Appeal details
Counselvise Citation
[2018] 119 COUNSELVISE.COM (IT) 0471 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-11-2018
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
I
Assessment Year
2012-2013
Appeal Filed On
25-11-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6919/MUM/2016 ASSESSMENT YEAR: 2011 - 12 & ITA NO. 6920/MUM/2016 ASSESSMENT YEAR: 2012 - 13 ACIT - 7(2)(1), R. NO. 573, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. MAHINDRA VEHICLES MANUFACTURES LTD. MAHINDRA TOWER, P K KURNE CHOWK, MUMBAI - 400018. PAN NO. AAFCM1217M APPELLANT RESPONDENT REVENUE BY : MR. ANAND MOHAN, CIT - DR & MR. S.K. BEPARI , DR ASSESSEE BY : MR. H.P. MAHAJANI, AR DATE OF HEARING : 31 /0 8 /2018 DATE OF PRONOUNCEMENT: 28/11/2018 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 13, MUMBAI [IN SHORT CIT(A) ] AND ARISE OUT OF THE ASSESSME NT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE BEGIN WITH THE ASSESSMENT YEAR (AY) 2011 - 12. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 2 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN L AW, WHETHER THE LD. CIT(A) IS CORRECT IN HOLDING THAT THE OBJECT OF THE SCHEME OF SALES TAX SUBSIDY GRANTED TO THE ASSESSEE TO BE FOR SETTING UP OF OR FOR EXPAN DING EXISTING INDUSTRIES IN THE DEVELOPING REGION OF MAHARASHTRA WITHOUT APPRECIATING THE LEGAL AND FACTUAL MATRIX OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) IS CORRECT IN HOLDING THE NATURE OF SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPITAL RECEIPT REL YING UPON DECISION OF THE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT V S RELIANCE INDUSTRIES L TD. (CEA NO 1299/2008) DATED 15.04.2008 WHICH HAS NOT A TTAINED FINALITY AND NOT PROPERL Y APPRECIATING THE RATIO OF DECISION IN THE CASE OF SAHANEY STEEL A ND PRESS WORKS LTD V S CIT(1997) (228 ITR 253)(SC) WHICH CLEARLY LAID DOWN THAT THE SUBSIDY RECEIVED AFTER COMMENCEMENT OF BUSINESS WITHOUT ANY SPECIFIC INSTRUCTION FOR ITS USE TOWARDS THE CAPITAL UTILIZED FOR ESTABLISHING THE BUSINESS CONSTITUTES REVENUE RECEIPT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR ( AY 2011 - 12 ) ON 28.09.2011 DECLARING TOTAL INCOME OF RS. NIL , CLAIMING CURRENT YEARS BUSINESS LOSS OF RS.158,78,56,843/ - . THE NATURE OF BUSINESS OF THE ASSESSEE IS DESIGNING, DEVELOPING, MANUFACTURING, MARKETING AND SELLING OF AUTOMOBILE VEHICLES, CONSTRUCTION EQUIPMENT, MACHINERY AND ITS PARTS. T HE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.71,83,20,499/ - AS CAPITAL RECEIPT - INDUSTRIAL PROMOTION SUBSIDY IN ITS COMPUTATION OF TAXABLE TOTAL INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) ASKED THE ASSESSEE TO FILE A COPY OF (I) INDUSTRIAL MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 3 P ROMOTION SCHEME, (II) ELIGIBILITY CERTIFICATE, (III) AGREEMENT FOR SHARING OF THE SALES TAX INCENTIVE, (IV) EXPLANATION AS TO HOW THE AMOUNT HAS BEEN ARRIVED AND JUSTIFICATION FOR CLAIM OF THE AMOUNT AS CAPITAL RECEIPT. ON A PERUSAL OF THE ABOVE DOCUMENTS AND EXPLANATIONS, THE AO NOTICED THAT THE ASSESSEE HAD STARTED COMMERCIAL PRODUCTION ON 13.01.2010 BEFORE THE COMMENCEMENT OF THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. THE OBJECT OF THE SUBSIDY RECEIVED BY THE APPELLANT AFTER THE COMMENC EMENT OF PRODUCTION, AND ON THE BASIS OF TURNOVER/SALES WAS TO ENABLE IT TO RUN THE BUSINESS MORE PROFITABLY IN LIEU OF THE INDUSTRY/UNIT SET UP BY IT IN A PARTICULAR AREA AND THEREFORE, THE RECEIPT WILL BE ON REVENUE ACCOUNT. THE RECEIPT OF SALES TAX SUBS IDY DID NOT ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT BUT ONLY TO MINIMIZE THE COST OF PRODUCTION. THE AO ALSO NOTED THAT THE ASSESSEES RELIANCE ON THE CASE OF DCIT V. RELIANCE INDUSTRIES LTD. (2004) 88 ITD 273 (MUM) (SB) DOE S N OT HOLD GOOD SINCE IN THAT CASE (CIVIL APPEAL NO. 7769 OF 2011), THE HONBLE SUPREME COURT VIDE ORDER DATED 09.09.2011 HAS REMITTED THE ISSUE OF SALES TAX SUBSIDY TO THE HIGH COURT. ALS O ADVERTING TO THE CASE OF THE H OLDING C OMPANY, MAHINDRA & MAHINDRA LTD., THE AO COMMENTED THAT FOR AY 2008 - 09, ON THE ISSUE OF OCTROI INCENTIVE IN A SIMILAR SCHEME, THE TRIBUNAL IN ITA NO. 586/MUM/2013 VIDE ORDER DATED 29.11.2013 HAS SET ASIDE THE ISSUE TO BE DECIDED AFRESH. IN VIEW OF THE ABOVE FACTS, THE AO HELD THE R ECEIPT OF SALES TAX SUBSIDY OF RS.71,83,20,499/ - AS REVENUE RECEIPT AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 4 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) OBSERVED FROM THE R ESOLUTION OF GOVERNMENT OF MAHARASHTRA DATED 30.03.2007 THAT IT HAD BEEN ISSUED IN CONNECTION WITH PACKAGE SCHEME OF I NCENTIVES , WHICH HAD BEEN FORMULATED FOR SETTING UP OF NEW UNITS OR FOR EXPENDING THE EXISTING UNITS SET UP IN UNDE R DEVELOPED REGIONS OF MAHARASHTRA. IT WOULD HENCE BECOME CLEAR T HAT THE PURPOSE FOR WHICH THE PACKAGE SCHEME OF I NCENTIVES HAD BEEN FORMULATED AND FOR WHICH THE IMPUGNED SUBSIDY HAD BEEN GRANTED WAS FOR EITHER SETTING UP A NEW UNIT OF FOR EXPANDING AN EX ISTING UNIT IN THE DEVELOPING REGIONS (AS OPPOSED TO THE DEVELOPED REGIONS) OF THE S TATE. THE LD. CIT(A) FURTHER OBSERVED THAT THE FINANCE ACT, 2015 HAS INSERTED CLAUSE (XVIII) IN SECTION 2(24) OF THE ACT W.E.F. 01.04.2016 TO PROVIDE THAT ANY SUBSIDY RECEI VED SHALL BE CHARGEABLE TO TAX AS INCOME. AS PER CBDT CIRCULAR NO. 19 OF 2015 DATED 27.11.2015, IT HAS BEEN CLARIFIED THAT THIS POSITION SHALL TAKE EFFECT FROM 01.04.2016 AND ACCORDINGLY IN THE IMPUGNED ASSESSMENT YEAR, THERE IS NO EXPLICIT LEGISLATIVE SAN CTION AVAILABLE FOR CHARGING TO TAX THE SUBSIDY IN QUESTION. REFERRING TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN CIT V. PONNI SUGARS & CHEMICALS LTD. 306 ITR 392, CIT V. P.J. CHEMICALS LTD . 210 ITR 830 AND SAHNEY STEEL & PRESS WORKS LTD. V. CIT 228 ITR 253, THE LD. CIT(A) NOTED THAT THE PURPOSE FOR WHICH ANY SUBSIDY HAD BEEN GRANTED WOULD BE IMPORTANT. IF THE PURPOSE FOR WHICH THE SUBSIDY HAD BEEN GRANTED WAS EITHER FOR SETTING UP A NEW INDUSTRIAL UNIT OR FOR EXPANDING AN EXISTING INDUSTRIAL UNIT, THE SUBSIDY HAD TO BE TAKEN TO HAVE BEEN RECEIVED ON CAPITAL ACCOUNT. IN THIS REGARD, THE LD. CIT(A) ALSO REFERRED TO THE DECISION IN CIT V. CHAPHALKAR BROTHERS [351 ITR 309 (BOM)], CIT V. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 5 KIRLOSKAR OIL ENGINES LTD. [364 ITR 88 (BOM)], CIT V. BIRLA VXL LTD . [90 DTR 376 (GUJ)], SHREE BALAJI ALLOYS V. CIT [333 ITR 335 (J&K)], CIT V. RUBY RUBBER WORKS LTD . [178 ITR 181 (KER)], GREENHAM ESTATE (P) LTD. V. STATE OF TAMIL NADU [226 ITR 929 (MAD)], VINOD KUMAR JAIN V. IT O [22 ITR (TRIB) 567 (AMRITSAR)]. ALSO THE LD. CIT(A) REFERRED TO THE CBDT CIRCULAR NO. 142 DATED 01.08.1974 WHEREIN IT HAS BEEN CLARIFIED THAT ANY SUBSIDY GRANTED BY THE GOVERNMENT FOR SETTING UP OF AN INDUSTRIAL UNIT IN BACKWARD OR NOTIFIED AREAS WOULD CONSTITUTE CAPITAL RECEIPT. FINAL LY , REFERRING TO THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT V. RELIANCE INDUSTRIES LTD . 88 ITD 273 AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT V. RELIANCE INDUSTRIES LTD . (CEA NO. 12299 OF 2008 DATED 15.04.2008, THE LD. CIT(A) OBSE RVED THAT THE PURPOSE TEST WAS THE SOLE TEST, WHEREBY IT WOULD BE DETERMINED WHETHER THE SUBSIDY IN QUESTION WAS RECEIVED ON THE CAPITAL ACCOUNT AND THE POINT OF TIME AT WHICH THE SUBSIDY WAS ACTUALLY PAID WOULD BE NO RELEVANCE. IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE DECISIONS, THE LD. CIT(A) HELD THAT THE SUBSIDY IN QUESTION OF RS.71,83,20,499/ - WAS RECEIVED ON THE CAPITAL ACCOUNT AND THE SAME CANNOT BE CHARGED TO TAX. 5. BEFORE US, THE LD. DR RELIES ON THE DECISION IN SAHNEY STEEL & PRESS WORKS LT D. (SUPRA) AND CIT V. M/S BHUSHAN STEELS & STRIPS LTD . (2017) 398 ITR 216 (DEL). MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 6 THE LD. DR READ OUT 1 ST AND 2 ND PARA OF THE PREAMBLE OF THE PACKAGE SCHEME OF INCENTIVES, 2007, WHICH SHOWED THAT THE EARLIER SCHEMES WERE VALID UPTO 31.03.2007. REFERRING TO PARA 1.3, DEALING WITH CLASSIFICATION OF AREAS, HE DREW ATTENTION OUR ATTENTION TO GROUP A WHICH COMPRISES OF DEVELOPED AREAS VIZ. MUMBAI METROPOLITAN REGION AND PUNE METROPOLITAN REGION TO SUGGEST THAT SUBSIDIES WERE AVAILABLE EVEN FOR DEVELOPED AREAS OF THE STATE. THE LD. DR FURTHER SUBMITTED THAT (I) THE ASSESSEE HAD SET UP A MEGA PROJECT, (II) THE ELIGIBILIT Y CERTIFICATE ( EC ) WAS ISSUED ON 24.01.2011 WHEREAS THE COMMERCIAL PRODUCTION STARTED ON 13.01.2010, (III) KHED (CHAKAN, WHERE THE PLANT IS LOCATED) FALLS IN GROUP A AS PER PAGE 60 OF THE PAPER BOOK (P/B) FILED BY THE ASSESSEE (IV) THE ENTITLEMENT INCLUDE S ELECTRICITY, EXEMPTION FROM STAMP DUTY, INDU STRIAL PROMOTION SUBSIDY (IPS) MEASURED AS LOWER OF ELIGIBLE FIXED CAPITAL INVESTMENT AND TAXES PAID TO THE STATE GOVERNM ENT WITHIN A PERIOD OF 20 YEARS, AS PER PARA 13 OF THE EC (V) CHAKAN IS A HIGHLY DEVELOPE D AREA, (VI) THE QUANTUM OF INCENTIVES WITHIN THE APPROVED LIMIT WILL BE DECIDED BY A HIGH POWER ED COMMITTEE, AS PER PARA 5.10, (VII) NOT MUCH OF ADDITION HAS BEEN MADE TO FIXED ASSETS IN THESE YEARS, AS PER FINANCIAL STATEMENTS OF FYS 2010 - 11 AND 2011 - 12 (VIII) SUBSIDY WAS CREDITED TO THE P&L ACCOUNT AND CLAIMED AS A DEDUCTION FROM THE PROFIT FOR THE YEAR, AS PER COMPUTATION OF INCOME, (IX) BY CREDITING SUBSIDY TO THE P&L ACCOUNT, THE ASSESSEE HAS REDUCED EXPENSES WHICH WERE OTHERWISE DEBITED TO THE P&L AC COUNT AND IN RESPECT OF WHICH SUBSIDY WAS GIVEN, (X) THE LD. CIT(A) HAS MADE SOME OBSERVATIONS AT PARA 5 OF HIS ORDER WHICH ARE CONTRARY TO THE FACTS. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 7 6. PER CONTRA , THE LD. COUNSEL OF THE ASSESSEE ARGUES THAT THE LD. DR DID NOT READ OUT THE 3 RD PARA OF THE PREAMBLE WHICH REFERS TO THE PURPOSE FOR WHICH SUBSIDY IS GIVEN AND FURTHER SUBMITS THAT (I) ON PERUSAL OF PARA 3.6, IT WILL BE SEEN THAT NO SUBSIDY IS AVAILABLE IN RESPECT OF GROUP A, AS THIS IS CLEAR FROM PARA 3.8 (VIII) RELATING TO MEGA PR OJECTS, (II) FROM PARA 5.1 IT IS CLEAR THAT IPS IS NOT AVAILABLE IN RESPECT OF GROUP A AND SIMILARLY AS PER PARA 5.2, INTEREST SUBSIDY IS NOT AVAILABLE TO GROUP A. IT IS STATED THAT AS PER PARA 5.3, EXEMPTION FROM ELECTRICITY DUTY IS NOT AVAILABLE TO GROUP A. ALSO REFUND OF OCTROI/ENTRY TAX IN LIEU OF OCTROI IS NOT AVAILABLE. THUS THE LD. COUNSEL SUBMITS THAT NO SUBSIDY HAS BEEN PROVIDED UNDER T HE SCHEME IN RESPECT OF GROUP A. THE LD. COUNSEL FURTHER SUBMITS THAT BEING A MEGA PROJECT, IT MEANT A LARGER FIX ED CAPITAL INVESTMENT, MORE EMPLOYMENT GENERATION AND MORE ALL - ROUND DEVELOPMENT OF THE AREA. IN THE IMPUGNED ASSESSMENT YEAR, THE DIRECT EMPLOYMENT GENERATED BY THE ASSESSEE WAS IN THE RANGE OF 3000 AND TODAY IT IS AROUND 10000. THUS IT IS STATED THAT IT HAS THE CAPACITY TO MANUFACTURE PER ANNUM 275000 FOUR WHEELERS, 50000 TRUCKS AND 1000 CONSTRUCTION EQUIPMENT. IT IS FURTHER SUBMITTED THAT AS PER PARA 3.1 OF THE SCHEME, IT IS PROVIDED THAT AN EC WILL BE ISSUED BY THE IMPLEMENTING AGENCY, AFTER ASCERTA INING THAT THE ELIGIBLE UNIT HAS COMPLIED WITH THE PROVISIONS OF THE SAID SCHEME AND HAS COMMENCED COMMERCIAL PRODUCTION. THIS ONLY ENSURES THAT ONLY BONAFIDE CLAIMANTS ARE PAID SUBSIDY AND THAT T OO AFTER THEY HAVE COMPLIED WITH THE CONDITIONS. IN ANY EVEN T THE EC IS EFFECTIVE MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 8 FROM 13.01.2010 (PAGE 70 OF THE P/B) BEING THE DATE OF COMMENCEMENT OF PRODUCTION. THE LD. COUNSEL STATES THAT THE PLANT FALLS IN GROUP C WHICH IS ALSO INCLUDED IN KHED WHICH FALLS OUTSIDE THE PUNE METROPOLITAN REGION. IF THE PLANT WAS LOCATED IN GROUP A, THE ASSESSEE WOULD NOT HAVE BEEN ENTITLED TO ANY SUBSIDY. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT AVA ILED ELECTRICITY DUTY EXEMPTION, IT HAS ONLY AVAILED STAMP DUTY EXEMPTION AND IPS AND AVAILMENT OF STAMP DUTY EXEMPTION AUTOMATICALLY REDUCES IPS BY THAT AMOUNT. IT IS STATED THAT IPS IS EQUAL TO 100% OF FIXED CAPITAL INVESTMENT OR TAXES PAID TO THE STATE GOVERNMENT, WHICHEVER IS LOWER, BOTH OF WHICH ARE THE MEASURE FOR GRANTING SUBSIDY. THE LD. COUNSEL ALSO SUBMITS THAT CHAKAN FALLS IN GROUP C WHICH COMPRISES OF LESS DEVELOPED AREAS THAN THOSE COVERED BY GROUP B. IT IS CLARIFIED THAT GROUP B HAS BEEN DEFINED TO MEAN AREAS, WHERE SOME DEVELOPMENT HAS TAKEN PLACE. IT IS SUBMITTED THAT THE QUANTUM OF INCENTIVE IS STILL WITH IN THE APPROVED LIMIT, ONLY MORE FLEXIBILITY TO MEGA PROJECTS, CONSIDERING SIZE OF INVESTMENT COMMITTED BY THE INVESTORS. IT IS FURTHER SUBMITTED THAT AN ADDITION OF RS.482.03 CRORES WAS MADE TO FIXED ASSETS IN FY 2010 - 11 AND RS.270.33 CRORES IN FY 2011 - 12 AND ONLY AFTER CONFIRMING THESE INVESTMENTS AND SATISFACTION OF OTHER ELIGIBILITY CONDITIONS WAS THE EC ISSUED. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 9 THE LD. COUNSEL ARGUES THAT IPS WAS NOT IN RESPECT OF ANY ITEM OF EXPENDITURE DEBITED TO THE P&L ACCOUNT. NO EXEMPTION WAS CLAIMED IN RESPE CT OF ELECTRICITY DUTY AND HENCE THERE WAS NO QUESTION OF DEBITING P&L WITH ELECTRICITY DUTY AND CLAIMING DEDUCTION FOR THE SAME AND CLAIMING THE SAME FIGURE AS SUBSIDY. STAMP DUTY EXEMPTION AVAILED WAS IN RESPECT OF LAND WHICH IS NOT DEBITED TO THE P&L AC COUNT. IT IS STATED THAT IPS IS AVAILED IN THE FORM OF VAT AND GST PAYABLE ON FINISHED GOODS AND SPARES SOLD BY THE ASSESSEE. ALSO VAT AND GST ON SALES ARE COLLECTED FROM THE CUSTOMERS AND PAID AS SALES TAX DUES. THE FACT REMAINS THAT VAT AND GST ARE ALMOS T UNIVERSALLY ACCOUNTED FOR AS BALANCE SHEET ITEMS AND HENCE NOT DEBITED TO THE P&L ACCOUNT. IT IS STATED THAT SUBSIDY IS RECEIVED FROM THE DEPARTMENT OF INDUSTRIES AND NOT AS REFUND OF SALES TAX FROM THE SALES TAX DEPARTMENT. THEREFORE, NO EXPENSES CORR ES PONDING TO IPS ARE OVERSTATED. THE LD. COUNSEL FILES A P/B CONTAINING (I) C OMPUTATION OF INCOME (II) T HE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 201 1 , (III) PACKAGE SCHEME OF INCENTIVES, 2007, (IV) ELIGIBILITY CERTIFICATE FOR MEGA PROJECT UNDER PACKAGE SCHEME OF INCENTIVE, 2007 ISSUED IN THE NAME OF THE ASSESSEE , (V) WRITTEN SUBMISSION FILED BEFORE LD. CIT(A), (VI) NOTE SUBMITTED TO AO, (VII) EXTENSION OF VALIDITY OF THE PACKAGE SCHEME OF INCENTIVES, 2007, TO THE IMPUGNED ASSESSMENT YEAR. ALSO ANOTHER P/B IS FILED BY HIM CONTAINING THE DECISIONS REFERRED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 10 AT THIS MOMENT , WE DISCUSS THE CASE - LAWS RELIED ON BY THE LD. DR. IN SAHNEY STEEL & PRESS WORKS LTD. (SUPRA), THE ASSESSEE - COM PANY SET UP A FACTORY IN THE STATE OF ANDHRA PRADESH, WHICH WENT INTO PRODUCTION IN THE YEAR 1973. FOR THE AY 1974 - 75, THE ASSESSEE OBTAINED REFUND OF SALES TAX TO THE EXTENT OF RS.14,565/ - IN TERMS OF NOTIFICATION ISSUED BY THE STATE GOVERNMENT. ACCORDING TO THE SAID NOTIFICATION, CERTAIN FACILITIES AND INCENTIVES WERE TO BE GIVEN TO ALL THE NEW INDUSTRIAL UNDERTAKINGS WHICH COMMENCED PRODUCTION ON OR AFTER 01.01.1969 WITH INVESTMENT CAPITAL NOT EXCEEDING RS.5 CRORES. THE INCENTIVES WERE TO BE ALLOWED FOR A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. THE INCENTIVES WERE NOT AVAILABLE UNLESS AND UNTIL PRODUCTION HAD COMMENCED. THE AO INCLUDED THE SAID AMOUNT IN THE ASSESSABLE INCOME OF THE ASSESSEE AND THAT WAS AFFIRMED BY THE CIT(A). O N FURTHER APPEAL, THE TRIBUNAL DELETED THE ADDITIONS HOLDING THAT THE REFUND WAS A DEVELOPMENT SUBSIDY IN THE NATURE OF A CAPITAL RECEIPT. ON REFERENCE, THE HONBLE HIGH COURT SET ASIDE THE ORDER OF THE TRIBUNAL. ON APPEAL TO SUPREME COURT, IT WAS HELD THA T THE SUBSIDIES HAD BEEN GRANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENCE ANY NEW ASSET. THE SUBSIDIES WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION. SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSIST ANCE GIVEN FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE AND, THEREFORE, THESE WERE OF REVENUE CHARACTER AND WOULD HAVE TO BE TAXED ACCORDINGLY. HERE IN THE INSTANT CASE, THE ISSUE IS NOT SUBSIDY IN THE NATURE OF REFUND OF SALE S TAX ON RAW MATERIALS, MACHINERIES AND FINISHED GOODS. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 11 THUS THE PRESENT CASE IS DISTINGUISHABLE FROM THE DECISION IN SAHNEY STEEL & PRESS WORKS LTD. (SUPRA), RELIED ON BY THE LD. DR. IN BHUSHAN STEELS & STRIPS LTD. (SUPRA), RELIED ON BY THE LD. DR, THE U.P. GOVE RNMENT IN EXERCISE OF POWERS U/S 4A OF THE U.P. SALES TAX ACT, 1948 R.W.S. 221 OF THE GENERAL CLAUSES ACT, 1904 GRANTED EXEMPTION FROM PAYMENT OF THE SALES TAX IN RESPECT OF ANY GOODS MANUFACTURED IN AN INDUSTRIAL UNIT WHICH IS A NEW UNIT LOCATED IN A SPEC IFIED BACKWARD AREA, AND SUCH EXEMPTION WAS ALLOWED FOR A PERIOD OF SIX YEARS. IN THE YEAR 1990, A NEW SUBSIDY REGIME FOR INDUSTRIAL PROMOTION WAS EVOLVED. THIS ENVISIONED VARIOUS INCENTIVES TO NEW UNITS THAT WERE TO BE ENCOURAGED IN CERTAIN PARTS OF THE S TATE. THE ASSESSEES UNIT CAME UP IN A BACKWARD AREA AND THUS THE ENTERPRISE SETTING UP A NEW UNIT, COULD CLAIM SALES TAX EXEMPTION FOR A CERTAIN NUMBER OF YEARS. THE SCHEME DID NOT PLACE ANY CONDITION BUT MERELY STATED THAT THE COLLECTION COULD BE RETAINE D TO THE EXTENT OF 100 PER CENT. OF CAPITAL EXPENDITURE. THE ASSESSING OFFICER HELD THAT THE AMOUNT RECEIVED BY WAY OF SALES TAX EXEMPTION WAS TAXABLE. ON APPEAL THE COMMISSIONER (APPEALS) ALLOWED THE ASSESSEES CLAIM. THE COMMISSIONER (APPEALS) HELD THAT THE AMOUNT OF SALES TAX COLLECTED AS INCENTIVE FOR SETTING UP INDUSTRIES IN BACKWARD AREAS WAS NOT SUBJECT TO TAX AS A TRADING RECEIPT; BUT RATHER WAS TO BE TOWARDS ESTABLISHMENT OF THE NEW UNIT AND BUY MACHINERY. CONSEQUENTLY, THE COMMISSIONER (APPEALS) D ELETED THE AMOUNT ADDED BY THE ASSESSING OFFICER. THE REVENUES APPEAL BEFORE THE APPELLATE TRIBUNAL WAS DISMISSED. ON FURTHER APPEAL , THE HONBLE HIGH COURT HELD AS UNDER : MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 12 (I) THAT THE SPECIFIC PROVISION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE L ACK OF SUCH SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) MEANT THAT THE RECIPIENT, I.E. THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. THE ABSENCE OF ANY CONDITION TOWARDS CAPITAL UTILIZATION MEANT THAT THE POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCENTIVE FOR INVESTORS TO EXPAND UNITS, FOR RAPID INDUSTRIALIZATION OF THE STATE, ENSURING GREATER EMPLOYMENT. CLEARLY, THE SUBSIDY WAS REVENUE IN NATURE. FURTHER, THE HONBLE HIGH COURT HELD THAT: IN SAHNEY STEELS AND PRESS WORKS LTD. V. CIT [1997] 228 ITR 253 (SC) THE SUPREME COURT HAD RULED THAT THE CHARACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENT, WHETHER CAPITAL OR REVENUE, HAS TO BE DETERMINED HAVING REGARD TO THE PURPOSE OF WHICH THE SUBSIDY WAS GIVEN. ALTHOUGH THE SOUR CE IS IMMATERIAL, THE PURPOSE SHOULD BE EXAMINED; IF THE PURPOSE WAS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR TO COMPLETE THE BUSINESS, THE MONEYS HAD TO BE TREATED AS HAVING RECEIVED FOR CAPITAL PURPOSES. CONVERSELY, IF MONEYS WERE GIVEN TO THE ASSE SSEE FOR ASSISTING IT IN CARRYING ON BUSINESS OPERATIONS AND IF THE MONEY WAS GIVEN ONLY AFTER AND CONDITIONAL UPON PRODUCTION, SUBSIDIES HAD TO BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE. IN THE INSTANT CASE, AS PER THE EC ISSUED BY THE DIRE CTORATE OF INDUSTRIES ON 24.01.2011, THE ASSESSEE WAS ENTITLED TO IPS EQUIVALENT TO 100% OF THE ELIGIBLE AMOUNT OF FIXED CAPITAL INVESTMENT MADE BY THE ASSESSEE OR THE TAXES PAID BY IT TO THE GOM WITHIN A PERIOD OF 20 YEARS, WHICHEVER IS LOWER. BETWEEN 200 8 TO 2010, THE ASSESSEE HAD SET UP A PLANT FOR THE MANUFACTURE OF FOUR WHEELERS, TRUCKS AND CONSTRUCTION EQUIPMENTS. COMMERCIAL PRODUCTION FROM THIS NEW UNIT STARTED ON 13.01.2010. AS PER THE SCHEME (PARA 3.1) , IT IS PROVIDED THAT AN EC WILL BE ISSUED BY T HE IMPLEMENTING AGENCY, AFTER ASCERTAINING THAT THE MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 13 ELIGIBLE UNIT HAS COMPLIED WITH THE PROVISIONS OF THE SCHEME AND HAS COMMENCED COMMERCIAL PRODUCTION. SO, IPS IS GIVEN ONLY AFTER THE CAPITAL INVESTMENT HAS BEEN MADE AND COMMERCIAL PRODUCTION HAS STARTED . THUS THE INSTANT CASE IS DISTINGUISHABLE FROM THE DECISION IN BHUSHAN STEELS & STRIPS LTD. (SUPRA), RELIED ON BY THE LD. DR. 7.1 LET US RECAPITULATE THE FACTS BRIEFLY. THE ASSESSEE IS A 100% SUBSIDIARY OF MAHINDRA & MAHINDRA LTD. BETWEEN 2008 AND 2010, I T SET UP A PLANT FOR THE MANUFACTURE OF FOUR WHEELERS, TRUCKS AND CONSTRUCTION EQUIPMENT. COMMERCIAL PRODUCTION FROM THIS NEW UNIT STARTED ON 13.01.2010. AS PER PAGE 40 - 68 OF THE P/B, THE GOVERNMENT OF MAHARASHTRA, INDUSTRIES, ENERGY AND LABOUR DEPARTMENT, CONTINUING WITH THE PRACTICE FOLLOWED BY IT SINCE 1964, PASSED A RESOLUTION ON 30.03.2007, ENHANCING WHAT IS POPULARLY KNOWN AS THE PACKAGE SCHEME OF INCENTIVES 2007. AS PER THE EC ISSUED BY THE DIRECTORATE OF INDUSTRIES ON 24.01.2011, THE ASSESSEE WAS EN TITLED TO IPS EQUIVALENT TO 100% OF THE ELIGIBLE AMOUNT OF FIXED CAPITAL INVESTMENT MADE BY IT OR THE TAXES PAID BY THE ASSESSEE TO THE GOM WITHIN A PERIOD OF 20 YEARS, WHICHEVER IS LOWER. AS PER ITEM 12 OF THE EC, PERIOD FOR MAKING ADMISSIBLE INVESTMENT I S FROM 16.01.2007 TO 15.01.2015. IT IS FOUND THAT 16.01.2007 IS THE DATE OF THE MOU ENTERED INTO WITH GOM AS REFERRED TO IN THE EC ITSELF. THEREFORE, THE ORIGIN OF THE ENTIRE ARRANGEMENT DATES BACK TO PRE - SETTING UP OF THE NEW UNIT AND NOT TO THE COMMENCEM ENT OF COMMERCIAL PRODUCTION. UPON RECEIPT OF THE EC, THE DIRECTORATE OF INDUSTRIES DISBURSED SUBSIDY NATURE OF WHICH IS THE SUBJECT MATTER OF DISPUTE. MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 14 AT THIS JUNCTURE, WE MAY REFER TO THE DECISION IN PONNI SUGARS & CHEMICALS LTD. (SUPRA), WHEREIN THE HO NBLE SUPREME COURT HAS HELD THAT THE TEST IS THE CHARACTER OF RECEIPT IN THE HANDS OF THE ASSESSEE, SO THAT WHERE THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, IT COULD BE TAXABLE, BUT WHERE IT IS TO ENABLE THE A SSESSEE TO SET UP A NEW UNIT OR EXPAND ITS EXISTING UNIT, IT SHOULD NOT TAXABLE. WE EXTRACT BELOW THE OBSERVATIONS OF THE HONBLE SUPREME COURT FOLLOWING: THE MAIN ELIGIBILITY CONDITION IN THE SCHEME WITH WHICH WE ARE CONCERNED IN THIS CASE IN THAT THE INCENTIVE 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 T HERE IS NO DISPUTE. IF THE OBJECT OF THE SUBSIDY SCHEME WAS 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 WAS TO ENABLE THE ASS ESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT WE ARE OF THE CONSIDERED VIEW THAT T HE RATIO LAID DOWN IN THE ABOVE DECISION SQUARELY APPLIES TO THE PRESENT CASE. IN THE INSTANT CASE , THE MAIN OBJECTIVE OF THE S CHEME WAS TO INTENSIFY AND ACCELERATE THE PROCESS OF DISPERSAL OF INDUSTRIES FROM DEVELOPED AREAS AND FOR DEVELOPMENT OF UNDER - DEVELOPED REGIONS OF MAHARASHTRA. IT IS CLEAR FROM THE SCHEME THAT IPS INCENTIVE WAS GRANTED NOT FOR CARRYING ON DAY - TO - DAY BUSINESS OF THE UNIT MORE PROFITABLY BUT TO PROVIDE IMPETUS TO THE PROCESS OF DISPERSAL OF INDUSTRIES TO BACKWARD AREAS. THE PLANT OF THE ASSESSEE FALLS IN GROUP C , WHICH ALSO INCLUDE S MAHINDRA VEHICLES ITA NOS. 6919 & 6920/MUM/2016 15 KHED , WHICH IS OUTSIDE THE PUNE METROPOLITAN REG ION. IN THE PRESENT CASE THE SALES TAX PAYMENT IS ONLY AN YARDSTICK TO DETERMINE THE QUANTUM OF INCENTIVE AND CANNOT BE CONSTRUED AS TO MITIGATE THE OPERATIONAL COST OF THE BUSINESS. IN VIEW OF THE ABOVE FACTUAL SCENARIO WE UPHOLD THE ORDER OF THE LD. C IT(A). FACTS BEING IDENTICAL AND THE GROUNDS OF APPEAL BEING SAME, OUR DECISION FOR AY 2011 - 12 APPLIES MUTATIS MUTANDIS TO AY 2012 - 13. 8. IN THE RESULT, THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 28/11/2018. SD/ - SD/ - ( SA KTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28/11/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI
Mehul