M/S. SUN-N- SAND HOTELS PVT. LTD, MUMBAI V. THE DYCIT CIR 8(3), MUMBAI

ITA 7125/MUM/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75262 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-12-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 30-11-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Depreciation; Capital receipt
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI . . , , . . ! ' , # BEFORE SHRI I P BANSAL, JM & SHRI N K BILLAIYA, AM ./ ITA NO.7125/MUM/2007 ( $ %$ / AY 2003-04) ./ ITA NO.2218/MUM/2008 ( $ %$ / AY 2004-05) ./ ITA NO.3833/MUM/2008 ( $ %$ / AY 2005-06) ./ ITA NO. 772/MUM/2009 ( $ %$ / AY 2006-07) SUN - N - SAND HOTELS PVT. LTD. 39 JUHU BEACH, MUMBAI- 400 049 PAN : AAACS5521P VS. THE DY CIT CIR. 8(3), MUMBAI ( &' /APPELLANT) ( ()&' /RESPONDENT) ./ ITA NO.2012/MUM/2009( $ %$ /AY 2005-06) ./ ITA NO.4566/MUM/2009( $ %$ /AY 2006-07) SHALIMAR VISUALS PVT. LTD. 39 JUHU BEACH, MUMBAI- 400049 PAN : AABCS1096A THE ITO 8(3)(1), MUMBAI ( &' /APPELLANT) ( ()&' /RESPONDENT) ./ITA NO.3960/MUM/2008( $ %$ / AY 2005-06) SUN - N - SAND HOTEL (SHIRDI) PVT. LTD. 39 JUHU BEACH,MUMBAI- 400049 PAN : AABCS3521J THE ITO 8(3)(2), MUMBAI ( &' /APPELLANT) ( ()&' /RESPONDENT) SUN-N-SAND HOTELS PVT. LTD SHALIMAR VISUALS PVT. LTD. SUN-N-SAND HOTEL (SHIRDI) PVT. LTD. 2 APPELLANTS BY : SHRI PRAKASH JOTWANI RESPONDENT BY : SHRI M L PERUMAL * +' / DATE OF HEARING :18.12.2013. ,-% * +' / DATE OF PRONOUNCEMENT : 08.01.2014 . . . . / O R D E R PER BENCH: ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. ALL THESE APPEALS INVOLVE ONE COMMON ISSUE RELATING TO THE TAXABILITY OF SALE S TAX BENEFIT/SUBSIDY RECEIVED BY THE ASSESSEE UNDER POWER POLICY OF THE STATE GOVERN MENT AS INCENTIVE FOR SETTING UP WINDMILLS IN THE MAHARASHTRA STATE. WE SHALL FIRST TAKE UP ITA NO. 7125/MUM/2007. 2. THE ASSESSEES CONTENTION IS THAT THE SUBSIDY/ BENEFIT SO RECEIVED IS A CAPITAL RECEIPT NOT LIABLE TO TAX WHEREAS THE REVENUE AUTHO RITIES HAVE CONSIDERED SUCH SALES TAX BENEFITS/SUBSIDIES AS REVENUE RECEIPT AND HAVE TAXED ACCORDINGLY. 3. PRIMA FACIE BY GOING THROUGH THE GROUNDS OF APPE AL OF THE ASSESSEE, IT APPEARS THAT THE ISSUE RELATES TO THE TAXABILITY OR OTHERWISE OF SALES TAX BENEFITS, BUT ONCE WE UNDERSTAND THE FACTS OF THE CASE IN THE RIG HT PERSPECTIVE, THE ISSUE WOULD BE DIFFERENT. 4. AS PER THE STATE GOVERNMENT OF MAHARASHTRA POLIC Y, INVESTMENT IN PLANT AND MACHINERY, NEW BUILDING, LAND DEVELOPMENT, TECHNICA L DEVELOPMENT AND DESIGN IN A WIND POWER PROJECT WOULD BE CONSIDERED AS QUALIFYIN G INVESTMENT FOR AVAILING SALES TAX BENEFIT. THE BENEFIT WOULD BE 1/6 TH OF INVESTMENT EVERY YEAR FOR SIX YEARS UNDER THE CONDITION THAT THE PLANT HAS SUCCESSFULLY OPERA TED EVERY YEAR WITH A MINIMUM OF 12% PLANT LOAD FACTOR. THE BENEFIT MAY ALSO BE AVA ILED BY OTHER COMPANY ASSOCIATED WITH THE PROMOTERS. SUN-N-SAND HOTELS PVT. LTD SHALIMAR VISUALS PVT. LTD. SUN-N-SAND HOTEL (SHIRDI) PVT. LTD. 3 5. BEING ENCOURAGED BY THE GOVERNMENT POLICY, THE A SSESSEE COMPANY INVESTED RS.10 CRORE IN WIND POWER GENERATION AND SET UP ITS WIND INDUSTRIAL FARM IN SUPA VILLAGE, AND ANOTHER INDUSTRIAL FARM WAS SET UP AT VAREKARWADI. THE ASSESSEE SOLD THE POWER GENERATED FROM SUPA VILLAGE TO M/S. GREAV ES LTD AND POWER GENERATED FROM WIND MILL AT VAREKARWADI WAS SOLD TO MSEB DIRE CTLY. AS THE ASSESSEE COMPANY HAS COMPLIED WITH ALL THE NECESSARY CONDITIONS AS P RESCRIBED BY THE STATE GOVERNMENT OF MAHARASHTRA POLICY, THE ASSESSEE WAS ELIGIBLE FOR CLAIMING SALES TAX EXEMPTION, WHICH WAS TO THE TUNE OF RS.1.66 CORES. AS PER THE POLICY ON WIND POWER GENERATION, THERE WAS ALSO A FACILITY OF TRAN SFERRING SALES TAX BENEFIT TO THE THIRD PARTY. FOR THIS ELIGIBILITY CERTIFICATE WAS GIVEN BY THE DIRECTOR, MAHARASHTRA ENERGY DEVELOPMENT AGENCY (MEDA). IT WAS STIPULATE D IN THE SAID POLICY THAT THE PROMOTERS WOULD BE ALLOWED TO CHOOSE AT THE MOST TW O NAMES OF THE THIRD PARTY UNITS TO GET THE SALES TAX BENEFITS. THE ENTITLEME NT CERTIFICATES FOR UNITS OF THIRD PARTY WERE TO BE CERTIFIED BY COMMISSIONER OF SALES TAX. THE AMOUNT OF SALES TAX BENEFIT RELATED TO THE WIND ENERGY GENERATION AND N OT TO THE AMOUNT OF ELECTRICITY SOLD TO THE THIRD PARTY. AFTER OBTAINING THE ENTIT LEMENT CERTIFICATE FOR SALES TAX BENEFIT, THE PROMOTERS OF THE PROJECT CAN TRANSFER IT TO THE THIRD PARTY TO WHOM THEY HAVE SOLD THE ELECTRICITY. THE AMOUNT OF SALES TAX BENEFIT IS RELATED TO THE QUALIFYING INVESTMENT AND PLANT LOAD FACTOR. IT IS FURTHER PR OVIDED THAT THE ELECTRICITY SOLD TO THE UNIT/UNITS OF THE THIRD PARTY CAN AVAIL SALES T AX BENEFIT LIMITED ONLY TO THE QUALIFYING INVESTMENT. 6. TAKING BENEFIT OF THE AFORESAID STIPULATION IN T HE POLICY ON WIND POWER GENERATION, THE ASSESSEE SOLD ENTIRE SALES TAX ENTI TLEMENT OF RS. 1.66 CRORES FOR A CONSIDERATION OF RS. 1.25 CRORES. THE ASSESSEE CLA IMED THE AFORESAID SALES TAX BENEFIT/ENTITLEMENTS AS CAPITAL RECEIPT NOT LIABLE TO TAX. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE SALES TAX INCENTIVE RECEIVED B Y THE COMPANY WAS GRANTED BY THE GOVERNMENT FOR BRINGING ABOUT NECESSARY INFRASTRUCT URE IN THE FIELD OF POWER GENERATION, WHICH WAS SCARCE. THE ASSESSEE FURTHER STATED THAT THE RECEIPT WAS IN THE NATURE OF SUBSIDY FROM THE GOVERNMENT FOR SETTI NG UP WIND POWER GENERATORS IN THE STATE AND SUBSIDY IS ALWAYS A CAPITAL RECEIPT N OT TAXABLE AS REVENUE INCOME. IT SUN-N-SAND HOTELS PVT. LTD SHALIMAR VISUALS PVT. LTD. SUN-N-SAND HOTEL (SHIRDI) PVT. LTD. 4 IS ALSO NOT LIABLE TO BE REDUCED FROM THE COST OF W INDMILLS FOR GRANTING DEPRECIATION AS THE SAME IS STRICTLY IN THE NATURE OF AN INCENTI VE. THE ASSESSEE FURTHER CONTENDED THAT THE SUBSIDY IN THE FORM OF SALES TAX EXEMPTION WAS GRANTED BY THE GOVERNMENT FOR THE COMMISSIONING OF THE WINDMILLS A S AN INCENTIVE AND NOT TO MEET THE COST OF WINDMILLS, WHICH WAS PAID BY THE COMPAN Y OUT OF ITS OWN RESOURCES BEFORE AVAILING SUCH BENEFIT AND, AS SUCH, THE SAME IS IN THE NATURE OF CAPITAL SUBSIDY NOT LIABLE TO TAX. THE ENTIRE CONTENTIONS/ SUBMISSIONS OF THE ASSESSEE REVOLVE AROUND WHETHER THE SUBSIDY IS CAPITAL OR RE VENUE IN NATURE. 7. WE HAVE EXPLAINED HEREINABOVE, AS TO HOW THE ASS ESSEE GOT THE CONSIDERATION FOR THE TRANSFER OF SALES TAX BENEFIT . IN OUR CONSIDERATE VIEW, WHAT THE ASSESSEE HAS DONE IS THAT IT HAS SOLD ITS BENEF ITS/ENTITLEMENTS TO THE THIRD PARTIES. WHAT THE ASSESSEE HAS RECEIVED IS CONSIDE RATION IN RESPECT OF SALE OF THE ENTITLEMENT/BENEFITS. WE FAILED TO PERSUADE OURSEL VES TO CONSIDER/ACCEPT THIS CONSIDERATION AS SALES TAX BENEFIT/SUBSIDY. THIS I S NOTHING BUT CONSIDERATION FOR THE TRANSFER OF THE ENTITLEMENT AND, HENCE, CLEARLY TAX ABLE AS REVENUE RECEIPT IN THE NATURE OF BENEFIT CONVERTIBLE INTO MONEY ARISING FR OM BUSINESS . OUR VIEW IS ALSO FORTIFIED BY THE AGREEMENT FOR TRANSFER OF SALES TA X INCENTIVE AVAILABLE FROM WIND FARM PROJECT EXHIBITED AT PAGES 56 TO 63 OF THE PAP ER-BOOK IN THE CASE OF SUN & SAND HOTELS PVT. LTD IN ITA NO. 7125/MUM/2007. THI S AGREEMENT CLEARLY STATES THAT IT IS FOR TRANSFER OF SALES TAX INCENTIVE TO GRASIM INDUSTRIES LTD. THE RELEVANT CLAUSES OF THE SAID AGREEMENT READ AS UNDER: B. THE VENDOR HAS REPRESENTED THAT IT HAS SET UP A WIND POWER PROJECT COMMISSIONER ON 29/02/2001 AND THE SAID PRO JECT IS ELIGIBLE FOR AVAILING OF SALES TAX BENEFITS AND THA T SUCH SALES TAX BENEFIT ARE TRANSFERABLE TO ANY PARTY UNDER THE GOVERNMENT RESOLUTION NO. NCP-1099/CR-202/ENERGY-7 DATED 1/10/ 1999 AND AS PER THE PROCEDURE LAID DOWN BY THE FINANCE D EPARTMENT THE GOVERNMENT OF MAHARASHTRA VIDE NOTIFICATION NO. STA - 1098/TAXATION2, DATED 24/08/1998 .. SUN-N-SAND HOTELS PVT. LTD SHALIMAR VISUALS PVT. LTD. SUN-N-SAND HOTEL (SHIRDI) PVT. LTD. 5 D BEING A POWER GENERATION UNIT, THE VENDOR IS ELIG IBLE UNDER THE POWER GENERATION PROMOTION POLICY, 1998 TO OBTAIN A CERTIFICATE OF ENTITLEMENT FROM THE COMMISSIONER OF SALES TAX A ND ELIGIBILITY CERTIFICATE FROM MEDA E THE VENDOR IS AGREEABLE TO TRANSFER THE SAID SALE S TAX BENEFITS TO THE PURCHASER AND THE PURCHASER IS AGREEABLE TO AVAIL OF THE SAID SALES TAX BENEFITS ON CERTAIN TERMS AND CONDIT IONS HEREINAFTER APPEARING AND THE SAID ENTITLEMENT CERT IFICATE IS TRANSFERABLE TO ANY INDUSTRY SUBJECT TO THE SAID SC HEME OF INCENTIVES WITHIN THE MAHARASHTRA AND THE TRANSFERE E OF SUCH ENTITLEMENT CERTIFICATE CAN AVAIL THE BENEFITS UNDE R THE ENTITLEMENT CERTIFICATE UP TO THE PERIOD BY WHICH M ONETARY CEILING SPECIFIED IN THE ELIGIBILITY CERTIFICATE GE TS EXHAUSTED OR TILL THE LAST DAY OF THE PERIOD MENTIONED IN THE ENTITLE MENT CERTIFICATE WHICHEVER IS EARLIER. .. 3 THE PURCHASE AND PAYMENTS BY THE PURCHASER (1) THE PURCHASER SHALL IN CONSIDERATION OF THE SALES T AX EXEMPTION ENTITLEMENT BE LIABLE TO PAY TO THE VENDO R AS AND BY WAY OF ENTITLEMENT FEE, AN AMOUNT EQUIVALENT TO 75% OF THE SALES TAX LIABILITY UTILIZED OUT OF THE ENTITLEMENT AMOUNT . THE PURCHASER SHALL AVAIL OF THE EXEMPTION ENTITLEMENT AMOUNT RECEIVED FROM THE VEND OR AND ACCORDINGLY SHALL PAY SUCH ENTITLEMENT FEE TO THE E XTENT OF THE ENTITLEMENT AMOUNT ACTUALLY UTILIZED, WITHIN 10 DAY S OF FILING OF THE MONTHLY SALES TAX RETURN (HEREINAFTER REFERRED AS DUE DATE) AS PER THE BOMBAY SALES TAX RULES. THE PURC HASER AGREES TO MAKE AVAILABLE TO THE VENDOR COPIES OF SA LES TAX RETURNS FILED ALONG WITH OTHER ALLIED DOCUMENTS FOR THE PURPOSES OF CROSS VERIFICATION OF SALES TAX BENEFITS ABSORBE D AND PAYMENT DUE TO THE VENDOR. THE PURCHASER AGREES TH AT THE ENTITLEMENT FEES SHALL BE PAID TO THE VENDOR THROUG H CHEQUES WHICH ARE PAYABLE AT PAR BY THE BANKERS IN MUMBAI. (2) THE PURCHASER SHALL FURNISH SIMILAR DOCUMENT TO THE VENDOR FOR AVAILING ENTITLEMENT AMOUNT FOR THE NEXT FINANCIAL YEAR ON MUTUALLY AGREED TERMS FOR NEXT YEAR. THE VENDOR IN TURN SHALL ARRANGE ENTITLEMENT CERTIFICATE ON OR BEFORE THE DA TE AS MUTUALLY AGREED TO RENEW THE AGREEMENT FURTHER ON M UTUALLY AGREED TERMS AND CONDITIONS FOR THE NEXT YEAR AND/O R THE SUBSEQUENT YEARS. SUN-N-SAND HOTELS PVT. LTD SHALIMAR VISUALS PVT. LTD. SUN-N-SAND HOTEL (SHIRDI) PVT. LTD. 6 A PERUSAL OF THE ABOVE CLAUSES CLEARLY ESTABLISHES THE FACT THAT THE ASSESSEE HAS SOLD ITS SALES TAX INCENTIVES AND WHAT IT HAS RECEIVED I S NOT SALES TAX BENEFIT/INCENTIVE BUT SALE CONSIDERATION ON TRANSFER OF ITS ENTITLEMENT A ND SALE CONSIDERATION IS NOTHING BUT IS A BENEFIT DIRECTLY ARISING FROM BUSINESS AND , IS THEREFORE, A REVENUE RECEIPT. THE LEARNED COUNSEL HAS VEHEMENTLY SUPPORTED THE AS SESSEES CLAIM BY RELYING UPON THE GOVERNMENT POLICY ON WIND POWER GENERATION AND TO SUBSTANTIATE ITS CLAIM THE ASSESSEE HAS ALSO RELIED UPON THE SPECIAL BENCH DEC ISION OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD. 88 ITD 273. THE ASSESS EE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE JAMMU & KASHMIR HIGH COURT IN THE CASE OF SHREE BALAJI ALLOYS 333 ITR 335; HIGH COURT OF PUNJAB & HARYANA 237 CTR 321; HIGH COURT OF KARNATAKA 35 DTR 104; HIGH COURT OF BOMBAY IN THE C ASE OF CHAPHALKAR BROTHERS 351 ITR 309 AND HIGH COURT OF GUJARAT IN THE CASE O F INOX LEISURE LTD. 351 ITR 314. 8. NONE OF THE AFOREMENTIONED DECISIONS IS APPLICAB LE TO THE FACTS OF PRESENT CASE AS IN NONE OF THE ABOVE CASES THE ASSESSEES HA VE SOLD THEIR ENTITLEMENT OF SALES TAX SUBSIDY. WHEREAS IN THE PRESENT CASE THE ASSESSEE HAS SOLD IT SALES TAX BENEFIT THEREFORE, WE HAVE NO HESITATION TO HOLD TH AT WHAT THE ASSESSEE HAS RECEIVED IS SALES CONSIDERATION FOR THE TRANSFER OF ITS SALES TAX ENTITLEMENT AND BY ANY STRETCH OF IMAGINATION WE CANNOT ACCEPT THE SAI D CONSIDERATION AS SALES TAX INCENTIVE BEING CAPITAL IN NATURE. AFTER CONSIDER ING THE FACTS AS STATED HEREINABOVE, IN OUR VIEW, WHAT THE ASSESSEE HAS RECEIVED IS TAXA BLE AS REVENUE RECEIPT. ALL THE APPEALS RELATING TO THIS ISSUE ARE ACCORDIN GLY DISMISSED. 9. BEFORE CLOSING, IN ITA NO 772/MUM/2009 FOR A.Y. 2006-07, THE ASSESSEE HAS RAISED ONE MORE ISSUE RELATING TO DISALLOWANCE OF E XPENSES UNDER SECTION 14A READ WITH RULE 8D. IT IS NOW WELL SETTLED THAT APPLICAT ION OF RULE 8D IS PROSPECTIVE AND IS APPLICABLE W.E.F. 01.04.2008, AS HELD BY THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. 328 ITR 81. WE ACCORDINGLY RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DI RECTION TO DECIDE THIS ISSUE AFRESH WITHOUT APPLYING RULE 8D. SUN-N-SAND HOTELS PVT. LTD SHALIMAR VISUALS PVT. LTD. SUN-N-SAND HOTEL (SHIRDI) PVT. LTD. 7 ACCORDINGLY, ITA NO.772/MUM/2009 IS PARTLY ALLOWED AND ALL OTHER APPEALS ARE DISMISSED. SD/- SD/- (I P BANSAL) (N K BILLAIYA) / JUDICIAL MEMBER ' ' ' ' / ACCOUNTANT MEMBER MUMBAI; / DATED : 08 JANUARY, 2014. SA . . . . * ** * (+01 (+01 (+01 (+01 21%+ 21%+ 21%+ 21%+ / COPY OF THE ORDER FORWARDED TO : 1. &' /THE APPELLANTS. 2. ()&' / THE RESPONDENT. 3. 3 ( ) / THE CIT(A) - XXIX, MUMBAI. 4. 3 / CIT 5. 145 (+ , , / DR, E BENCH, ITAT, MUMBAI . / BY ORDER, )1+ (+ //TRUE COPY// / 7 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI