMU & KASHMIR, THE GOVERNMENT OF INDIA HAD SET UP A TASK FORCE UNDER CABINET SECRETARY. THE RECOMMENDATIONS OF TASK FORC E WERE SUBMITTED TO THE CABINET. TO ACHIEVE THIS OBJECT OF EMPLOYMENT GENERATION, THE CABINET HAS, INTER ALIA, APPROVED F OLLOWING DEFINITION OF THE TERM 'SUBSTANTIAL EXPANSION' FOR THE PURPOSE OF INCENTIVES/ SUBSIDIES NOTIFIED AS PER OM NO.1 (13)/2000-NER DAT ED 14.06.2002. 2. THE CENTRAL GOVERNMENT, THEREFORE, HEREBY MAKES AMENDMENT IN THE CENTRAL INTEREST SUBSIDY SCHEME, 2002 NOTIFIED IN THE NOTIFICATION OF THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMME RCE & INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION NO.1 (1 1)/2002-NR DATED 22ND OCTOBER, 2002. THE DEFINITION OF THE TER M 'SUBSTANTIAL EXPANSION' APPEARING UNDER PARA 5(D) OF THE SCHEME MAY BE SUBSTITUTED BY THE FOLLOWING: 'CONCESSIONS FOR SUBSTANTIAL EXPANSION SHOULD EXTEN D TO INCLUDE ALL NEW INVESTMENTS BY ENTREPRENEURS, WHICH LEADS TO SU BSTANTIAL ADDITIONAL EMPLOYMENT CREATION BY AN EXISTING ENTRE PRENEUR WITHOUT INSISTING ON MAJOR EXPANSION. 1-HOWEVER, CREDIT UND ER THE INDUSTRIAL POLICY PACKAGE SHOULD NOT BE MERELY FOR PAYING OFF OLD DEBTS OR FOR EQUIPMENT ALREADY IN PLACE. ' IT IS PURSUANT TO THE AFORESAID NOTIFICATIONS, THAT THE APPELLANT HAD RECEIVED INTEREST SUBSIDY TO THE EXTENT OF 3% ON TH E WORKING CAPITAL ADVANCED BY THE BANKS/FINANCIAL INSTITUTIONS. THE A MOUNT OF SUBSIDY SO RECEIVED IS ALSO NOTICED TO HAVE BEEN SHOWN AS PART OF 'MISCELLANEOUS INCOME' IN SCHEDULE 15 'OTHER INCOME' OF THE AUDITE D ACCOUNTS. THESE FACTS, IN MY CONSIDERED VIEW, CLEARLY LEAD TO THE C ONCLUSION THAT THE SUBSIDY WAS GRANTED FOR INDUSTRIAL DEVELOPMENT IN T HE STATE OF JAMMU ITA NO.5142/DEL/2013 8 & KASHMIR AND FOR CREATING EMPLOYMENT OPPORTUNITIES . THUS, APPLYING THE PURPOSE TEST LAID DOWN BY THE SUPREME COURT IN THE CASE OF PONNI SUGAR, AS ELABORATELY DISCUSSED IN DETAIL IN EARLIER PARAS, THE SUBSIDY RECEIVED BY THE APPELLANT IS IN THE NATURE OF CAPITAL RECEIPT AND NOT REVENUE RECEIPT. THE AFORESAID VIEW IS ALSO SUPPORTED BY THE DECISIO N OF THE JAMMU & KASHMIR HIGH COURT IN THE CASE OF SHREE BALAJI ALLO YS (REFERRED ABOVE) WHICH HAS BEEN RELIED UPON BY THE AIR OF THE APPELLANT. IN THAT CASE, TOO, THE HIGH COURT CONSIDERED THE TAXABILITY OF SUBSIDY AMOUNT FOR SETTING UP UNITS IN THE STATE OF JAMMU & KASHMI R. THE ASSESSEE IN THAT CASE RELIED UPON OFFICE MEMORANDUM DATED 14TH JUNE, 2002, NOTIFICATION DATED 28 TH NOVEMBER, 2003 (AS REFERRED IN THE PRESENT CASE) AND THE TWO OTHER NOTIFICATIONS REFERRED FOR EXEMPTION FROM PAYMENT OF EXCISE DUTY. BASED ON THESE NOTIFICATION S, THE ASSESSEE CLAIMED THAT EXCISE REFUND AND INTEREST SUBSIDY WAS IN THE NATURE OF CAPITAL RECEIPT NOT LIABLE TO TAX. THE TRIBUNAL HOW EVER, DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE AND HELD THAT EXCISE REFUND AND INTEREST SUBSIDY WERE IN THE NATURE OF REVENUE RECEIPTS. WHI LE, SETTING ASIDE THE DECISION OF THE TRIBUNAL AND UPHOLDING THE CLAIM OF THE ASSESSEE, THE HIGH COURT HELD THAT EXCISE REFUND AND INTEREST SUB SIDY WERE CAPITAL RECEIPT NOT LIABLE TO TAX. SOME OF THE RELEVANT OBS ERVATIONS OF THE HIGH COURT ARE REPRODUCED AS UNDER: . 22. PERUSAL OF THE OFFICE MEMORANDUM DATED 14-6-200 2 INDICATING NEW INDUSTRIAL POLICY AND OTHER CONCESSIONS FOR THE STATE OF JAMMU AND KASHMIR, MAKES IT EXPLICIT THAT THE CONCESSIONS WERE ISSUED TO ACHIEVE TWIN OBJECTS VIZ., (I) ACCELERATION OF INDU STRIAL DEVELOPMENT IN THE STATE OF JAMMU AND KASHMIR, WHICH HAD BEEN FOUN D LAGGING BEHIND IN SUCH DEVELOPMENT AND (II) GENERATION OF E MPLOYMENT IN THE STATE OF JAMMU AND KASHMIR. AMENDMENT INTRODUCED TO THE OFFICE MEMORANDUM VIDE NOTIFICATION OF 28- 11-2003 OF THE GOVERNMENT OF IN DIA, MINISTRY OF COMMERCE AND INDUSTRY (DEPARTMENT OF INDUSTRIAL POL ICY AND PROMOTION) ELOQUENTLY DEMONSTRATES THE CENTRAL GOVE RNMENT'S INTENTION IN EXTENDING THE INCENTIVES. THE GOVERNME NT'S OBJECTIVE, AS CONVEYED BY HON'BLE THE PRIME MINISTER AT SRINAG AR ON 19-4- 2003, WAS, FOR CREATION OF ONE LAKH EMPLOYMENT AND SELF- EMPLOYMENT OPPORTUNITIES IN JAMMU AND KASHMIR STATE . ITA NO.5142/DEL/2013 9 23. TO ACHIEVE THE PURPOSE AND OBJECTIVE REFERRED T O HEREIN ABOVE, IT WAS, INTER ALIA, PROVIDED IN THE CENTRAL EXCISE NOT IFICATIONS THAT THE EXEMPTIONS CONTAINED IN THE NOTIFICATIONS WOULD BE AVAILABLE ONLY ON PRODUCTION OF CERTIFICATE FROM GENERAL MANAGER OF T HE CONCERNED DISTRICT INDUSTRY CENTRE TO THE JURISDICTIONAL DEPU TY COMMISSIONER OF THE CENTRAL EXCISE OR THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE, AS THE CASE MAY BE, TO THE EFFECT THAT THE UNIT HAD CREATED REQUIRED ADDITIONAL REGULAR EMPLOYMENT, WHICH WOULD NOT, HOW EVER, INCLUDE EMPLOYMENT PROVIDED BY THE INDUSTRIAL UNITS TO DAIL Y WAGERS OR CASUAL EMPLOYEES ENGAGED IN THE UNITS. 24. A CLOSE READING THE OFFICE MEMORANDUM AND THE A MENDMENT INTRODUCED THERETO WITH PARA NO.3 APPEARING IN THE CENTRAL EXCISE NOTIFICATION NOS. 56 AND 57 OF 11-11-2002, THUS, MA KES IT AMPLY CLEAR THAT THE ACCELERATION OF DEVELOPMENT OF INDUSTRIES IN THE STATE WAS CONTEMPLATED WITH THE OBJECT OF GENERATION OF EMPLO YMENT IN THE STATE OF JAMMU AND KASHMIR AND THE GENERATION OF EMPLOYME NT, SO CONTEMPLATED, WAS NOT ONLY CASUAL OR TEMPORARY; BUT WAS ON THE OTHER HAND, OF PERMANENT NATURE. 25. CONSIDERED THUS, THE PARAMOUNT CONSIDERATION OF THE CENTRAL GOVERNMENT IN PROVIDING THE INCENTIVES TO THE NEW I NDUSTRIAL UNITS AND SUBSTANTIAL EXPANSION OF THE EXISTING UNITS, WA S THE GENERATION OF EMPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DEVEL OPMENT, TO DEAL WITH THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE '- S TATE, ADDITIONALLY CREATING OPPORTUNITIES FOR SELF-EMPLOYMENT, HENCE A PURPOSE IN PUBLIC INTEREST. 26. IN THIS VIEW OF THE MATTER, THE INCENTIVES PROV IDED TO THE INDUSTRIAL UNITS, IN TERMS OF THE NEW INDUSTRIAL POLICY, FOR A CCELERATED INDUSTRIAL DEVELOPMENT IN THE STATE, FOR CREATION OF SUCH INDU STRIAL ATMOSPHERE AND ENVIRONMENT, WHICH WOULD PROVIDE ADDITIONAL PER MANENT SOURCE OF EMPLOYMENT TO THE UNEMPLOYED IN THE STATE OF JAM MU AND KASHMIR, WERE IN FACT, IN THE NATURE OF CREATION OF NEW ASSE TS OF INDUSTRIAL ATMOSPHERE AND ENVIRONMENT, HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SUCH INCENTI VES, DESIGNED TO ACHIEVE PUBLIC PURPOSE, CANNOT, BY ANY STRETCH OF R EASONING, BE ITA NO.5142/DEL/2013 10 CONSTRUED AS PRODUCTION OR OPERATIONAL INCENTIVES F OR THE BENEFIT OF ASSES SEES ALONE. 27. THUS, LOOKING TO THE PURPOSE OF ERADICATION OF THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATION OF THE INDUSTRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA T HAT LAGGED BEHIND IN INDUSTRIAL DEVELOPMENT, WHICH IS CERTAINL Y A PURPOSE IN THE PUBLIC INTEREST, THE INCENTIVES PROVIDED BY THE OFF ICE MEMORANDUM AND STATUTORY NOTIFICATIONS ISSUED IN THIS BEHALF, TO THE APPELLANTS- ASSESSEES, CANNOT BE CONSTRUED AS MERE PRODUCTION A ND TRADE INCENTIVES, AS HELD BY THE TRIBUNAL. 28. MAKING OF ADDITIONAL PROVISION IN THE SCHEME TH AT INCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS, ENT ITLED THERETO, FROM THE DATE OF COMMENCEMENT OF THE COMMERCIAL PRODUCTI ON, AND THAT THESE WERE NOT REQUIRED FOR CREATION OF NEW ASSETS CANNOT BE VIEWED IN ISOLATION, TO TREAT THE INCENTIVES AS PRODUCTION INCENTIVES, AS HELD BY THE TRIBUNAL, FOR THE MEASURE SO TAKEN, APPEARS TO HAVE BEEN INTENDED TO ENSURE THAT THE INCENTIVES WERE MADE AVAILABLE O NLY TO THE BONA FIDE INDUSTRIAL UNITS SO THAT LARGER PUBLIC INTEREST OF DEALING WITH UNEMPLOYMENT IN THE STATE, AS INTENDED, IN TERMS OF THE OFFICE MEMORANDUM, WAS ACHIEVED. 29. THE OTHER FACTORS, WHICH HAD WEIGHED WITH THE T RIBUNAL-IN DETERMINING THE INCENTIVES AS PRODUCTION INCENTIVES MAY NOT BE DECISIVE TO DETERMINE THE CHARACTER OF THE INCENTIV E SUBSIDIES, WHEN IT IS FOUND, AS DEMONSTRATED IN THE OFFICE MEMORANDUM, AMENDMENT INTRODUCED THERETO AND THE STATUTORY NOTIFICATION TOO THAT THE INCENTIVES WERE PROVIDED WITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT, TO ERADI CATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATED INDUSTRIAL DEVELOPMENT. 30. FOR ALL WHAT HAS BEEN SAID ABOVE, THE FINDING OF THE TRIBUNAL ON THE FIRST ISSUE THAT THE EXCISE DUTY REFUND, INTEREST SUBSIDY AND INSURANCE SUBSIDY WERE PRODUCTION INCENTIVES, HENCE REVENUE RECEIPT, CANNOT BE SUSTAINED, BEING AGAINST THE LAW LAID DOWN BY HON'BLE SUPREME COURT OF INDIA IN SAHNEY STEEL & PR ESS WORKS LTD.'S CASE (SUPRA) AND PONNI SUGARS & CHEMICALS LTD. 'S C ASE (SUPRA). ITA NO.5142/DEL/2013 11 31. THE FINDING OF THE TRIBUNAL THAT THE INCENTIVES WERE REVENUE RECEIPT IS, ACCORDINGLY, SET ASIDE HOLDING THE INCE NTIVES TO BE CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEES. THE CLAIM OF THE APPELLANT IN THE PRESENT CASE THAT INTEREST SUBSIDY IS IN THE NATURE OF CAPITAL RECEIPT BY APPLYING PURPOS E TEST IS THUS FULLY SUPPORTED AND COVERED BY THE AFORESAID DECISION OF THE JAMMU & KASHMIR HIGH COURT. THEREFORE, INTEREST SUBSIDY (OF RS.3,36,53,526) IS HELD TO BE IN THE NATURE OF CAPITAL RECEIPT.' (II) REGARDING 2.5% INTEREST SUBSIDY UNDER RAJASTHA N INVESTMENT PROMOTION SCHEME, 2003: ON PERUSAL OF THE RECORDS, IT IS FURTHER NOTICED T HAT INTEREST SUBSIDY UNDER THE AFORESAID RAJASTHAN INVESTMENT PROMOTION SCHEME WAS ALSO SHOWN AS PART OF OTHER INCOME IN THE SCHEDULE 15 OF THE AUDITED ACCOUNTS. THESE FACTS, IN MY VIEW, LEADS TO THE CON CLUSION THAT SINCE THE SUBSIDY WAS PROVIDED FOR PROMOTING INVESTMENT I N THE STATE OF RAJASTHAN AND WAS LINKED TO CAPITAL INVESTMENT/ADDI TIONAL WAGES BEING PROVIDED, THE SAME WAS GRANTED IN LARGER PUBL IC INTERESTS AND HENCE CONSTITUTE CAPITAL RECEIPT NOT LIABLE TO TAX. ACCORDINGLY, IT IS HELD THAT SUBSIDY OF RS.44,64,000/- RECEIVED UNDER THE ABOVE UNIT WAS NOT LIABLE TO TAX. (III) REGARDING 5% INTEREST SUBSIDY (TUFS) BY GOVER NMENT OF INDIA :- ON PERUSAL OF THE AFORESAID, IT IS CLEAR THAT THE TUF SCHEME WAS INTRODUCED BY THE GOVERNMENT RECOGNIZING THE PO TENTIAL OF THE TEXTILE INDUSTRY AND THE LARGER BENEFITS OF TECHNOL OGICAL UPGRADATION IN THE TEXTILE INDUSTRY, WHICH WAS NECESSARY TO PROVID E A FRESH LEASE OF LIFE TO THE SAID INDUSTRY. THE GOVERNMENT RECOGNIZE D THAT TECHNOLOGICAL UPGRADATION IN TEXTILE INDUSTRY WOULD RESULT IN CAPACITY EXPANSION AND MODERNIZATION, WHICH WOULD HAVE DIREC T IMPACT ON EMPLOYMENT GENERATION, EXPORTS AND GLOBALIZATION OF TEXTILE TRADE. IN ORDER ACHIEVE SUCH OBJECTIVE, TUF SCHEME WAS INTROD UCED BY THE GOVERNMENT TO PROVIDE INTEREST SUBSIDY ON LOAN TAKE N FOR TECHNOLOGICAL UPGRADATION BY THE UNITS IN THE TEXTI LE INDUSTRY. ITA NO.5142/DEL/2013 12 IN TERMS OF THE SAID SCHEME, THE APPELLANT RECEIVED INTEREST SUBSIDY OF RS.25,90,32,252 IN RESPECT OF VARIOUS UN ITS AS PER DETAILS PLACED AT PAGE 200 OF THE PAPER BOOK. THE INTEREST SUBSIDY SO RECEIVED WAS SHOWN AS NET OF INTEREST ON TERM LOANS PAID BY THE APPELLANT AS IS EVIDENT FROM NOTE NO.18 GIVEN IN SCHEDULE 22 OF THE NOTES ON ACCOUNTS FORMING PART OF THE BALANCE SHEET OF THE A PPELLANT FOR THE RELEVANT ASSESSMENT YEAR. THE AFORESAID FACTS, IN MY VIEW, MAKE IT CLEAR THAT SUBSIDY UNDER THE TUF SCHEME WAS GIVEN FOR TECHNOLOGICAL UP GRADATION, IN ORDER TO INCENTIVE-WISE THE TEXTILE INDUSTRY AND FO R PROMOTING CAPACITY EXPANSION, GLOBALIZATION OF TEXTILE TRADE AND EMPLO YMENT GENERATION. THUS, APPLYING THE PURPOSE TEST LAID DOWN IN PONNI SUGAR, SUCH SUBSIDY IS HELD TO BE IN THE NATURE OF CAPITAL RECE IPT. IT IS NOTICED THAT THE AFORESAID ISSUE IS ALSO CLEA RLY COVERED BY THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SHAM LAL BANSAL RELIED UPON BY THE AIR OF THE APPELLANT, A COPY WHE REOF HAS BEEN PLACED AT PAGES 222 -223 OF THE PAPER BOOK. ON PERU SAL OF THE SAID DECISION, IT IS NOTICED THAT THE PUNJAB & HARYANA H IGH COURT HELD THAT SUBSIDY RECEIVED UNDER THE TUF SCHEME IS IN TH E NATURE OF CAPITAL RECEIPT. 16. WE ARE IN AGREEMENT WITH THE FINDINGS AND CONCL USION REACHED BY LD. CIT(A) . WE THEREFORE, AFFIRM THE ORDER OF LD. CIT (A) AND DISMISS THE APPEAL FILED BY REVENUE. 17. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD JULY 2015. SD./- SD./- (N. K. SAINI) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT DATE: 03 RD JULY, 2015 SP ITA NO.5142/DEL/2013 13 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 3/7 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 3/7 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 3/7/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 3/7 SR. PS/PS 7 FILE SENT TO BENCH CLERK 3/7 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER