DCIT,CC-VII, KOLKATA, Kolkata V. M/s Shyam Steel Industries Ltd., Kolkata

ITA 602/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9415 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 04-04-2014
• Court: TRIBUNAL
• Department Lawyers: AVINASH MISHRA
• Assessee Lawyers: A K TULSIYAN
• Keywords: Capital receipt

Judgement Text

ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM ] I.T.A NO. 602/KOL/2014 ASSESSMENT YEAR : 201 0-11 D.C.I.T., CENTRAL CIRCLE-VII, -VS.- M/S. S HYAM STEEL INDUSTRIES LTD. KOLKATA KOLKATA (APPELLANT) [PAN : AAGCS3838R] (RESPONDENT) FOR THE APPELLANT : SHRI AVINASH MISHRA, CIT(DR) FOR THE RESPONDENT : SHRI A.K.TULSIYAN, FCA DATE OF HEARING : 17.01.2017. DATE OF PRONOUNCEMENT : 03.02.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 31.01.2014 OF CIT(A)-CENTRAL-I, KOLKATA RELATING TO A.Y.2010-11. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD.CIT(A), CENTRAL-I, KOLKATA HAS ERRED IN DELETING THE ADDITION OF RS.7 ,48,27,500/- RECEIVED AS INDUSTRIAL PROMOTION ASSISTANCE(IPA) BY THE ASSESSEE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT APPEAL CENTRAL-I, KOLKATA HAS ERRED IN HOLDING THAT THE AIM AND OBJEC T OF THE SCHEME WAS IN THE CAPITAL FIELD AND THEREFORE THE INCENTIVE IN THE FORM OF TH E IPA WAS A CAPITAL RECEIPT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT APPEAL CENTRAL-I, KOLKATA HAS ERRED IN NOT APPRECIATING THE FACTS THA T THE SUBSIDY WAS PAID TO ASSIST THE ASSESSEE IN CARRYING ON ITS TRADE OR BUSINESS AND H ENCE IS IN THE NATURE OF A REVENUE RECEIPT. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN ACCEPTING THE WRONG INTERPRETATION OF THE INCENTIVE S/SUBSIDIES GIVEN BY THE ASSESSEE. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE ORDER PASSED BY THE LD. CIT(A), CENTRAL-I, KOLKATA IS NOT ONLY ERRONEOUS BU T PREJUDICIAL TO LAW. ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 2 6. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE O R DURING THE HEARINGS. 3. AS CAN BE SEEN FROM THE GROUNDS OF APPEAL THE ONLY QUESTION THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER A SUM OF RS.7,48,27,500/- RECEIVED BY THE ASSESSEE AS INDUSTRIAL PROMOTION ASSISTANCE UNDER T HE WEST BENGAL INCENTIVE SCHEME 2000 FOR ESTABLISHING THE INDUSTRY IN THE STATE OF WEST BENGAL WHICH IS DISBURSABLE BY WAY OF SALES TAX PAID IS A CAPITAL RECEIPT NOT CHAR GEABLE TO TAX. THE AO WAS OF THE VIEW THAT THE AFORESAID RECEIPT WAS REVENUE IN NATU RE AND CHARGEABLE TO TAX FOR THE FOLLOWING REASONS :- THE SUBMISSION OF THE ASSESSEE WAS PERUSED AND DIS CUSSED. FURTHER ON PERUSAL OF THE LETTER NO.MD/WBIDC/172/2003-04/1206 DT. 23 RD JUNE, 2003 ISSUED BY MANAGING DIRECTOR, WBIDC APPROVING THE PACKAGE OF INCENTIVE TO THE ASSESSEE M/S. SHYAM STEEL INDUSTRIES LTD, IT CAN BE SEEN THAT THE ASSESSEE IS ELIGIBLE FOR THE FOLLOWING INCENTIVES (A) INDUSTRIAL PROMOTION ASSISTANT @75% OF THE SALE TAX PAID IN THE PREVIOUS YEAR, (B) CAPITAL INVESTMENT SUBSIDY @15% OF THE FIXED CAPITA L ASSET & (C) ALL OTHER INCENTIVES UNDER WBIS 2000 EXCEPT INTEREST SUBSIDY IN LIEU OF WHICH IPA IS BEING GIVEN. NOW IT CAN BE SEEN THAT THE GOVERNMENT U NDER THE WBIS 2000 IS GIVING A SEPARATE CAPITAL INVESTMENT SUBSIDY TO THE ASSESSEE @15% OF THE FIXED ASSETS. HENCE, IT IS ABSOLUTELY ILLOGICAL ON THE PART OF THE ASSESSEE TO TREAT THE INDUSTRIAL PROMOTION ASSISTANCE I.E. IPA AS CAPITAL INVESTMENT SUBSIDY W HICH IS GIVEN TO THE ASSESSEE AS ASSISTANCE FOR THE PROMOTION OF INDUSTRY. FURTHER, HAD IT BEEN THE INTENTION OF THE GOVERNMENT TO SUBSIDIES THE CAPITAL INVESTMENT? THE N THE IPA WOULD HAVE BEEN INCLUDED IN THE CAPITAL INVESTMENT SUBSIDY AS MENTI ONED IN SUB-CLAUSE (B) OF PACKAGE IN APPROVAL LETTER. THERE WOULD HAVE BEEN NO NEED TO M ENTION IT SEPARATELY. FURTHER, THE FACTS THAT THE GOVERNMENT IS GRANTING THE SUBSIDY I N THE FORM OF REIMBURSEMENT OF SALES TAX UP TO 75% OF PAYMENT CLEARLY SUGGESTS THAT THE INTENTION OF THE SCHEME IS TO SUBSIDIES THE COST OF PRODUCTION AND NOT TO GIVE AN Y INCENTIVE OF CAPITAL NATURE. FURTHERMORE, THE ACCOUNTING TREATMENT OF THE IPA BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS ALSO JUSTIFIES THE CASE OF THE REVENUE BEC AUSE THE IPA SUBSIDIES OF RS.7,48,27,500/- HAVE BEEN CREDITED AGAINST THE SAL E IN THE PROFIT & LOSS ACCOUNT. AND IT IS ONLY AT THE TIME OF COMPUTATION OF TOTAL INCOME IT HAS BEEN REDUCED FROM THE NET PROFIT. MOREOVER, NONE OF THE CASES CITED BY THE AS SESSEE IN ITS SUBMISSION FITS INTO THE FACTS & CIRCUMSTANCES OF THE CASE OF THE ASSESSEE B ECAUSE IN MOST OF THE CASES THE BUSINESS OF THE ASSESSEE ARE DIFFERENT THAN MANUFAC TURING OF IRON & STEEL. THEREFORE, THE AMOUNT OF RS.7,48,27,500/ - RECEIVED AS INDUSTRIAL PROMOTION ASSISTANCE(IPA) BY THE ASSESSEE IS TREATED IN THE N ATURE OF REVENUE INCENTIVE/ SUBSIDY AND IT IS ADDED TO THE TOTAL INCOME FOR THE A.Y. 20 L0-11. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THA T THE RECEIPT IN QUESTION WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. IN COMING TO THE AFORESAID CONCLUSION THE CIT(A) APART FROM RELYING ON SEVERAL JUDICIAL PRONO UNCEMENTS PLACED RELIANCE ON THE ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 3 DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS RASOI LTD. 335 ITR 438 (CAL). IN THE AFORESAID DECISION THE HONBLE CALCUT TA HIGH COURT HELD THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE FROM THE GOVERNMEN T OF WEST BENGAL WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE HONBLE CALCUTTA HIGH COURT HELD THAT THE SUBSIDY WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE CI T(A) FOLLOWING THE AFORESAID DECISION WAS OF THE VIEW THAT THE SUBSIDY IN QUESTI ON WAS CAPITAL SUBSIDY NOT CHARGEABLE TO TAX. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COU NSEL FOR THE ASSESSEE AND THE LD. DR. IT WAS NOT DISPUTED BEFORE US THAT IDENTICAL SU BSIDY RECEIVED BY AN ASSESSEE WAS A SUBJECT MATTER OF CONSIDERATION BY THE HONBLE ITAT C BENCH IN THE CASE OF DCIT VS M/S. BUDGE BUDGE REFINERIES LTD IN ITA NO.1552/K OL/2010. THIS TRIBUNAL IN ITS ORDER DATED 14.10.2016 ANALYSED THE SCHEME AND CAME TO THE FOLLOWING CONCLUSION: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESS EE. WE FIND THAT THE ASSESSEE IN THE INSTANT CASE IS ELIGIBLE FOR STATE CAPITAL INCENTIV E SUBSIDY IN THE FORM OF REIMBURSEMENT OF 75% OF SALE TAX/VAT PAID ON SALE OF FINISHED PRO DUCTS. IN OTHER WORDS, THE ASSESSEE HAD TO FIRST SET UP ITS PROJECT IN THE STATE OF WES T BENGAL AND START MANUFACTURING OPERATIONS. THE FINISHED GOODS MANUFACTURED SHOULD BE SOLD AFTER PAYMENT OF SALES TAX/VAT. THE ASSESSEE HAS TO PRODUCE THE EVIDENCE F OR PAYMENT OF SALES TAX/VAT. THEREAFTER, WBIDCL ON SATISFACTORY COMPLIANCE MADE BY THE ASSESSEE IN THIS REGARD, WOULD RELEASE THE SUBSIDY BY REIMBURSING 75% OF THE SALES TAX/VAT PAID BY THE ASSESSEE. WE HAVE GONE THROUGH THE RELEVANT PAGES O F THE PAPER BOOK OF THE ASSESSEE CONTAINING THE EVIDENCE IN THE FORM OF TAX PAID CHA LLANS FOR SALES TAX /VAT. HENCE WE HOLD THAT THE ID AO HAD FACTUALLY ERRED IN STATING THAT THE SALES TAX /VAT WERE NOT PAID BY THE ASSESSEE. NOW THE QUESTION IS WHETHER THE SA ID REIMBURSEMENT OF SALES TAX/ VAT WOULD FORM PAN OF TAXABLE RECEIPT IN THE HANDS OF T HE ASSESSEE IN THE FORM OF A TRADING RECEIPT. FOR THIS PURPOSE, IT WOULD BE RELEVANT TO GO INTO THE OBJECT OF THE INCENTIVE SCHEME. WE FIND THAT THE OBJECTS OF THE SCHEME COUL D BE UNDERSTOOD FROM THE FOREWORD OF WEST BENGAL INCENTIVE SCHEME, 2000 ISSUED BY THE COMMERCE & INDUSTRIES DEPARTMENT, GOVERNMENT OF WEST BENGAL. FOR THE SAKE OF CONVENIENCE, THE SAME IS REPRODUCED HEREUNDER:- WHEREAS IN PURSUANCE OF A NATIONAL POLICY THE SALES TAX RELATED INCENTIVES HAVE BEEN WITHDRAWN FROM 1ST JANUARY 2000. AND WHEREAS THE STATE GOVERNMENT HAVE CONSIDERED IT NECESSARY AND EXPEDIENT TO EXTEND NEW TYPES OF INCENTIVES FOR PROMOTION OF IND USTRIES IN THE STATE FROM THE SAME DATE. ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 4 NOW, THEREFORE, THE GOVERNOR IS PLEASED HEREBY, IN SUPERSESSION OF THE WEST BENGAL INCENTIVE SCHEME 1999 SANCTIONED UNDER COMMERCE & I NDUSTRIES DEPARTMENT'S NOTIFICATION NO. 580-CI/H/ DATED 22.06.1999 AND AME NDED FROM TIME TO TIME, TO APPROVE AND SANCTION A NEW INCENTIVE SCHEME FOR LAR GE, MEDIUM AND SMALL SCALE INDUSTRIAL UNITS AS UNDER :- ......... 7.1. A CAREFUL PERUSAL OF THE WEST BENGAL INCENTIVE SCHEME 2000 SHOW THAT THE SCHEME WAS INTENDED TO ACCELERATE INDUSTRIAL DEVELOPMENT O F THE STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF INDUSTRIES IN WEST BENGAL A ND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN, SALES TAX / VAT PAID BY THE ASSESSEE ON ITS FINISHED PRODUCTS AFTER SETTING UP OF THE UNIT WAS TAKEN AS THE BASIS. WE FIND THAT THE 'PURPOSE TEST' IS TO BE SEEN WHILE ASCERTAINING THE TAXABILI TY OF SUBSIDY IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE PURPOSE TEST CLEARLY PROVES THAT THE SUBSIDY HEREIN IS CONTEMPLATED FOR SETTING UP OF THE INDUSTRY / ELIGI BLE UNIT FOR PROMOTION OF INDUSTRIES IN THE STATE OF WEST BENGAL. THE QUANTIFICATION OF SUB SIDY ALONE IS BASED ON REIMBURSEMENT OF 75% OF SALES TAX / VAT ACTUALLY PAID BY THE SAID ELIGIBLE UNIT AFTER COMMENCEMENT OF THE PROJECT. WE HOLD THAT THE QUANTIFICATION THEREO N WOULD BE IRRELEVANT FOR TAXABILITY OF THE SAME GOING BY THE OBJECTS OF THE INCENTIVE SCHE ME 2000 OF WEST BENGAL GOVERNMENT. WE ALSO FIND THAT THE HON'BLE APEX COURT IN THE CAS E OF CIT VS PONNI SUGARS & CHEMICALS LTD & ORS REPORTED IN (200 306 ITR 392 (S C) HAD HELD AS UNDER:- 'THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE H ANDS OF THE ASSESSEE UNDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PUR POSE FOR WHICH THE SUBSIDY IS GRANTED. IN OTHER WORDS, ONE HAS TO APPLY THE PU RPOSE TEST. THE POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE S OURCE IS IMMATERIAL. IF THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME I S TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND AN EXISTING UNIT THE N THE RECEIPT OF THE SUBSIDY WOULD BE ON CAPITAL ACCOUNT. THE ASSESSEE WAS A CO-OPERATIVE SOCIETY RUNNING A S UGAR MILL. DURING THE RELEVANT YEAR IN QUESTION, ON ACCOUNT OF ECONOMIC F ACTORS. IT WAS NOT ECONOMICALLY VIABLE TO RUN NEW SUGAR FACTORIES AND, DUE TO HIGH FINANCIAL COSTS, FINANCIAL INSTITUTIONS DID NOT COME FOR ADVA NCE LOANS TO THE ENTREPRENEURS OF NEW SUGAR FACTORIES. THE TEMPO OF ESTABLISHING SUGAR FACTORIES RECEIVED A SERIOUS SETBACK. A COMMITTEE A PPOINTED BY THE GOVERNMENT RECOMMENDED THAT FIVE POSSIBLE INCENTIVE S JAR MAKING A SUGAR PLANT ECONOMICALLY VIABLE BE PROVIDED FOR, VIZ., CA PITAL SUBSIDY, LARGER PERCENTAGE OF FREE SALE OF SUGAR, HIGHER SUGAR PRIC E, ALLOWING REBATE ON EXCISE DUTY AND REMISSION OF PURCHASE TAX. FOLLOWING THAT REPORT, SCHEMES WERE FORMULATED GIVING THE FOLLOWING BENEFITS. (I) INCEN TIVE SUBSIDY AVAILABLE ONLY IN NEW UNITS AND TO SUBSTANTIALLY EXPANDED UNITS; (II) MINIMUM INVESTMENT FOR NEW UNITS AND EXPANSION OF EXISTING UNITS; (III) IN CREASE IN FREE SUGAR SALE QUOTA. THE BENEFIT OF THE SCHEMES HAD TO BE UTILISE D ONLY FOR REPAYMENT OF LOANS. THE DEPARTMENT AND THE HIGH COURT HAD HELD T HAT THE RECEIPTS FROM THE GOVERNMENT UNDER THE INCENTIVE SCHEMES WERE IN THE NATURE OF REVENUE. ON APPEAL TO THE SUPREME COURT : ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 5 HELD ACCORDINGLY, REVERSING THE DECISION OF THE HIG H COURT, ON THIS POINT, THAT THE MAIN ELIGIBILITY CONDITION IN THE SCHEMES WAS T HAT THE INCENTIVE HAD TO BE UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESS EE TO SET UP NEW UNITS OR FOR SUBSTANTIAL EXPANSION OF AN EXISTING UNIT. THE SUBS IDY RECEIVED BY THE ASSESSEE WAS NOT IN THE COURSE OF A TRADE BUT WAS OF A CAPIT AL NATURE .' 7.2. WE ALSO FIND THAT THE HON'BLE CALCUTTA HIGH CO URT IN THE CASE OF CIT VS RASOI LTD REPORTED IN (2011) 335 ITR 438 (CAL) HAD HELD AS UN DER:- 'IF THE OBJECT OF A SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME I S TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT, T HE RECEIPT OF THE SUBSIDY IS ON CAPITAL ACCOUNT. IT IS THE QUALITY OF THE PAYMENT T HAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OR ITS MEASURE. HELD, DISMISSING THE APPEAL, THAT THE OBJECT OF THE SUBSIDY WAS THE EXPANSION OF BUSINESS CAPACITIES, MODERNIZATION, AN D IMPROVING MARKETING CAPABILITIES AND THUS, THOSE WERE FOR ASSISTANCE ON CAPITAL ACCOUNT. MERELY BECAUSE THE AMOUNT OF SUBSIDY WAS EQUIVALENT TO 90 PER CENT. OF THE SALES TAX PAID BY THE BENEFICIARY THAT DID NOT IMPLY THAT IT WAS IN THE FORM OF REFUND OF SALES TAX PAID. THE SUBSIDY WAS A CAPITAL RECEIPT. 7.3. IT IS NOT IN DISPUTE THAT THE WEST BENGAL INDU STRIAL DEVELOPMENT CORPORATION LTD HAD ACKNOWLEDGED THE FACT OF ASSESSEE SETTING UP A NEW UNIT FOR THE PRODUCTION OF EDIBLE OIL REFINERY PLANT AND CAPTIVE POWER GENERATION UNI T AT BUDGE BUDGE, 24 PARGANAS, BURDWAN DISTRICT COVERED UNDER ELIGIBILITY CERTIFIC ATE STATED SUPRA (ENCLOSED IN PAPER BOOK OF THE ASSESSEE) AND ACCORDINGLY HAD SANCTIONE D THE STATE CAPITAL INVESTMENT SUBSIDY UNDER WEST BENGAL INCENTIVE SCHEME 2000. 7.4. WE FIND THAT THE ISSUE WITH REGARD TO TAXABILI TY OF SUBSIDY IS ALSO ADJUDICATED IN DETAIL BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF D CIT VS M/S STRASSENBURG PHARMACEUTICALS LTD IN ITA NO. 113 1 - 1133 /KOL/2009 DATED 27.1.2011 WHEREIN IT WAS HELD THAT :- '6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL PLACED BEFORE US AND THE DECISION OF THE ITAT AND ALSO THE DECISION OF T HE HON' BLE JURISDICTIONAL HIGH COURT CITED SUPRA. WE FIND THAT THE ISSUE IS COVERE D BY THE AFORESAID DECISIONS CITED SUPRA AND THE LD. CIT(A) FOLLOWING THE SAID D ECISIONS TREATED THE WBIPA RECEIPT AS A CAPITAL RECEIPT AND DIRECTED THE ASSES SING OFFICER TO DELETE THE ADDITIONS FOR ALL THE THREE ASSESSMENT YEARS UNDER APPEAL. SINCE THE LD. CIT(A) BY FOLLOWING THE DECISION OF HON 'BLE JURISDICTIONA L HIGH COURTS ORDER AND ALSO THE DECISION OF THE JURISDICTIONAL ITAT, TREATED TH E WBIPA RECEIPT AS A CAPITAL RECEIPT AND DIRECTED THE ASSESSING OFFICER TO DELET E THE ADDITIONS FOR ALL THE THREE ASSESSMENT YEARS UNDER APPEAL. WE FIND NO INFIRMIT Y IN HIS ORDER AND THE SAME IS HEREBY UPHELD. FOR THE SAKE OF BREVITY, WE REPRODUC E THE RELEVANT PORTION OF HIS ORDER AS UNDER: '6.3 I HAVE DULY CONSIDERED THE A.O'S RELIANCE PLAC ED ON THE JUDICIAL DECISIONS AND REASONS FOR TREATING THE WBIPA AS A REVENUE REC EIPT. THE COUNTER ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 6 SUBMISSIONS MADE BY THE APPELLANT HAVE ALSO BEEN CA REFULLY EXAMINED AND CONSIDERED. THE ISSUE THAT IS TO BE DECIDED IS WHET HER THE WBIPA RECEIPT IS A REVENUE OR A CAPITAL RECEIPT. THE A.O PLACED RELIAN CE ON THE FOLLOWING CASE LAWS: SAHNEY STEEL & PRESS WORKS LTD. (1997) 228 ITR 253 (SC) CIT VS. CHINDWARA FUELS 245 ITR 9 (CAL) EAST INDIA PHARMACEUTICAL WORKS LTD. VS. DCIT (ITA NO.587 (KOL) 2006 THE APPELLANT PLACED RELIANCE ON THE FOLLOWING CASE LAWS: CIT VS. PONNI SUGARS & CHEMICALS LTD. (SC) ACIT VS. RASOI LTD. (ITA NO. 1467 TO 1469 (CAL) 200 1 CIT VS. KLARSEHEN P. LTD. (G.A.N. 145106 DT. 12.5.0 8 (CALCUTTA HIGH COURT) KLAR SAHEN P. LTD. VS. ITO (ITA NO. 2069 TO 2071 (K OL) OF 2004) EMCEE PHARMACEUTICALS (P) LTD. V5. DY. CIT (ITA NO. 1941 (KOL)/2004) MENDINE PHARMACEUTICALS (P) LTD. (ITA NO. 2403/KOH/ 2003) THE DEPARTMENT HAS BEEN RELYING ON THE HON 'BLE SUP REME COURT DECISION IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD.(SUPRA ). THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CHINDWARA FUELS (SUPRA ) HAS FOLLOWED THE APEX COURT DECISION. THIS DECISION HAS ALSO BEEN FOLLOWE D BY HON'BLE ITAT, KOLKATA IN THE CASE OF EAST INDIA PHARMACEUTICALS W ORKS LTD. (SUPRA). THE A.O IN HIS ASSESSMENT ORDER SIMPLY QUOTED THE CASE LAWS AND HELD THAT WBIPA RECEIPT IS A CAPITAL RECEIPT. THE A.O HAS NOT ANALY SED THE FACTS NOR COMPARED THE FACTS WITH THE FACTS OF THE SUPREME COURT CASE (SAHNEY STEEL & PRESS WORKS LTD. (SUPRA). ON THE OTHER HAND THE HON'BLE I TAT, KOLKATA HAS DEALT THIS ISSUE IN A NUMBER OF CASES AND HELD THAT THE S UBSIDY/ASSISTANCE RECEIVED FROM WEST BENGAL GOVERNMENT IS A CAPITAL RECEIPT. B EFORE I PROCEED TO DISCUSS THE ITAT ORDER WHICH ARE IN FAVOUR OF THE APPELLANT , I WOULD FIRST PREFER TO EXAMINE THE FACTS OF SAHNEY STEEL & PRESS WORK LTD. (SUPRA) WHEREIN THE APEX COURT TREATED THE SUBSIDY AS 'REVENUE' IN NATURE. T HE APEX COURT DEEPLY EXAMINED THE SALIENT FEATURES OF THE SCHEME FORMULA TED BY THE ANDHRA PRADESH GOVERNMENT. IT NOTICED THE FOLLOWING CONDITIONS TO BE FULFILLED FOR GETTING INCENTIVE : INCENTIVE IS CONDITIONAL UPON COMMENCEMENT OF PRO DUCTION INCENTIVE IS LIMITED TO 5 YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION INCENTIVES ARE TO BE GIVEN BY WAY OF REFUND OF SA LES TAX AND ALSO SUBSIDY AS POWER CONSUMED AND OTHER EXEMPTIONS. AFTER ANALYZING THE ABOVE FEATURES, THE APEX COURT AT PAGE 262 OBSERVED AS UNDER: 'THAT PRECISELY IS THE QUESTION RAISED IN THIS CASE . BY NO STRETCH OF IMAGINATION CAN BE SUBSIDIES WHETHER BY WAY OF REFUND OF SALES TAX OR RELIEF OF ELECTRICITY CHARGES OR WATER CHARGES TO BE TREATED AS AN AID TO SETTING UP OF THE INDUSTRY' OF THE ASSESSEE.............. THE SUBSIDIES ARE OPE RATIONAL SUBSIDIES AND NOT CAPITAL SUBSIDIES'. THE ABOVE FACTS OF THE CASE ARE SIMILAR TO THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LTD. (1991) 1911TR 518 (CAL) WHEREIN T HE SUBSIDY RECEIVED BY WAY OF REFUND OF SALES TAX LEVIED ON RAW MATERIALS, MACHINERY, FINISHED GOODS ETC. THUS THESE TWO JUDICIAL DECISIONS ARE MAINLY B ASED ON TWO FACTORS: FIRST, ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 7 SUBSIDY FOR CARRYING ON BUSINESS (CONDITIONAL), SEC ONDLY THE INCENTIVE BY WAY OF REFUND OF SALES TAX ETC. THE FACTS OF THE PRESENT CASE ARE DIFFERENT AND ARE VERY SIMILAR TO THE CASE LAWS RE ON BY THE APPELLANT ESPECIALLY CASES DECIDED BY ITAT, KOLKATA. IN THE PRESENT CASE THE SUBSIDY CALLED AS 'ASSISTANCE' IS GIVEN EQUIVALENT TO 90% OF SALES TAX PAID AND NOT TO EQUATED WITH SALES TAX RE FUND AND OTHER EXEMPTIONS PROVIDED AS IN THE CASE OF SAHNEY STEEL & PRESS WOR K LTD. (SUPRA). THE TAT DECISIONS RELIED ON BY THE APPELLANT CLEARLY DISTIN GUISHED THIS POINT AND ALSO OTHER CONDITIONS AND HELD THE 'ASSISTANCE' RECEIPT IS A CAPITAL RECEIPT. THE NOTABLE CASE AMONG OTHERS IS THE CASE OF 'RASOI LTD . '(SUPRA) WHEREIN THE HON'BLE JURISDICTIONAL ITAT (KOLKATA) HAS DISCUSSED THE SIMILAR ISSUE THREAD BEAR DISTINGUISHING THE SAHNEY STEEL & PRESS WORKS LTD. CASE AND HELD AS A CAPITAL RECEIPT. THIS DECISION HAS BEEN FOLLOWED IN OTHER CASES DEALT BY KOLKATA ITAT BENCH INCLUDING THE CASE OF KIAR SEHEN P. LTD. (SUPRA) WHICH WAS LATER UPHELD BY THE KOLKATA HIGH COURT. IT IS VERY MUCH RELEVANT TO REPRODUCE THE RELEVANT EXTRACT FROM THE ITAT ( - R IN THE CASE OF RASOI LTD. VS. DCLTINITANO.1080/CAL/98D T.18.5.01: '7. SO FAR AS THE PRESENT CASE BEFORE US IS CONCERN ED, THE NOTIFICATION NO. 1460 - F.Y. DATED 27TH MAY 1994 RECITES THE RESOLUTION O F THE GOVT. OF WEST BENGAL, STARTING AS FOLLOWS: 'WHEREAS CERTAIN INDUSTRIES IN THE STATE HAVE BEEN PASSING THROUGH AN ACUTE FINANCIAL CRISIS AND IT HAS BEEN CONSIDERED NECESSA RY TO EXTEND FINANCIAL ASSISTANCE TO TIDE OVER SUCH CRISIS FOR PROMOTION O F SUCH INDUSTRIES, IT HAS BEEN DECIDED IN THE PUBLIC INTEREST TO FORMULATE A SCHEM E TO ALLOW FINANCIAL ASSISTANCE TO THE MANUFACTURING UNITS IN WEST BENGA L OF SUCH. ' IT IS CLEAR FROM THE ABOVE PREAMBLE TO THE RESOLUTI ON THAT THE SCHEME FOR ALLOWING ASSISTANCE TO INDUSTRIES IS TO HELP THEM T O TIDE OVER THE FINANCIAL CRISIS FACED BY THE INDUSTRIES AND FOR PROMOTION OF THE INDUSTRIES THEMSELVES. THE SCHEME OF THE GOVT. OF WEST BENGAL DOES NOT REL ATE TO NEW INDUSTRIES ALONE AND RATHER ALLOWS BENEFIT UNDER THE SCHEME TO NEW AS WELL AS EXISTING UNITS PERTAINING TO CERTAIN 'INDUSTRIES '. THE PURP OSE OF THE SCHEME IS DEFINITELY TO REMOTE THE SPECIFIED INDUSTRIES AND T O HELP THE UNITS UNDER SUCH INDUSTRIES TO TIDE OVER THE FINANCIAL CRISIS BEING FACED BY THE INDUSTRIES AS SUCH. THERE IS NOTHING IN THE SCHEME WHICH COULD BE CONSIDERED TO HELP THE INDUSTRIES IN CARRYING ON THEIR OPERATIONS ON DAY T O DAY BASIS. WHEN FINANCIAL CRISIS IS FACED BY SOME BUSINESS, PUMPING OF FRESH CAPITAL IS REQUIRED TO! HELP THE BUSINESS TO TIDE OVER SUCH FINANCIAL CRISIS. TH E FINANCIAL HELP, IN THIS REGARD, HAS, THEREFORE, GOT TO BE CONSIDERED AS HAV ING AN ENDURING EFFECT OF DRAGGING THE BUSINESS OUT OF THE POOR FINANCIAL CON DITIONS BEING FACED BY THE INDUSTRIES, THE SCHEME OF THE GOVT. OF WEST BENGAL DOES NOT AT ALL ENVISAGE GIVING ANY SUBSIDY IN RESPECT OF SPECIFIC ITEMS OF EXPENSES LIKE SALES-TAX, POWER, WATER ETC. HENCE, WE ARE OF THE OPINION THAT THE FACTS OF THE PRESENT CASE NOT ONLY DIFFER GREATLY FROM THOSE IN THE CASE S OF EITHER KESORAM INDUSTRIES & COTTON MILLS LTD. OR SAHNEY STEEL & PR ESS WORKS LTD. AS DECIDED EARLIER, BUT THE ASSISTANCE, IN THE INSTANT CASE, B EING UNRELATED TO THE DAY-TO- DAY OPERATIONS OF THE ASSESSEE-COMPANY OR EVEN MEET ING OF ANY SPECIFIC ITEMS OF REVENUE EXPENSES, HAS GOT TO BE CONSIDERED AS CA PITAL RECEIPT. THERE IS NO DOUBT ABOUT THE FACT THAT THE UNITS RECEIVING THE A SSISTANCE FROM THE GOVT. OF WEST BENGAL WILL BE REQUIRED TO UNDERGO CERTAIN REG ULATORY MEASURES AND ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 8 FULFILL CERTAIN EXISTENCE TO BE ALLOWABLE TO THE AS SESSEE IN CARRYING FOR THE BUSINESS ITSELF IN A REGULAR MANNER OR EVEN FOR THE PURPOSE OF AUGMENTING ITS PRO FITS ON THE OTHER HAND, THE SOLE PURPOSE BEHIND THE GRANT OF THE ASSISTANCE SEEMS TO BE 'TO TIDE OVER THE FINANCIAL CRISES' AND 'PROMOTION OF INDUSTRIES.' BOTH THESE ACTIVITIES RELATE TO CAPITAL FIELD AND C ANNOT BE CONSIDERED TO BE LINKED UP WITH THE DAY TO DAY OPERATIONS OF THE ASS ESSEE IN ANY MANNER. HENCE, WE ARE OF TOO VIEW THAT THE INCENTIVE RECEIVED BY T HE ASSESSEE, ALTHOUGH DEPENDENT UPON CERTAIN CONDITIONALITIES, IS ACTUALL Y GRATUITOUS IN NATURE AND FORMS CAPITAL RECEIPT IN ITS HANDS. THE INCENTIVE C ANNOT AGAIN BE CONSIDERED AS PROVIDED BY THE GOVT. TO THE ASSESSEE TO MEET SOME OF ITS REVENUE EXPENSES.' THE ABOVE RATIO LAID DOWN IN TERMS OF 'ASSISTANCE I N THE FORM OF FRESH CAPITAL TO TIDE OVER THE FINANCIAL CRISIS', 'ENDURING EFFEC T', 'PROMOTION OF INDUSTRIES' ETC. HAS ALSO BEEN FOLLOWED IN THE CASE OF KLAR SEHEN P. LTD. (SUPRA) FOR TREATING THE 'ASSISTANCE' AS A CAPITAL RECEIPT. SUBSEQUENTLY THE KOLKATA HIGH COURT HAS ALSO CONFIRMED THE DECISION IN THE CASE OF KLAR SEH EN P. LTD. AS UNDER: 'FURTHER WE HAVE PERUSED THE ORDER PASSED BY THE TR IBUNAL. WE HAVE FOUND THAT THE TRIBUNAL HAS EXTENSIVELY DEALT WITH THE MA TTER INCLUDING THE FACTS, MATERIAL AND EVIDENCE PLACED BEFORE THE TRIBUNAL OR ADJUDICATION. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER SO PASS ED BY THE LEARNED TRIBUNAL NOR THE ORDER SO PASSED BY THE LEARNED TRIBUNAL SUF FERS FROM ANY LEGAL INFIRMITY NOR WE FIND ANY SUBSTANTIAL QUESTION OF L AW IS INVOLVED IN THE APPEAL . 6.4 DECISION: THE FACTS OF THE CASE AND THE ISSUE INVOLVED IN THE PRESENT CASE IS SIMILAR TO FACTS OF THE CASES DECIDED BY THE JURISDICTIONAL KO LKATA TRIBUNAL AND HIGH COURT. L FIND IN THE LATER YEARS (A. Y. 2001-02) IN THE APPELLANT'S OWN CASE MY PREDECESSOR FOLLOWING THE JURISDICTIONAL ITAT DECIS IONS [RASOI LTD., MENDINE PHARM. LTD. (SUPRA)} HELD THE WB1PA AS CAPITAL RECE IPT. I AM ALSO OF THE VIEW THAT THE SOLE PURPOSE BEHIND THE GRANT OF ASSISTANC E IS TO TIDE OVER THE FINANCIAL CRISIS AND PROMOTION OF INDUSTRIES AND THAT BOTH TH ESE ACTIVITIES ARE RELATED TO CAPITAL FIELD AND CANNOT BE LINKED UP WITH DAY TO D AY OPERATIONS OF THE APPELLANT IN ANY MANNER. RESPECTFULLY FOLLOWING THE JURISDICTIONAL KOLKATA ITAT AND HIGH COURT DECISIONS DISCUSSED EARLIER I T REAT WBIPA AS A CAPITAL RECEIPT AND DIRECT THE A.O TO DELETE THE ADDITION O F RS.23,12,430/-. THIS GROUND OF APPEAL OF THE REVENUE FOR ALL THE TH REE ASSESSMENT YEARS ARE DISMISSED .' WE ALSO FIND THAT THIS DECISION OF THE TRIBUNAL HAS BEEN DULY APPROVED BY THE HON'BLE CALCUTTA HIGH COURT IN G.A. NO. 2042 OF 201 1 ITAT NO. 201 OF 2011 DATED 21.7.2011 IN THE VERY SAME CASE. 7.5. WE HOLD THAT THE LD AO HAD ERRED IN INVOKING T HE PROVISIONS OF SECTION 41(1) OF THE ACT. IT IS WELL SETTLED THAT THE SAID PROVISION COU LD BE INVOKED ONLY WHEN THE ASSESSEE HAD CLAIMED DEDUCTION IN EARLIER YEARS AT THE TIME OF CREATION OF LIABILITY AND IF THE AID LIABILITY CEASES TO EXIST, THEN THE PROVISIONS OF S ECTION 41(1) OF THE ACT COULD BE INVOKED. IN THE INSTANT CASE, ADMITTEDLY, THE ASSESSEE HAD N OT CLAIMED ANY DEDUCTION IN THE EARLIER. R TOWARDS THE SALES TAX PORTION OF THE SUB SIDY. HENCE, THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD BE INVOKED IN THE FACTS OF T HE INSTANT CASE. ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 9 7.5.1. KEEPING IN VIEW THE OBJECTS OF THE WEST BENG AL INCENTIVE SCHEME 2000 AND VARIOUS JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE , WE HOLD THAT THE SUBSIDY OF RS.3,72,95,124/- AND RS. 8,05,58,316/- IS TO BE .TR EATED AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. THE ID AR HAD PLACED RELIANCE ON SERIES OF DECISIONS ON THE IMPUGNED ISSUE INCLUDING THE VARIOUS DECISIO NS OF HON'BLE SUPREME COURT AND HON'BLE CALCUTTA HIGH COURT WHICH ARE NOT DEALT WIT H HEREIN FOR THE SAKE OF BREVITY. WE HOLD THAT IN ANY CASE, THE SUBSIDY CANNOT BE THE SU BJECT MATTER OF TAXATION IN THE YEARS UNDER APPEAL AS THE SAME GOT RELEASED/SANCTIONED ON LY IN THE FINANCIAL YEAR 2008-09 RELEVANT TO ASST YEAR 2009-10. ACCORDINGLY, THE GRO UNDS RAISED BY THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 6. IN VIEW OF THE AFORESAID DECISION OF THE TRI BUNAL DEALING WITH IDENTICAL SUBSIDY WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THIS A PPEAL BY THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE WE UPHELD THE ORDER OF CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT O N 03.02.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 03.02.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. SHYAM STEEL INDUSTRIES LTD., SHYAM TOWERS, EN-32, SECTOR-V, SALT LAKE, KOLKATA-700091. 2. D.C.I.T., CENTRAL CIRCLE-VII, KOLKATA. 3. CIT(A)-CENTRAL-I, KOLKATA 4. CIT CENTRAL-I, KOLKATA. 5..CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDE R ASSTT. REGISTRAR KOLKATA BENCHES ITA NO.602/KOL/2014-M/S. SHYAM STEEL INDS. LTD. A. Y.2010-11 10