Limtex Tea & Industries Ltd, Kolkata V. ACIT, CIR-4, KOLKATA, Kolkata

ITA 854/KOL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3309 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2014
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: J M THARD
• Keywords: Depreciation; Cost of acquisition; Capital receipt
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B, KO LKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM] ITA NO.854/KOL/2014 ASSESSMENT YEAR : 2006-07 LIMTEX TEA & INDUSTRIES LTD. -VERSUS- ASSTT. C.I.T., CIRCLE-4 KOLKATA KOLKATA (PAN:AAACL 5207 H) (APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI J.M.THARD, ADVOCATE FOR THE RESPONDENT : SHRI PINAKI MUKHERJEE, JCIT, SR.DR DATE OF HEARING : 18.12.2015. DATE OF PRONOUNCEMENT : 15.1.2016. ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 10.1.2014 OF CIT(A)- IV, KOLKATA, RELATING TO AY 2006-07. 2. THE ASSESSEE IS A COMPANY. IT CARRIES ON THE B USINESS OF MANUFACTURING TEA. THE ASSESSEE MANUFACTURES AND SELLS TEA. THE ASSESSEE PROCURES TEA LEAVES FROM TEA GARDENS AND PRODUCES TEA IN ITS FACTORY. DURING TH E PREVIOUS YEAR THE ASSESSEE RECEIVED A SUM OF RS.23,26,506 AS SUBSIDY UNDER THE QUALITY UPGRADATION AND PRODUCT DIVERSIFICATION SCHEME (HEREINAFTER REFERR ED TO AS THE SCHEME). THE SCHEME WAS INTRODUCED BY THE TEA BOARD AND MINISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA. THE QUESTION BEFORE THE AO WA S AS TO WHETHER THE SUBSIDY RECEIVED BY THE ASSESSEE WAS CAPITAL IN NATURE NOT CHARGEABLE TO TAX OR WAS REVENUE IN NATURE, CHARGEABLE TO TAX. THE AO HELD THAT THE SU BSIDY IN QUESTION RECEIVED BY THE ASSESSEE UNDER THE SCHEME WAS REVENUE IN NATURE AND WAS THEREFORE TAXABLE. OVER AND ABOVE THAT THE AO ALSO REDUCED THE VALUE OF SUB SIDY FROM THE ACTUAL COST OF THE MACHINERY ON WHICH DEPRECIATION HAS TO BE ALLOWED. UNDER EXPLNA-10 TO SEC.43(1) OF ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 2 THE ACT, WHICH DEFINES ACTUAL COST FOR THE PURPOS E OF ALLOWING DEPRECIATION, SUBSIDY RECEIVED FROM THE GOVERNMENT OR ANY OTHER P ERSON, TO MEET THE COST ACQUISITION OF ASSET ON WHICH DEPRECIATION IS CLAIM ED SHOULD BE REDUCED FROM THE ACTUAL COST OF THE SAID ASSET FOR THE PURPOSE OF AL LOWING DEPRECIATION. THE SAID EXPLANATION-10 READS THUS: EXPLANATION 10 WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVE RNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), T HEN SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE:- PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT I S OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET A CQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRAN T THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFER ENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST TO THE ASSESSEE. 3. THE SUBSIDY RECEIVED BY THE ASSESSEE WAS RS.23, 26,506. THE AO HOWEVER TOOK THE DIFFERENCE IN THE OPENING AND CLOSING BALANCE O F PROFIT AND LOSS ACCOUNT IN THE BALANCE SHEET OF RS.3,84,60,617 AND RS.3,64,11,186, WHICH IS A SUM OF RS. 20,49,431 AS THE VALUE OF THE SUBSIDY AND BROUGHT TO TAX THE AFORESAID SUM BY INCLUDING IT AS PART OF THE TOTAL INCOME OF THE ASSESSEE. THE AO REDUCE D RS.3,48,976 WHICH IS 15% OF RS.23,26,506 FROM THE DEPRECIATION THAT HAS TO BE A LLOWED TO THE ASSESSEE UNDER THE INCOME TAX ACT,1961 (ACT) IN ACCORDANCE WITH EXPLN. 10 TO SEC.43(1) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) AFTER NOTICING THE OBJECTIVE OF THE SCHE ME UPHELD THE ORDER OF THE AO. THE CIT(A) HELD THAT THE SCHEME IS ONLY FOR TEA QUA LITY UP-GRADATION. IT DOES NOT ENVISAGE ANY SETTING UP OF A NEW UNIT OR EXPANSION OF THE EXISTING UNIT. IT AIMS TO IMPROVE THE QUALITY OF TEA THROUGH TECHNOLOGY UPGRA DATION. IT ALSO ENVISAGES REPLACEMENT OF OLD AND WORN OUT MACHINERY AND EQUIP MENT. THEREFORE BY VIRTUE OF THE SCHEME A NEW UNIT OR EXPANSION OF AN EXISTING U NIT DOES NOT HAPPEN. THE SCHEME AND THE SUBSIDY GIVEN THEREUNDER IS ONLY FOR THE PU RPOSE OF ENABLING THE ASSESSEE TO CARRY ON ITS BUSINESS MORE PROFITABLY AND THEREFORE , THE SUBSIDY RECEIVED BY THE ASSESSEE WAS REVENUE IN NATURE, CHARGEABLE TO TAX. IN DOING SO, THE LEARNED CIT(A) ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 3 FOLLOWED THE RULING THE HONBLE SUPREME COURT IN TH E CASE OF SAHANI STEEL & PRESS WORKS LTD. 220 ITR 253 (SC). 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE FIRSTLY PO INTED OUT THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS RS.23,26,506. THE AO HOWEVER T OOK THE DIFFERENCE IN THE OPENING AND CLOSING BALANCE OF PROFIT AND LOSS ACCO UNT IN THE BALANCE SHEET OF RS.3,84,60,617 AND RS.3,64,11,186, WHICH IS A SUM O F RS. 20,49,431 AS THE VALUE OF THE SUBSIDY AND BROUGHT TO TAX THE AFORESAID SUM BY INCLUDING IT AS PART OF THE TOTAL INCOME OF THE ASSESSEE. 7. HE NEXT POINTED OUT THAT THE AO REDUCED RS.3,48 ,976 WHICH IS 15% OF RS.23,26,506 FROM THE DEPRECIATION THAT HAS TO BE A LLOWED TO THE ASSESSEE UNDER THE INCOME TAX ACT,1961 (ACT) IN ACCORDANCE WITH EXPLN. 10 TO SEC.43(1) OF THE ACT. ACCORDING TO HIM, ONCE THE AO COMES TO THE CONCLUSI ON THAT THE SUBSIDY RECEIVED WAS UTILIZED FOR ACQUIRING DEPRECIABLE ASSET THAN THE I NEVITABLE CONCLUSION IS THAT THE SUBSIDY IN QUESTION IS CAPITAL SUBSIDY AND THEREFOR E THE SAME CANNOT BE BROUGHT TO TAX. ACCORDING TO HIM THE SUBSIDY IN QUESTION IS TO FACI LITATE THE TEA FACTORIES TO UPGRADE/REPLACE/RENOVATE THE OLD AND WORN OUT MACHI NERY BY PURCHASING NEW MACHINES IN ORDER TO MANUFACTURE QUALITY TEA AND TH EREFORE THE SUBSIDY IN QUESTION HAS TO BE REGARDED AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. HE DREW OUR ATTENTION TO THE SCHEME UNDER WHICH SUBSIDY WAS GRANTED TO HIGHLIGHT THE PURPOSE OF THE SCHEME. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: (I) THE HONBLE SUPREME IN CIT , MADRAS VS. PONNI SUGARS & CHEMICALS LIMITED, CIVIL APPEAL NO.5694 TO 5715 OF 2008, [2008] 174 TA XMAN 87 (SC) WHEREIN IT WAS THAT, `IT IS THE OBJECT FOR WHICH SUBSIDY/ASSISTANC E IS GIVEN, THAT TRULY DETERMINES NATURE OF SUBSIDY. THE CHARACTER OF THE RECEIPT IN THE HAN DS OF THE ASSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES ONE HAS TO APPLY THE `PURPOSE TEST. THE POINT OF TIME WHEN THE SUBSIDY ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 4 IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL; THE FORM OF SUBSIDY IS ALSO IMMATERIAL. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, THEN THE RECEIPT WAS ON R EVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY S CHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND ITS EXISTING UNITS, THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WH ICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF INCENTIVE SUBSIDY. T HE FORM OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. (II) JUDGEMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE TITLED COMMISSIONER OF INCOME TAX VS. RASOI LIMITED [2011] 335 ITR 438, WH EREIN IT WAS HELD THAT ONE TIME SUBSIDY RECEIVED AS A PERCENTAGE OF SALES TAX PAID FOR MODERNIZATION AND EXPANSION PURPOSES WOULD CONSTITUTE A CAPITAL RECEIPT NOT SUB JECT TO THE RIGOURS OF TAX UNDER THE INCOME TAX ACT, 1961. 8. THE TOTAL VALUE OF MACHINERY PURCHASED/INSTALLE D BY THE ASSESSEE WAS RS.93,06,024. THE MACHINERIES WERE INSTALLED DURI NG THE FINANCIAL YEAR 2003-04 RELEVANT TO AY 04-05. 25% OF THE COST OF THE MACHI NERY VIZ., RS.23,26,506 WAS RECEIVED BY THE ASSESSEE AS SUBSIDY. 9. HIS NEXT SUBMISSION WAS THAT, IF THE VALUE OF T HE SUBSIDY IS TREATED AS REVENUE RECEIPT CHARGEABLE TO TAX, THAN THE VALUE OF THE SU BSIDY IN QUESTION CANNOT BE REDUCED FROM THE BLOCK OF DEPRECIABLE ASSETS AND DEPRECIATI ON ALLOWED ON THE VALUE AS SO REDUCED, WHICH WILL REDUCE THE CLAIM OF DEPRECIATIO N WHICH THE ASSESSEE HAD MADE. HIS SUBMISSION WAS THAT THE AMOUNT GIVEN AS SUBSIDY CANNOT BE SAID TO BE COST OF AN ASSET ACQUIRED BY THE ASSESSEE MET DIRECTLY OR INDI RECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UND ER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED) AND THEREFORE EXPLANATION 10 TO SEC.43(1) OF THE ACT WI LL NOT BE ATTRACTED. 10. HE DREW OUR ATTENTION TO THE FACT THAT THE FIN ANCE ACT, 2015 WITH EFFECT FROM 01/04/2016 HAS INSERTED OF SUB-CLAUSE (XVIII) IN SE CTION 2(24) OF THE INCOME TAX ACT, ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 5 1961 PROVIDING AN INCLUSIVE DEFINITION OF THE EXPRE SSION `INCOME. THE RELEVANT PORTION OF SUB-CLAUSE (XVIII) IS PRODUCED BELOW:- `2(24)(XVIII) ASSISTANCE IN THE FORM OF A SUBSIDY O R GRANT OR CASH INCENTIVE OR DUTY DRAWBACK OR WAIVER OR CONCESSION OR REIMBURSEMENT ( BY WHATEVER NAME CALLED) BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY OTH ER AUTHORITY OR BODY OR AGENCY IN CASH OR KIND TO THE ASSESSEE OTHER THAN THE SUBS IDY OR GRANT OR REIMBURSEMENT WHICH IS TAKEN INTO ACCOUNT FOR DETERMINATION OF THE ACTU AL COST OF THE ASSET IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION 10 TO CLAUSE (1) OF SECTION 43. 11. THE AFORESAID AMENDMENT IS PROSPECTIVE AND APP LICABLE W.E.F. 1-4-2016. ACCORDING TO HIM PRIOR TO THE AFORESAID AMENDMENT, IF A SUBSIDY WAS REGARDED AS REVENUE SUBSIDY AND WAS GIVEN FOR THE PURPOSE OF ME ETING THE COST OF ACQUIRING FIXED ASSETS THAN THE ASSESSEE WILL SUFFER THE BURDEN OF HAVING TO PAY TAX ON THE SUBSIDY AND FURTHER THE COST OF FIXED ASSETS WILL ALSO BE REDUC ED BY VIRTUE OF EXPLANATION 10 TO SEC.43(1) OF THE ACT. ACCORDING TO HIM ONE OF THE PURPOSE OF THE AFORESAID AMENDMENT WAS TO ENSURE THAT THE ASSESSEE DOES NOT SUFFER SUCH DOUBLE DETRIMENT. SINCE THE PURPOSE OF THE AMENDMENT IS TO REMOVE HAR DSHIP AND DIFFICULTY THE SAME SHOULD BE HELD TO BE APPLICABLE RETROSPECTIVELY. I N THIS REGARD RELIANCE WAS PLACED BY HIM ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION 319 ITR 306(SC). 12. THE LEARNED DR RELIED ON THE ORDER OF THE CIT( A). ACCORDING TO HIM, THE ONLY ISSUE THAT WAS RAISED BY THE ASSESSEE BEFORE CIT(A) AND IN THE GROUNDS OF APPEAL BEFORE TRIBUNAL, IS WITH REGARD TO THE QUESTION WHE THER THE SUBSIDY IS CAPITAL OR REVENUE. THE ASSESSEE HAS ACCEPTED THE FACT THAT T HE SUBSIDY WILL GO TO REDUCE THE COST OF ACQUISITION OF THE FIXED ASSETS AND THEREFO RE THE QUESTION THAT NEEDS TO BE ANSWERED ONLY AS TO WHETHER THE SUBSIDY IN QUESTION IS CAPITAL OR REVENUE. HE PLACED RELIANCE ON THE ORDER OF THE CIT(A) ON THE ISSUE. 13. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL, AS RIGHTLY CONT ENDED BY THE LEARNED DR, IS AS TO ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 6 WHETHER THE SUBSIDY IN QUESTION IS CAPITAL OR REVEN UE. THE ASSESSEE HAS ACCEPTED THE FACT THAT THE SUBSIDY WILL GO TO REDUCE THE COST OF ACQUISITION OF THE FIXED ASSETS AND HAS NOT CHALLENGED THE ORDER OF THE AO IN THIS REGA RD BEFORE CIT(A). 14. THE TESTS TO BE APPLIED TO DECIDE THE QUESTION WHETHER A SUBSIDY RECEIVED BY AN ASSESSEE HAS TO BE REGARDED AS CAPITAL OR REVENUE S UBSIDY HAS BEEN LAID DOWN IN SEVERAL DECISIONS OF HONBLE SUPREME COURT AND HON BLE HIGH COURTS. THE HONBLE SUPREME IN CIT , MADRAS VS. PONNI SUGARS & CHEMICA LS LIMITED, CIVIL APPEAL NO.5694 TO 5715 OF 2008, [2008] 174 TAXMAN 87 (SC) HAS HELD THAT, `IT IS THE OBJECT FOR WHICH SUBSIDY/ASSISTANCE IS GIVEN, THAT TRULY D ETERMINES NATURE OF SUBSIDY. THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE ASSESS EE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IN O THER WORDS, IN SUCH CASES ONE HAS TO APPLY THE `PURPOSE TEST. THE POINT OF TIME WHEN TH E SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL; THE FORM OF SUBSIDY IS AL SO IMMATERIAL . IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN TH E BUSINESS MORE PROFITABLY, THEN THE RECEIPT WAS ON REVENUE ACCOUNT. ON THE OTH ER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE T HE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND ITS EXISTING UNITS, THEN THE RECE IPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT IS THE OBJECT FOR WHICH THE SUBSIDY/ ASSISTANCE IS GIVEN WHICH DETERMINES THE NATURE OF INCENTIVE SUBSIDY. THE FOR M OF THE MECHANISM THROUGH WHICH THE SUBSIDY IS GIVEN IS IRRELEVANT. 15. IT WOULD ALSO BE OF IMMENSE MERIT TO REFER TO ANOTHER JUDGEMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE TITLED COMMISSIONER OF INCOME TAX VS. RASOI LIMITED [2011] 335 ITR 438, WHEREIN IT HAS BEEN HELD BY TH E HONBLE COURT BY MAKING A DUE REFERENCE TO THE JUDGEMENT OF THE HONBLE APEX COUR T IN THE CASE TITLED COMMISSIONER OF INCOME TAX VS. PONNI SUGARS & CHEMICALS LTD [200 8] 174 TAXMAN 87 (SC) THAT ONE TIME SUBSIDY RECEIVED AS A PERCENTAGE OF SALES TAX PAID FOR MODERNIZATION AND EXPANSION PURPOSES WOULD CONSTITUTE A CAPITAL RECEIPT NOT SUBJECT TO T HE RIGOURS OF TAX UNDER THE INCOME TAX ACT, 1961. THE HONBLE CALCUTT A HIGH COURT FURTHER HELD THAT MERELY BECAUSE SUBSIDY RECEIVED WAS EQUIVALENT TO A SUBSTANTIAL PERCENTAGE OF THE ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 7 SALES TAX PAID, IT CANNOT BE CONSTRUED THAT THE SAM E WAS IN FORM OF REFUND OF SALES TAX PAID AND EXIGIBLE TO TAX. HENCE ONE TIME SUBSIDY RE CEIVED FROM THE STATE GOVERNMENT UNDER THE SCHEME OF INDUSTRIAL PROMOTION FOR EXPANSION OF ITS FACILITIES AND FOR MODERNIZATION PURPOSES IS CAPITAL RECEIPT AND CANNOT BE BROUGHT INTO TAX NET. 16. KEEPING IN MIND THE PRINCIPLES LAID DOWN IN TH E AFORESAID DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE SHALL NOW SEE THE OBJECTS OF THE SCHEME UNDER WHICH THE ASSESSEE RECEIVED SUBSIDY IN THE PR ESENT CASE. OBJECTIVE OF THE SCHEME: OBJECTIVE OF THE SCHEME IS TO FACILITATE THE TEA GA RDENS/FACTORIES TOWARDS PRODUCTION OF GOOD QUALITY OF TEA SUITING EMINENTLY TO THE TASTES AND PREFERENCES OF THE CONSUMERS. IN ORDER TO FETCH REMUNERATIVE RETURNS FOR THE TEA SOL D, THE PROCESSING OF IT IN THE TEA FACTORIES SHOULD BE GEARED UP BY REPLACEMENT OF OLD AND WORN OUT MACHINERY AND EQUIPMENT. REPLACEMENT OF MACHINERIES HAS TO BE REG ULAR EXERCISE DEPENDING UPON THE WORKING CONDITION OF THE MACHINERIES. THIS SHOULD R ECEIVE GREATER ATTENTION AS WITH EFFLUX OF TIME NOT ONLY THERE IS NEED TO MODERNIZE FACTORIES BUT TAKE UP NEW TECHNOLOGIES DEVELOPED IN THE RECENT YEARS IN THE F IELDS OF AUTOMATION, ELECTRONICS AND USE ENERGY SAVING DEVICES. SINCE THERE IS ALWAYS GO OD DEMAND FOR THE QUALITY TEAS, MODERNIZATION AND TECHNOLOGY UPGRADATION ASSUMES AD DED SIGNIFICANCE. ACCORDINGLY THIS SCHEME HAS BEEN FORMULATED TO PROVIDE FINANCIA L ASSISTANCE TO THE NEEDY TEA GARDENS/FACTORIES FOR RENOVATING AS WELL AS AUGMENT ING THE PROCESSING CAPABILITIES INCLUDING, CREATION OF FACILITIES FOR PACKAGING AND BAGGING, AND PRODUCE DIVERSIFICATION. AT PRESENT, ONLY 35 TO 40% OF TEA IS SOLD IN PACKAGE FORM AND THE REST IN THE FORM OF LOOSE TEA. DURING THE 10TH PLAN PERI OD, THRUST WOULD BE ON MORE VALUE REALIZATION. FOR THIS PURPOSE, PROPER INFRASTRUCTUR E NEEDS TO BE CREATED FOR IMPROVING NOT ONLY THE PACKAGING STANDARDS BUT ALSO FOR INCRE ASING THE VOLUME OF VALUE ADDED TEAS AND SPECIALTY TEAS SUCH AS GREEN TEAS, FLAVOUR ED TEAS, READY TO DRINK TEAS ETC. TOWARDS THIS END, IT IS PROPOSED TO PROVIDE FOR SUB SIDY FOR THE PACKAGING MACHINERIES AND CREATING FACILITIES FOR PRODUCT DIVERSIFICATION . BECAUSE OF THE HIGH VARIABILITY IN THE QUALITY OF TEA PRODUCED, THERE IS A GREATER NEED FO R EVOLVING APPROPRIATE QUALITY-MARKET MATCHING. FOR THIS THE PROCESS OF MANUFACTURE NEEDS TO UNDERGO CHANGES TO SUIT TO THE ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 8 EMERGING NEW MARKETS. MOREOVER, QUALITY ASSURANCE S HOULD BE THE USP IN THE EMERGING COMPLETIVE ENVIRONMENT. TO FACILITATE THE TEA GROWERS AND MANUFACTURERS TO PARTICIPATE IN THE QUALITY IMPROVEMENT PROGRAMMES S UCH HAACP AND ISO CERTIFICATION, IT IS PROPOSED TO PROVIDE INCENTIVES TO THE TEA FACTORIES AND PACKAGING UNITS OPTING FOR PARTICIPATION IN CERTIFICATION PRO GRAMMES. KEEPING THE ABOVE OBJECTIVES IN VIEW, THIS SCHEME HAS BEEN FORMULATED . IN ORDER TO PROVIDE AN IMPETUS TO TAKE UP QUALITY UPGRADATION WORKS IN THE RIGHT EARN EST, THE BOARD THROUGH THIS SCHEME PROPOSES TO EXTEND FINANCIAL ASSISTANCE BY WAY OF S UBSIDY @ 25% OF THE ACTUAL COST. TEA BOARDS ROLE BEING THAT OF A CATALYST TOWARDS A CCELERATING THE PRODUCTION GROWTH RATE, THE FUNDS PROVIDED UNDER THIS SCHEME ARE NOT MEANT TO MEET THE ENTIRE NEEDS OF THE INDUSTRY. 75% OF THE TOTAL FUNDS REQUIRED FOR U NDERTAKING THE DEVELOPMENTAL ACTIVITIES HAVE TO BE MOBILIZED BY THE INDUSTRY ITS ELF EITHER FROM ITS INTERNAL GENERATION OR BY BORROWINGS FROM FINANCIAL INSTITUTIONS/COMMER CIAL BANKS. ELIGIBILITY: ALL THE TEA GROWERS, MANUFACTURERS AND OTHERS WHO A RE DEALING WITH VALUE ADDITION OF TEA SUCH AS BLENDING, PACKETING, TEA BAGGING ETC, A ND ARE REGISTERED WITH TEA BOARD ARE ELIGIBLE TO CLAIM SUBSIDY SUBJECT TO FULFILMENT OF THE TERMS AND CONDITIONS OF THE SCHEME. THE SUBSIDY, HOWEVER, SHALL NOT BE ALLOWED FOR ANY EQUIPMENT IF IMPORTED UNDER THE EXPORT PROMOTION CAPITAL GOODS IMPORT (EP CG) SCHEME. ITEMS ELIGIBLE FOR SUBSIDY : KEEPING IN VIEW THE PRESSING NEED FOR INCREASING IN VESTMENT ON INFRASTRUCTURE DEVELOPMENT IN POST-HARVEST HANDLING OF THE CROP AN D ITS MARKETING IN THE FREE MARKET ECONOMY, SUBSIDY IN POST-HARVEST HANDLING OF THE CR OP AND ITS MARKETING IN THE FREE MARKET ECONOMY, SUBSIDY AT THE AFOREMENTIONED RATES WILL BE PROVIDED FOR THE FOLLOWING ACTIVITIES THROUGH THIS SCHEME: 1. SETTING UP OF MODERN BLENDING, PROCESSING AND PA CKAGING FACILITIES FOR PRODUCING INTERNATIONALLY ACCEPTABLE QUALITY AND PRICE COMPET ITIVE TEAS 2. ELECTRONIC MONITORING DEVISES FOR THE CONTROL OF TEA PROCESSING 3. ELECTRONIC SORTERS AND MECHANICAL SORTERS FOR RE MOVAL OF FOREIGN PARTICLES FROM MADE TEA 4. SUBSIDY FOR PURCHASE OF TEA MACHINERY FOR ORTHOD OX MANUFACTURE ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 9 5. SUBSIDY FOR REPLACEMENT OF OLD CTC ROLLERS AND O THER ALLIED MACHINERIES 6. SUBSIDY FOR PURCHASE OF TEA MACHINERY FOR GREEN TEA & OTHER SPECIALTY TEA MANUFACTURING 7. ISO/HACCP, ORGANIC TEA CERTIFICATION 8. QUALITY AWARENESS PROGRAMME FOR UPGRADING THE QU ALITY OF TEA PRODUCED BY THE BOUGHT LEAF FACTORIES (PROCESSING THE GREEN LEAF SU PPLIED BY SMALL GROWERS) A DETAILED LIST OF MACHINERY ITEMS ELIGIBLE FOR SUB SIDY AND THEIR BASIC COST IS ANNEXED AS ANNEXURE-1. 17. A PERUSAL OF ANNEXURE-1 WOULD SHOW THAT THE PU RPOSE OF THE SCHEME IS TO ENSURE BETTER WORKING OF THE TEA MANUFACTURING UNIT, PLUCK ING PRACTICES ADOPTED IN THE TEA GARDEN ETC. SUBSIDY IS GIVEN FOR IMPROVING THE INF RASTRUCTURE OF THE EXISTING TEA MANUFACTURING UNIT. THE PREDOMINANT PURPOSE OF THE SCHEME IS TO ENSURE THAT TEA MANUFACTURES FUNCTION MORE PROFITABLY AND NOT FOR S ETTING UP OF A NEW UNIT OR EXPANSION OF THE EXISTING UNIT. 18. WE ARE THEREFORE THE VIEW THAT THE SUBSIDY IN QUESTION IS REVENUE SUBSIDY AND WAS RIGHTLY BROUGHT TO TAX. 19. THE FINANCE ACT, 2015 WITH EFFECT FROM 01/04/2 016 HAS INSERTED OF SUB-CLAUSE (XVIII) IN SECTION 2(24) OF THE INCOME TAX ACT, 196 1 PROVIDING AN INCLUSIVE DEFINITION OF THE EXPRESSION `INCOME. THE RELEVANT PORTION OF SUB-CLAUSE (XVIII) IS PRODUCED BELOW:- 2(24)(XVIII) ASSISTANCE IN THE FORM OF A SUBSIDY O R GRANT OR CASH INCENTIVE OR DUTY DRAWBACK OR WAIVER OR CONCESSION OR REIMBURSEM ENT (BY WHATEVER NAME CALLED) BY THE CENTRAL GOVERNMENT OR A STATE GOVERN MENT OR ANY OTHER AUTHORITY OR BODY OR AGENCY IN CASH OR KIND TO THE ASSESSEE O THER THAN THE SUBSIDY OR GRANT OR REIMBURSEMENT WHICH IS TAKEN INTO ACCOUNT FOR DE TERMINATION OF THE ACTUAL COST OF THE ASSET IN ACCORDANCE WITH THE PROVISIONS OF E XPLANATION 10 TO CLAUSE (1) OF SECTION 43. 19. THE AFORESAID AMENDMENT IS PROSPECTIVE AND APP LICABLE W.E.F. 1-4-2016. EXPLANATORY NOTES TO PROVISIONS OF FINANCE ACT, 201 5 READS THUS: ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 10 5. ALIGNMENT OF PROVISIONS RELATING TO TAXATION OF GOVERNMENT GRANTS WITH THE PROVISIONS OF INCOME COMPUTATION AND DISCLOSURE STA NDARDS (ICDS). 5.1 SUB-SECTION (2) OF SECTION 145 OF THE INCOME-TA X ACT PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY INCOME COMPUTATION AND DISCLO SURE STANDARDS (ICDS) FOR ANY CLASS OF ASSESSEES OR FOR ANY CLASS OF INCO ME. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) NOTIFIED ICDS-I TO ICDS-X VIDE NOTIFIC ATION NO.S.O. 892(E) DATED 31ST MARCH, 2015 AFTER WIDE PUBLIC CONSULTATIONS. T HE ICDS-VII RELATING TO GOVERNMENT GRANTS PROVIDES THAT ALL GOVERNMENT GRAN TS EXCEPT RELATING TO DEPRECIABLE ASSET SHALL BE RECOGNISED AS INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE SAID ICDS. THE EXISTING PROVISION S OF EXPLANATION 10 TO CLAUSE (1) OF SECTION 43 OF THE INCOME-TAX ACT ALREADY CON TAINED THE GUIDANCE FOR TREATMENT OF GOVERNMENT GRANTS RELATING TO ACQUISIT ION OF AN ASSET. HOWEVER, THERE WAS NO SPECIFIC GUIDANCE AVAILABLE UNDER THE PROVISIONS OF THE INCOME-TAX ACT FOR TREATMENT OF OTHER GOVERNMENT GRANTS. DURIN G THE PUBLIC CONSULTATIONS FOR ICDS, THE STAKEHOLDERS SUGGESTED THAT IN ORDER TO AVOID ANY FUTURE CONTROVERSY IN THIS MATTER, THERE SHOULD BE SPECIFI C PROVISION IN THE INCOME-TAX ACT FOR TREATING THESE GOVERNMENT GRANTS AS INCOME. THE ACCOUNTING STANDARD COMMITTEE, WHICH DRAFTED THE ICDS, HAS ALSO EXAMINE D THE SUGGESTIONS/COMMENTS RECEIVED DURING PUBLIC CONSULT ATIONS AND SUGGESTED THAT THE ISSUE OF LEGISLATIVE AMENDMENT FOR BRINGING CER TAINTY IN THIS MATTER MAY BE EXAMINED. IN ORDER TO AVOID ANY FUTURE LITIGATION A ND CONTROVERSY IN THIS MATTER, THE DEFINITION OF INCOME UNDER CLAUSE (24) OF SECTI ON 2 OF THE INCOME-TAX ACT HAS BEEN AMENDED SO AS TO PROVIDE THAT THE INCOME SHALL INCLUDE ASSISTANCE IN THE FORM OF A SUBSIDY OR GRANT OR CASH INCENTIVE OR DUT Y DRAWBACK OR WAIVER OR CONCESSION OR REIMBURSEMENT (BY WHATEVER NAME CALLE D) BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY O R BODY OR AGENCY IN CASH OR KIND TO THE ASSESSEE OTHER THAN THE SUBSIDY OR G RANT OR REIMBURSEMENT WHICH IS TAKEN INTO ACCOUNT FOR DETERMINATION OF THE ACTUAL COST OF THE ASSET IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION 10 TO CLAUSE (1) OF SECTION 43 OF THE INCOME- TAX ACT. 5.2 AS MENTIONED IN PRESS RELEASE DATED 5TH MAY, 20 15, THE AMENDED DEFINITION OF INCOME SHALL NOT APPLY TO THE LPG SUBSIDY OR ANY OTHER WELFARE SUBSIDY RECEIVED BY AN INDIVIDUAL IN HIS PERSONAL CAPACITY AND NOT IN CONNECTION WITH THE BUSINESS OR PROFESSION CARRIED ON BY HIM.. 5.3 APPLICABILITY:- THIS AMENDMENT TAKES EFFECT FRO M 1ST APRIL, 2016 AND WOULD ACCORDINGLY APPLY TO ASSESSMENT YEAR 2016-17 AND SU BSEQUENT ASSESSMENT YEARS. 20. THE DEBATABLE POINTS REFERRED TO IN THE EXPLAN ATORY NOTES REFERRED TO ABOVE, IS TO VARIOUS JUDICIAL PRECEDENTS THAT BROUGHT OUT DEBATA BLE PRINCIPLES FOR TAX TREATMENT OF THE SUBSIDIES RECEIVED BY AN ASSESSEE. THE DISPUTE BETWEEN THE REVENUE AND THE ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 11 TAXPAYERS ABOUT THE TREATMENT OF THE SUBSIDY RECEIV ED FROM THE GOVERNMENT OR ANY OTHER AUTHORITY AS A CAPITAL RECEIPT OR REVENUE REC EIPT HAS NOW BEEN RESOLVED BY INSERTING A NEW CLAUSE (XVIII) UNDER THE DEFINITION OF 'INCOME' UNDER SECTION 2(24) OF THE INCOME TAX ACT (THE ACT). SUB-CLAUSE (XVIII) T O SECTION 2(24) PROVIDES THAT ASSISTANCE IN THE FORM OF A SUBSIDY, GRANT, CASH IN CENTIVE, DUTY DRAWBACK, WAIVER, CONCESSION, OR REIMBURSEMENT (BY WHATEVER NAME CALL ED) BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY OR BODY OR AGEN CY IN CASH OR KIND TO AN ASSESSEE (OTHER THAN ONE CONSIDERED UNDER EXPLANATION 10 TO SECTION 43(1)) WOULD BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THUS, ANY SUBSIDY/GRANT/REIMBURSEMENT, WHICH IS TAK EN INTO ACCOUNT AND REDUCED FROM THE ACTUAL COST OF DEPRECIABLE ASSETS WHILE DETERMI NING THE SAME UNDER SECTION 43(1) SHALL NOT BE TREATED AS INCOME. 21. THE QUESTION IS AS TO WHETHER THE AFORESAID AM ENDMENT TO SEC.2(24)(XVIII) OF THE ACT, CAN BE CONSIDERED AS HAVING RETROSPECTIVE OPER ATION. THE AFORESAID AMENDMENT IS IN TWO PARTS. THE FIRST PART SAYS THAT ANY SUBSIDY WHETHER IT IS CAPITAL OR REVENUE WILL BE REGARDED AS INCOME. THE SECOND PART IS THAT, IF THE VALUE OF THE SUBSIDY IS REDUCED FROM THE VALUE OF ACTUAL COST U/S.43(1) OF THE ACT FOR ALLOWING DEPRECIATION, THAN THE SUBSIDY WILL NOT BE TAXED AS INCOME. IF , WE WERE TO HOLD THAT THE AMENDMENT IS RETROSPECTIVE THAN THE 1 ST PART OF THE AMENDMENT BY WHICH ANY SUBSIDY, WHETHER CAPITAL OR REVENUE, IS TO BE REGARDED AS I NCOME WILL CREATE A CHARGE TO TAX AND UNLESS THE LEGISLATURE SPECIFICALLY IMPOSES A C HARGE TO TAX, RETROSPECTIVITY CANNOT BE GIVEN. THEREFORE THE 1 ST PART CANNOT BE REGARDED AS HAVING RETROSPECTIVE OP ERATION. THE SECOND PART OF THE AMENDED PROVISION OF SEC.2(2 4)(XVIII) OF THE ACT GIVES A RELIEF IN THE FORM OF RELIEVING DOUBLE TAXATION, ONE IN TH E FORM OF THE SUBSIDY BEING TAXED AS INCOME AND AGAIN THE VALUE OF SUBSIDY BEING REDUCED FROM THE ACTUAL COST OF FIXED ASSETS ON WHICH DEPRECIATION IS TO BE ALLOWED. IT IS NOT POSSIBLE TO REGARD ONE PART OF AN AMENDED PROVISION AS HAVING RETROSPECTIVE OPERAT ION AND THE OTHER PART HAVING ONLY PROSPECTIVE OPERATION. IF THE LEGISLATURE WANTED T HE AMENDMENT TO BE APPLICABLE IN THE MANNER AS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT WOULD HAVE SO PROVIDED IN THE FINANCE ACT, 2015. BY A PROCESS OF INTERPRETATION IT WOULD NOT BE ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 12 PROPER TO REGARD RETROSPECTIVITY TO ONLY ONE PART O F AN AMENDMENT. THEREFORE PRIOR TO THE AMENDMENT REFERRED TO ABOVE, IF A SUBSIDY IS RE GARDED AS REVENUE SUBSIDY, IT WOULD BE TAXABLE BESIDES THE VALUE OF THE SUBSIDY GETTING REDUCED FORM THE ACTUAL COST OF DEPRECIABLE ASSETS FOR THE PURPOSE OF ALLOWING DEPR ECIATION, IF THE CONDITIONS LAID DOWN IN EXPLANATION 10 TO SEC.43(1) OF THE ACT ARE SATISFIED. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE OTHER CONDITIONS LAID DOWN I N EXPLANATION 10 TO SEC.43(1) OF THE ACT ARE SATISFIED. 22. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE DECISION OF THE ITAT, KOLKATA IN THE CASE OF DCIT VS. M/S.GLOST ER JUTE MILLS LTD., ITA NO.766/KOL.2010 DATED 2.7.2014. WE HAVE PERUSED TH E AFORESAID DECISION OF THE TRIBUNAL. IN THAT CASE THE SUBSIDY IN QUESTION WAS GIVEN TO PERSONS ENGAGED IN THE MANUFACTURE OF JUTE AND JUTE PRODUCTS AND GENERATIO N OF POWER. THE SUBSIDY WAS GIVEN FOR THE PURPOSE OF INVESTMENT IN SPECIFIED PL ANT AND MACHINERY, FACTORY BUILDING ETC., USING FUNDS BORROWED FROM CERTAIN BANKS/FINAN CIAL INSTITUTIONS THEN OUT OF THE INTEREST PAID ON SUCH BORROWED FUNDS, 5% IS REFUNDE D BY THE GOVERNMENT. THE TRIBUNAL PLACED RELIANCE ON THE DECISION OF THE HON BLE PUNJAB & HARAYANA HIGH COURT IN THE CASE OF CIT VS. SH.SHAM LAL BANSAL ITA NO.47 2 OF 2010 DATED 17.1.2011 WHEREBY THE HONBLE HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL. THE TRIBUNAL HAD HELD THAT THE SUBSIDY WAS UTILIZED FOR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP A NEW UNIT, AS WAS THE INTENTION OF THE SUBSIDY. ON SUCH FINDING THE TRIBUNAL HELD THAT THE SUBSIDY WAS CAPITAL SUBSIDY. THE HONBLE PUNJAB AND HARYANA HIGH COURT AFFIRMED THE ORDER OF THE TRIBUNAL. IN OUR VIEW TH E PURPOSE OF THE SUBSIDY HAS TO BE SEEN IN THE LIGHT OF THE SCHEME IN EACH CASE. WE D O NOT FIND THAT THE SUBSIDY IN QUESTION IN THE PRESENT CASE IS SIMILAR TO THE SUBS IDY IN THE CASE DECIDED BY THE TRIBUNAL IN THE CASE OF M/S.GLOSTER JUTE MILLS LTD. (SUPRA). 23. FOR THE REASONS GIVEN ABOVE, WE DO NOT FIND AN Y MERIT IN THIS APPEAL BY THE ASSESSEE. THE APPEAL IS THEREFORE DISMISSED. ITA NO.854/KOL/2014 LIMTEX TEA & INDUSTR IES LTD. A.YR.2006-07 13 24. IN THE RESULT THE APPEAL BY THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 15.1.2016. SD/- SD/- [WASEEM AHMED] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 15.1.2016. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. LIMTEX TEA & INDUSTRIES LTD., 25A, SHAKESPARE SA RANI, 2 ND FLOOR, KOLKATA- 700017. 2. THE A.C.I.T-CIRCLE-4, KOLKATA. 3. 5. CIT(A)-IV, KOLKATA. 4. C.I.T.-II, KOLKATA. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES