Vardhman Acrylics Limited, Ludhiana V. Addl. CIT, Ludhiana

ITA 773/CHANDI/2012

• Counselvise Citation: 77321514 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL DR AND
• Assessee Lawyers: SUBHASH AGGARWAL VINEET JAIN
• Keywords: Capital receipt; Revenue expenditure
• Section: 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.392/CHD/2007 (ASSESSMENT YEAR : 2001-02) VARDHMAN TEXTILES LIMITED, VS. THE A.C.I.T., LUDHIANA. RANGE-1, LUDHIANA. PAN: AABCM4692E ITA NO.592/CHD/2007 (ASSESSMENT YEAR : 2003-04) VARDHMAN ACRYLIC LIMITED, VS. THE A.C.I.T., LUDHIANA. RANGE-1, LUDHIANA. PAN: AAACV7602E ITA NO.824/CHD/2007 (ASSESSMENT YEAR : 2004-05) VARDHMAN ACRYLIC LIMITED, VS. THE A.C.I.T., LUDHIANA. CIRCLE-1, LUDHIANA. PAN: AAACV7602E ITA NO.773/CHD/2012 (ASSESSMENT YEAR : 2006-07) VARDHMAN ACRYLIC LIMITED, VS. THE ADDL.C.I.T., LUDHIANA. CIRCLE-1, LUDHIANA. PAN: AAACV7602E ITA NO.283/CHD/2014 (ASSESSMENT YEAR : 2007-08) VARDHMAN ACRYLIC LIMITED, VS. THE A.C.I.T., CHANDIGARH ROAD, CIRCLE-1, LUDHIANA. LUDHIANA. PAN: AAACV7602E 2 ITA NO.911/CHD/2013 (ASSESSMENT YEAR : 2010-11) VARDHMAN ACRYLIC LIMITED, VS. THE A.C.I.T., CHANDIGARH ROAD, CIRCLE-1, LUDHIANA. LUDHIANA. PAN: AAACV7602E APPELLANT BY : S/SHRI SUBHASH AGGARWAL VINEET JAIN RESPONDENT BY : SHRI S.K.MITTAL, DR AND ITA NO.897/CHD/2006 (ASSESSMENT YEAR : 2003-04) THE D.C.I.T., VS. M/S STEEL STRIPS WHEELS LIMITED, CIRCLE 4(1), SCO 49-50, SECTOR 26, CHANDIGARH. CHANDIGARH. PAN: AACCS3003L ITA NO.341/CHD/2007 (ASSESSMENT YEAR : 2004-05) THE D.C.I.T., VS. M/S STEEL STRIPS WHEELS LIMITED, CIRCLE 4(1), SCO 49-50, SECTOR 26, CHANDIGARH. CHANDIGARH. PAN: AACCS3003L ITA NO.756/CHD/2011 (ASSESSMENT YEAR : 2008-09) M/S STEEL STRIPS WHEELS LIMITED, VS. THE ADDL.C.I.T., SCO 49-50, SECTOR 26, RANGE V, CHANDIGARH. CHANDIGARH. PAN: AACCS3003L ASSESSEE BY : SHRI RAJESH GARG DEPARTMENT BY : SHRI S.K.MITTAL, DR \ 3 AND ITA NO.896/CHD/2006 (ASSESSMENT YEAR : 2003-04) THE D.C.I.T., VS. M/S INDIAN ACRYLICS LTD., CIRCLE 4(1), SCO 49-50, SECTOR 26, CHANDIGARH. CHANDIGARH. PAN: AAACI3794C (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI S.K.MITTAL, DR ASSESSEE BY : SHRI RAJESH GARG DATE OF HEARING : 29.09.2015 DATE OF PRONOUNCEMENT : 21.10.2015 O R D E R PER RANO JAIN, A.M . : THIS BUNCH OF TEN APPEALS FILED BY THE D IFFERENT ASSESSEES AND DEPARTMENT ARE DIRECTED AGAINST THE S EPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS), RELATING TO ASSESSMENT YEARS 2001-02, 2003-04, 2004 -05, 2006-07, 2007-08 AND 2010-11. IN ALL THE APPEALS, THE ISSUE IS COMMON AND, THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN ALL THE APPEALS, WE MAY REFER TO THE DISCUSSION IN THE 4 ORDERS OF THE INCOME TAX AUTHORITIES IN THE CASE OF VARDHMAN ACRYLICS LIMITED IN ITA NO.773/CHD/2012. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA DATED 28.5.2012. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE RECEIVED AN AMOUNT OF RS.5,47,60,997/- ON ACCOUNT O F SALES TAX SUBSIDY. THE ASSESSING OFFICER TREATING THE SA ME AS REVENUE RECEIPT TAXED IT UNDER THE HEAD INCOME FRO M OTHER SOURCES. THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LEARNED CIT (APPEALS). 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE I.T .A.T., WHEREBY THE APPEAL OF THE ASSESSEE WAS DISMISSED, M AINLY RELYING ON THE JUDGMENT OF THE HON'BLE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES L TD., 286 ITR 1 (P&H). THE HON'BLE HIGH COURT BY ITS ORDER IN APPEAL NO.146 OF 2014 DATED 18.12.2014 RESTORED THE APPEAL TO THE TRIBUNAL. THIS WAS BASICALLY BASED ON THE FACTS T HAT THOUGH THE I.T.A.T. HAD DISMISSED THE APPEAL OF THE ASSESS EE ON THE BASIS OF ABHISHEK INDUSTRIES LTD. (SUPRA), HOWEVER IN THE CASE OF CIT VS. PONNY SUGARS & CHEMICALS LTD., 306 ITR 39 (SC), THE HON'BLE APEX COURT HAS HELD THAT WHETHER THE SU BSIDY IS A REVENUE OR CAPITAL RECEIPT WOULD DEPEND UPON THE NA TURE AND PURPOSE OF THE SUBSIDY. IN THIS VIEW, THE APPEALS ARE RESTORED TO THE TRIBUNAL TO ADJUDICATE THE NATURE AND PURPOS E OF SALES TAX SUBSIDY AND, THEREAFTER RECORD THEIR OPINION WH ETHER IT IS A CAPITAL OR REVENUE EXPENDITURE AFTER TAKING INTO 5 CONSIDERATION THE JUDGMENT OF THE HON'BLE SUPREME C OURT IN THE CASE OF PONNY SUGARS & CHEMICALS LTD. (SUPRA). 5. NOW, THE ONLY ISSUE TO BE DECIDED BY US IS WHET HER THE AMOUNT OF RS.5,47,60,997/- RECEIVED BY THE ASSE SSEE FROM THE GOVERNMENT OF GUJARAT AS SALES TAX SUBSIDY IS CAPITAL OR REVENUE IN NATURE. THE LEARNED COUNS EL FOR THE ASSESSEE AT THE VERY OUTSET MENTIONED THAT THESE WE RE A BUNCH OF APPEALS BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT TOGETHER WITH THE APPEAL OF THE ASSESSEE, OUT OF WH ICH THERE WAS A CASE OF BHUSHAN LIMITED, WHICH WAS ALSO SIMIL ARLY RESTORED TO THE FILE OF THE TRIBUNAL TO DECIDE THE SAME AFRESH. THE ORDER OF THE CHANDIGARH BENCH OF THE I.T.A.T. I N THE CASE OF BHUSHAN LIMITED IN ITA NO.744/CHD/2006 & OTHERS DATED 16.6.2015 HAS BEEN DELIVERED, WHEREBY AFTER DELIBER ATING THE ISSUE ON THE NATURE OF SALES TAX SUBSIDY, THE SAME HAS BEEN HELD TO BE REVENUE IN NATURE. 6. THE LEARNED D.R. DID NOT CONTROVERT THE SAID SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASS ESSEE. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. WE H AVE CAREFULLY PERUSED THE ORDER OF I.T.A.T. IN THE CASE OF BHUSHAN LIMITED (SUPRA) AND COME TO A CONCLUSION THAT THIS IS ONE OF THE CASES WHICH WAS BEFORE THE HON'BLE HIGH COURT O N THE SAME ISSUE OF SALES TAX SUBSIDY. HOWEVER, THE ONLY DIFFERENCE IN THE FACTS OF THE CASE OF BHUSHAN LIMITED (SUPRA) AND THE 6 CURRENT ASSESSEE IS THAT IN THE CASE OF BHUSHAN LI MITED (SUPRA), THE SALES TAX SUBSIDY WAS RECEIVED FROM TH E GOVERNMENT OF WEST BENGAL UNDER WEST BENGAL INCENT IVE SCHEME 1999, WHILE IN THE CASE OF THE ASSESSEE IN QUESTION, THE SUBSIDY HAS BEEN RECEIVED FROM THE GOVERNMENT O F GUJARAT UNDER THE NEW INCENTIVE POLICY-CAPITAL INVESTMENT INCENTIVE TO PREMIER/PRESTIGIOUS UNIT SCHEME 1995-2000. THEREF ORE, IN ORDER TO COMPARE THE POLICIES OF TWO DIFFERENT STAT ES, WE HAVE VERY CAREFULLY GONE THROUGH THE SCHEMES OF BOTH THE GOVERNMENTS PRODUCED BEFORE US. SINCE AS PER THE DIRECTIONS OF THE HON'BLE HIGH COURT, WE HAVE TO JUDGE THE NAT URE AND PURPOSE OF THE SALES TAX SUBSIDY RECEIVED BY THE AS SESSEE. WE SEE THAT THE SCHEME OF THE GUJARAT GOVERNMENT HA S AIMED TO TRIGGER OFF ACCELERATED INDUSTRIAL DEVELOPMENT A ND ECONOMIC GROWTH. FOR THIS PURPOSE, TO PROVIDE SPECIAL PACK AGE TO CERTAIN TYPES OF INDUSTRIES, THE SCHEME WAS FORMULA TED. TO BE ELIGIBLE TO GET THE BENEFIT OF THIS SCHEME MAINLY T HE CRITERIA HAS BEEN LAID DOWN WITH REGARD TO THE FIXED CAPITAL INVESTMENT, PROJECT RELATED INFRASTRUCTURAL INVESTM ENT, SOCIAL INFRASTRUCTURAL INVESTMENT AND COMMON AND PUBLIC PU RPOSE INFRASTRUCTURE. ALL THESE REQUIREMENTS ARE TOWARD S CAPITAL INVESTMENTS. FURTHER A CLOSER LOOK AT THE CLAUSE R ELATING TO INELIGIBLE INVESTMENT SHOWS THAT SHORT TERM INVESTM ENT OR INVESTMENT OF REVENUE NATURE ARE NOT ELIGIBLE FOR T HIS SCHEME. A CERTIFICATE OF BEING DECLARED AS PERMANENT PRESTI GIOUS UNIT HAS BEEN GIVEN TO THE ASSESSEE DATED 18.5.2002, WHE REBY THE DETAILS OF INVESTMENT OF THE PROJECT AND EMPLOYMENT ARE GIVEN. WE HAVE ALSO GONE THROUGH THE SCHEME OF THE BENGAL 7 GOVERNMENT WHICH WAS IN QUESTION BEFORE THE CHANDIG ARH BENCH OF THE I.T.A.T. IN THE CASE OF BHUSHAN LIMIT ED (SUPRA). THOUGH BOTH THE SCHEMES OF GUJARAT GOVERNMENT AND W EST BENGAL GOVERNMENT ARE NOT VERBATIM, THE SUM AND SUB STANCE OF BOTH THE SCHEMES ARE SAME. AS DIRECTED BY THE HON'BLE HIGH COURT ON THE BASIS OF JUDGMENT IN THE CASE OF PONNY SUGARS & CHEMICALS LTD. (SUPRA), THE NATURE OF THE SALES TAX SUBSIDY IS TO BE DECIDED ON THE BASIS OF CHARACTER OF THE RECEIPT IN THE HANDS OF THE ASSESSEE. WE SEE THA T THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPITAL IN NATURE AND IS NOT SUBJECTED TO TAX. IN ARRIVING AT THIS CONC LUSION, WE ARE GUIDED BY THE ORDER OF THE I.T.A.T. IN THE CASE OF BHUSHAN LIMITED (SUPRA), IN WHICH THE COORDINATE BENCH OF T HE I.T.A.T. IN THE SAME SET OF FACTS AND CIRCUMSTANCES HAS HELD AS UNDER: 24. THE HON'BLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA) CONSIDERING ITS EAR LIER DECISION IN THE CASE OF SAHNEY STEELS & PRESS WORKS LTD.(SUPRA) DIRECTED THAT THE TEST IS THAT THE CHAR ACTER OF THE RECEIPT IN THE HANDS OF ASSESSEE HAS TO BE DETE RMINED WITH RESPECT TO THE PURPOSE FOR WHICH SUBSIDY IS GI VEN. IN OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PURPOSE TEST. THE POINT OF TIME AT WHICH SUBSIDY I S PAID, IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. THE FO RM OF SUBSIDY IS IMMATERIAL. 25. CONSIDERING THE FACTS OF THE CASE AND THE WEST BENGAL INCENTIVE SCHEME, 1999 IN THE LIGHT OF THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA), IT IS CLEAR THAT THE UNIT OF ASSESSEE WAS SET UP AS PER SCHEME FORMULATED BY GOVERNMENT OF WEST BENGAL AND ASSESSE E HAS BEEN ALLOWED REMISSION OF SALES TAX FOR 12 YEAR S 8 UPTO 100% OF GROSS FIXED CAPITAL INVESTMENT/ASSET O F THE APPROVED PROJECT. THE INCENTIVE SCHEME WAS AVAILAB LE FOR LOCATION OF THE UNIT. NO INCENTIVE IS AVAILABL E TO UNITS LOCATED IN GROUP A. THE UNIT OF ASSESSEE IS LOCA TED IN GROUP B (HOOGHLY). THE SUBSIDY WOULD HELP THE G ROWTH OF INDUSTRY AND NOT TO SUPPLEMENT PROFIT. SUBSIDY IS DETERMINED WITH REFERENCE TO THE FIXED CAPITAL INVESTMENT/ASSET AND NOT PROFIT. NO WORKING CAPITA L IS CONSIDERED IN THE SCHEME. THE LD. DR SAYS THAT THE SUBSIDY IS GIVEN FOR 12 YEARS AFTER PRODUCTION AND AS SUCH IT IS REVENUE IN NATURE. THE ARGUMENTS OF LD. DR CANNOT BE ACCEPTED IN VIEW OF THE ABOVE FACTS BECAU SE THE SCHEME IS MADE TO ENCOURAGE THE PROMOTION OF INDUSTRIES/SETTING UP IN THE STATE OF WEST BENGAL. THE INCENTIVES ARE PROVIDED TO APPROVED PROJECTS ONLY. THE PURPOSE OF GIVING SUBSIDY IS THUS, TO PROMOTE AND S ET UP INDUSTRIES IN STATE OF WEST BENGAL. THE ELIGIBILIT Y CERTIFICATE WAS ISSUED BEFORE COMMENCEMENT OF PRODUCTION, THEREFORE SUBSIDY BASED ON FIXED CAPITA L INVESTMENT. THE TIME OF 12 YEARS AFTER COMMENCEMENT OF THE PRODUCTION IS NOT RELEVANT. THE SOURCE OF SUBS IDY OUT OF SALES TAX IS IMMATERIAL. THE FORM OF SUBSIDY IS ALSO NOT RELEVANT. THE OBJECT/PURPOSE OF ASSISTANCE UND ER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP NEW UNIT IN STATE OF WEST BENGAL. THEREFORE, THE R ECEIPT OF THE SALES TAX SUBSIDY IN THE HANDS OF ASSESSEE W AS CAPITAL IN NATURE. THE DECISIONS RELIED ON BY LD. DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. THE DEC ISION CITED BY LD. COUNSEL FOR THE ASSESSEE CLEARLY SUPPO RT THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE ARE CAPITAL IN NATURE. WE MAY ALSO NOTE HERE THAT THE SAME SCHEME UNDER WEST BENGAL INCENTIVE SCHEME, 1999 UNDER REFERENCE WAS SUBJECT MATTER OF CONSIDERATION BEFOR E ITAT KOLKATTA BENCH IN THE CASE OF KEVENTER AGRO LTD. (S UPRA) AND THE TRIBUNAL ALSO DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE HOLDING THAT THE WEST BENGAL INCENTIVE SCH EME, 9 1999 CATEGORICALLY ENCOURAGE THE PROMOTION OF INDUS TRIES IN THE STATE OF WEST BENGAL. 26. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA) A ND CONSIDERING THE ABOVE DISCUSSION, WE ARE OF THE VIE W THAT SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPIT AL RECEIPT IN NATURE AND ARE NOT SUBJECTED TO TAX. TH E ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF RECEIPT OF SALES TAX SUBSIDY ARE ACCORDINGLY DELETE D IN ALL THE ASSESSMENT YEARS IN APPEALS. THE ISSUE REMANDE D TO THE TRIBUNAL IS THUS, DECIDED IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE IN ALL THE APPEALS UNDER REFERENCE. 8. RESPECTFULLY FOLLOWING THE ORDER OF THE COORDIN ATE BENCH OF THE TRIBUNAL, WE HEREBY HOLD THAT THE SALE S TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPITAL IN NATU RE AND, THEREFORE, NOT TAXABLE. 9. THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.392/CHD/2007 : ITA NO.592/CHD/2007 : ITA NO.824/CHD/2007 : ITA NO.283/CHD/2014 : ITA NO.911/CHD/2013 : 10. IT IS RELEVANT TO OBSERVE HERE THAT THE FACTS AND CIRCUMSTANCES OF THESE CASES ARE SIMILAR TO THAT OF VARDHMAN ACRYLICS LIMITED IN ITA NO.773/CHD/2012 AND THE FIN DINGS GIVEN IN ITA NO.773/CHD/2012 SHALL APPLY TO THESE CASES ALSO WITH EQUAL FORCE. ITA NO.897/CHD/2006 : ITA NO.341/CHD/2007 : ITA NO.756/CHD/2011 : (M/S STEEL STRIPS WHEELS LIMITED,) 10 & ITA NO.896/CHD/2006 : (M/S INDIAN ACRYLICS LIMITED) 11. IN THESE CASES, THE ASSESSES HAVE RECEIVED SAL ES TAX SUBSIDY FROM PUNJAB GOVERNMENT UNDER THE SCHEME NAM ED, INDUSTRIAL POLICY & INCENTIVE CODE, 1996. WE HA VE GONE THROUGH THE SAID POLICY AND FOUND THAT THE SCHEME T HOUGH NOT VERBATIM AS THAT OF WEST BENGAL OR GUJARAT SCHEMES, BUT THE SUM AND SUBSTANCE OF ALL THESE SCHEMES ARE THE SAME , THEREFORE, RELYING ON OUR FINDING GIVEN IN ITA NO.773/CHD/2012, WE HOLD THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPITAL IN NATURE. 12. IN THE RESULT, ALL THE APPEALS FILED BY THE AS SESSEES ARE ALLOWED WHILE REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF OCTOBER, 2015. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACOUNTANT MEMBER DATED : 21 ST OCTOBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 11