DCIT, Circle - 1, Kolkata, Kolkata V. M/s. Gloster Jute Mills Limited, Kolkata

ITA 94/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4522 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 27-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2011
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: HARISH AGARWAL A RS
• Keywords: Capital asset; Depreciation; Question of law; Capital receipt; Unabsorbed depreciation
• Section: 10B

Judgement Text

I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA CORAM : SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICI AL MEMBER I.T.A. NO.: 94/KOL/ 2011 ASSESSMENT YEAR : 2006-2007 DEPUTY COMMISSIONER OF INCOME TAX, . APPELLA NT CIRCLE-1, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. GLOSTER JUTE MILLS LTD .................R ESPONDENT 21, STRAND ROAD, KOLKATA-700 001 [PAN : AAACG 9800 G] APPEARANCES BY: SHRI RAJAT KUMAR KUREEL, JCIT, SR. D.R., FOR THE DE PARTMENT SHRI SOUMEN ADAK & SHRI HARISH AGARWAL, A.RS., FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING :MAY 27 TH , 2016 DATE OF PRONOUNCING THE ORDER :JULY 27 TH , 2016 O R D E R PER S.S.VISWANETHRA RAVI : 1. THIS APPEAL BY THE ASSESSEE EMANATES OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 30.09.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. GROUND NO-1 OF APPEAL READS AS UNDER :- I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 2 THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.30,74,998/-MADE IN THE ASSESSEMENT ON ACCOUNT OF INTEREST SUBSIDY BY CONSIDERING IT AS CAPITAL RECEI PT WITHOUT APPRECIATING THE FACT THAT THE SUBSIDY WAS GRANTED TOWARDS REDUCING INTEREST BURDEN OF THE ASS ESSEE AND RECEIVED AFTER THE COMMENCEMENT OF BUSINESS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING OF JUTE & JUTE ALL IED PRODUCTS AND GENERATION OF POWER. DURING THE ASSESSMENT PROC EEDINGS THE ASSESSING OFFICER NOTED THAT UNDER THE TECHNOLOGY UPGRADATION FUND SCHEME IN SHORT TUFS, THE ASSESSEE RECEIVED S UBSIDY FROM CENTRAL GOVERNMENT OF RS. 30,74,998/- ON ACCOUNT OF INTEREST REFUND. THOUGH THE ASSESSEE DEBITED THE SAME TO PR OFIT & LOSS ACCOUNT WITH THE NET AMOUNT OF INTEREST, AFTER ADJU STMENT OF THE ABOVEMENTIONED SUBSIDY OF RS. 30,74,998/-. IN COMPU TING THE ASSESSABLE INCOME THE ASSESSEE DEDUCTED THE SAID AM OUNT ON THE PLEA THAT THE SUBSIDY WAS CAPITAL IN NATURE. 4. THE ASSESSING OFFICER DID NOT AGREE WITH THE ABO VE PROPOSITION AND REJECTED THE ASSESSEES CLAIM THAT SUBSIDY UNDER TUFS SHOULD BE TREATED AS A SCHEME OF CAPITAL SUBSI DY. HE OPINED THAT THE SUBSIDY WAS REVENUE IN NATURE AND HAD TO B E ADDED IN THE TOTAL INCOME OF THE ASSESSEE AS A REVENUE RECEIPT. 5. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPE AL) WHEREIN HE HELD THAT A GRANT OF SUBSIDY WAS FOR A OVERALL D EVELOPMENT OF THE TEXTILE INDUSTRY FOR MODERNISING ITS EXISTING INFRA STRUCTURE, THEREBY, I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 3 HE DELETED THE ADDITION MADE BY AO. AGAINST THE ABO VE ORDER OF CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 6. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND LD.AR SUBMITS THAT THE SIMILAR ISSUE WAS DECIDED BY THIS TRIBUNAL FOR ASSE SSEMENT YEAR 2005-06 IN ASSESSEES OWN CASE AND PLACED RELIANCE ON THE SAME. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS RIGHTLY POINTED OUT BY THE LD.AR THAT THE ISSUE ON HAND WAS COVERED BY THE ORDER 02-07-2014 O F B BENCH, KOLKATA IN I.T.A. NO.: 766/KOL./ 2010 ASSESSMENT YE AR : 2005- 2006 AND THE TRIBUNAL RELIED ON DECISION OF THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS.- SH. SHA M LAL BANSAL IN ITA NO. 472 OF 2010 AND HELD THAT THE SUBSIDY RECEI VED FOR MODERNISING ASSESSEES EXISTING INFRASTRUCTURE IS C APITAL IN NATURE. THE RELEVANT PORTION OF WHICH IS REPRODUCED AS UNDE R: 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. WE FIND THAT IDENTICAL ISSUE UNDER THE TE CHNOLOGY UPGRADATION FUND SCHEME (IN SHORT TUFS) OF MINIST RY OF TEXTILES WAS CONSIDERED BY THE HONBLE PUNJAB & HAR YANA HIGH COURT IN ITA NO. 472 OF 2010 VIDE DECISION DATED 17 .01.2011. HONBLE HIGH COURT HAS CONSIDERED AND HELD THE ISSU E AS UNDER:- 2. THE ASSESSEE IS ENGAGED IN MANUFACTURE AND SAL E OF WOOLEN GARMENTS. IT RECEIVED SUBSIDY FOR REPAYMENT OF LOAN TAKEN FOR BU ILDING, PLANT AND MACHINERY UNDER THE CREDIT LINKED CAPITAL SUBSIDY SCHEME UNDE R TECHNOLOGY UPGRADATION FUND SCHEME (TUFS) OF MINISTRY OF TEXTILES, GOVERNM ENT OF INDIA. THE ASSESSEE CLAIMED THE SAID SUBSIDY TO BE CAPITAL RECEIPT BUT THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND ADDED BACK THE SAME TO THE INCO ME OF THE ASSESSEE HOLDING THE SAME TO BE REVENUE RECEIPT. ON APPEAL, THE CIT( A) UPHELD THE PLEA OF THE ASSESSEE, WHICH VIEW HAS BEEN AFFIRMED BY THE TRIBU NAL WITH THE FOLLOWING OBSERVATIONS:- I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 4 HAVING REGARD TO THE AFORESAID, IN OUR VIEW, IT IS QUITE CLEAR THAT THE OBJECTIVE OF THE SUBSIDY SCHEME WAS TO ENHANCE THE TECHNOLOGY APPARATUS OF THE ASSESSEE BY ASSISTING IN ACQUIRING MACHINERY AND FURTHER THAT THE SUBSIDY SO RECEIVED WAS UTILIZED F OR REPAYMENT OF LOANS TAKEN BY THE ASSESSEE TO SET UP THE NEW UNIT, AS WAS THE INTENTION OF THE SUBSIDY. 10. CONSIDERED IN THE AFORESAID LIGHT, IN OUR VIEW , THE FACTS OF THE INSTANT CASE ARE ON ALL FOURS COMPARABLE TO THOSE CONSIDERE D BY THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS & CHEMICALS LTD. (SUPRA) AND THEREFORE, A NATURAL COROLLARY IS THAT THE NATURE OF THE SUBSIDY IN QUESTION IS CAPITAL. THEREFORE, BOTH ON THE ISSUE OF THE OBJECTIVE OF TH E SCHEME AND ON THE UTILIZATION OF THE FUNDS RECEIVED AS SUBSIDY, THE SUBSIDY IS TO BE VIEWED AS CAPITAL IN NATURE HAVING REGARD TO THE JUDGMENT OF THE HONBLE SUPREM E COURT IN THE CASE OF PONNI SUGARS & CHEMICAL LTD. (SUPRA). 11. RELIANCE PLACED BY THE REVENUE ON THE CASE OF SAWHNEY STEELS AND PRESS WORKS LTD. & OTHERS (SUPRA), IN OUR VIEW, IS NOT AP PROPRIATE HAVING REGARD TO THE AFORESAID FEATURES OF THE SCHEME, WHICH ARE NOT IN DISPUTE. MOREOVER, IN THE CASE OF SAWHNEY STEELS AND PRESS WORKS LTD. & OTHERS (SU PRA), IT WAS FOUND AS A FACT THAT THE SUBSIDY WAS GIVEN TO MEET RECURRING EXPEND ITURE AND WAS NOT FOR ACQUIRING A CAPITAL ASSET. WHEREAS IN THE INSTANT C ASE, ADMITTEDLY, THERE IS NO PROVISION IN THE SCHEME TO GRANT SUBSIDY TO MEET AN Y RECURRING EXPENDITURE AND NEITHER SUCH A CASE HAS BEEN SET UP BY THE DEPARTME NT. THE ONLY OBJECTIONS OF THE DEPARTMENT ARE THAT THE SUBSIDY HAS BEEN GIVEN AFTE R COMMENCEMENT OF PRODUCTION AND, SECONDLY THAT IT WAS FOR REPAYMENT OF LOANS. BOTH THESE FACTORS DO NOT DISTRACT FROM THE NATURE OF THE SUBSIDY BEIN G TREATED AS CAPITAL, AS EXPLAINED BY THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS CHEMICALS LTD. (SUPRA). 3. WE HAVE HEARD LEARNED COUNSEL FOR THE APPELLANT . 4. LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT THE SUBSIDY WAS NOT GIVEN AT THE TIME OF SETTING UP OF THE INDUSTRY BUT AFTER COMMENCEMENT OF PRODUCTION FOR REPAYMENT OF LOAN. IN SUCH SITUATION, THE AMOUNT SH OULD HAVE BEEN TREATED AS REVENUE RECEIPT, AS PER JUDGMENT OF THE HONBLE SUP REME COURT IN SAHNEY STEEL & PRESS WORKS LTD. & ORS. V. CIT (1997) 228 ITR 253 . 5. WE ARE UNABLE TO ACCEPT THE SUBMISSION. 6. THE PURPOSE OF SCHEME UNDER WHICH THE SUBSIDY I S GIVEN, HAS BEEN DISCUSSED BY THE TRIBUNAL. TO SUSTAIN AND PROVE THE COMPETITIVENESS AND OVERALL LONG TERM VIABILITY OF THE TEXTILE INDUSTRY, THE CO NCERNED MINISTRY OF TEXTILE ADOPTED THE TUFS SCHEME, ENVISAGING TECHNOLOGY UPGR ADATION OF THE INDUSTRY. UNDER THE SCHEME, THERE WERE TWO OPTIONS, EITHER TO REIMBURSE THE INTEREST CHARGED ON THE LENDING AGENCY ON PURCHASE OF TECHNO LOGY UPGRADATION OR TO GIVE CAPITAL SUBSIDY ON THE INVESTMENT IN COMPATIBLE MAC HINERY. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN TERM LOANS FOR TECHNOLOGY UP GRADATION AND SUBSIDY WAS I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 5 RELEASED UNDER AGREEMENT DATED 12.7.2005 WITH SMALL INDUSTRY DEVELOPMENT BANK OF INDIA. THE RELEVANT CLAUSE OF THE AGREEMENT UNDER WHICH THE SUBSIDY WAS GIVEN IS AS UNDER:- PARA 8. - TO PREVENT MISUTILIZATION OF CAPITAL SUB SIDY AND TO PROVIDE AN INCENTIVE FOR REPAYMENT, THE CAPITAL SUBSIDY WIL L BE TREATED AS A NON INTEREST BEARING TERM LOAN BY THE BANK/FIS. THE REP AYMENT SCHEDULE OF THE TERM LOAN HOWEVER WILL BE WORKED OUT EXCLUDING THE SUBSIDY AMOUNT AND SUBSIDY WILL BE ADJUSTED AGAINST THE TER M LOAN ACCOUNT OF THE BENEFICIARY AFTER A LOCK IN PERIOD OF THREE YEA RS ON A PRO-RATE BASIS IN TERMS OF RELEASE OF CAPITAL SUBSIDY. THERE IS NO APPARENT OR REAL FINANCIAL LOSS TO A BORROWER SINCE THE COUNTERVAILI NG CONCESSION IS EXTENDED TO THE LOAN AMOUNT. 7. IN VIEW OF ABOVE, THE VIEW TAKEN IN SAHNEY STEE L & PRESS WORKS LTD. & ORS., COULD NOT BE APPLIED IN THE PRESENT CASE, AS IN SAID CASE THE SUBSIDY WAS GIVEN FOR RUNNING THE BUSINESS. FOR DETERMINING WHE THER SUBSIDY PAYMENT WAS REVENUE RECEIPT OR CAPITAL RECEIPT, CHARACTER O F RECEIPT IN THE HANDS OF THE ASSESSEE HAD TO BE DETERMINED WITH RESPECT TO THE P URPOSE FOR WHICH SUBSIDY IS GIVEN BY APPLYING THE PURPOSE TEST, AS HELD IN SAHN EY STEEL & PRESS WORKS LTD. & ORS. ITSELF AND REITERATED IN LATER JUDGMENT IN CI T V. PONNI SUGARS & CHEMICALS LTD. & ORS. (2008) 306 ITR 392, REFERRED TO IN THE IMPUGNED ORDER OF THE TRIBUNAL. 8. IN VIEW OF ABOVE, SINCE THE MATTER IS COVERED B Y JUDGMENT OF THE HONBLE SUPREME COURT IN PONNI SUGARS & CHEMICALS LTD. & OR S. AGAINST THE REVENUE, NO SUBSTANTIAL QUESTION OF LAW ARISES. THUS WE FIND THAT ON IDENTICAL ISSUE THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT AS HELD HEREINABOVE IN ORDER TO SUSTAI N COMPETITIVENESS IN THE DOMESTIC AS WELL AS INTERNAT IONAL MARKETS AND OVERALL LONG-TERM VIABILITY OF THE INDUSTRY, TH E CONCERNED MINISTRY ADOPTED THE TUFS SCHEME ENVISAGING TECHNOL OGY UPGRADATION OF THE INDUSTRY. HENCE, THE SUBSIDY REC EIVED IN THIS REGARD FALLS INTO CAPITAL FIELD. HENCE RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE WE SET ASIDE THE ORDER OF THE LD . CIT(APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE R ECEIVED INTEREST AS REFUND FROM CENTRAL GOVERNMENT, AS PER THE SCHEM E FORMULATED TO ENCOURAGE ADDITIONAL INVESTMENTS IN ORDER TO BEC OME COMPETITIVE AND COST EFFECTIVE AND TO PROVIDE FINANCIAL SUPPORT FOR CAPITAL OUTLAY FOR EXPANSION AND MODERNISATION AND BY FOLLOWING O RDER OF COORDINATE BENCH, WE DISMISS THE GROUND NO-1 RAISED BY THE REVENUE. I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 6 9. GROUND NO-2 RAISED BY THE REVENUE READS AS UNDER :- THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN ALLOWING UNABSORBED DEPRECIATION OF RS.71,61,090/- AND BUSINESS OF RS.48,83,095/- PERTAINS TO 100% EOU UNIT (100% EXEMPTION U/S10B) AGAINST THE TAXABLE INCOME OF THE ASSESSEE FROM OTHER UNIT. 10. IN THIS CASE, THE ASSESSEE DURING THE YEAR UNDE R CONSIDERATION HAD THREE DIFFERENT UNITS OF INCOME AS UNDER:- SL. NO. UNIT PROFIT BEFORE TAXATION (1) DTA RS.8,59,19,380/- (2) 100% EOU RS.1,20,44,185/- (LOSS) (3) POWER PLANT RS.1,00,55,470/- RS.6,38,19,725/- 11. THE ABOVE-STATED LOSS OF EOU WAS ARRIVED AT AFT ER CHARGING OF THE DEPRECIATION OF RS.52,47,722/-. THE COMMERCIAL PRODUCTION AT THE EOU STARTED IN THE PREVIOUS YEAR RELEVANT TO TH E AY 2004-05. IN THAT YEAR ALSO, THE ASSESSEE SUFFERED LOSS. IN THE COMPUTATION OF INCOME, THE ASSESSEE SET OFF THE LOSS FROM EOU WITH THE PROFIT OF OTHER UNITS. THE ASSESSING OFFICER DISALLOWED UNABS ORBED DEPRECIATION OF RS.71,61,090/- AND BUSINESS LOSS OF RS.48,83,095/- FOR THE TEXTILE UNIT OF THE ASSESSEE ON THE GROUND THAT THESE LOSSES RELATE TO A UNIT WHOSE PROFITS ARE EXEMPT UNDER SEC TION 10B AND HENCE, SUCH LOSSES CANNOT BE ADJUSTED AGAINST PROFI T OF TAXABLE UNITS. I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 7 12. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEAL) WHEREIN HE HELD THAT THE LOSSES OF THE UNIT TO WHIC H SEC 10B APPLIES, CAN BE SET OFF WITH THE TAXABLE INCOME OF OTHER UNI TS, THEREBY, HE ALLOWED UNABSORBED DEPRECIATION OF RS.71,61,090/- A ND BUSINESS OF RS.48,83,095/- PERTAINS TO 100% EOU UNIT AND DELETE D THE ADDITION MADE BY AO. AGAINST THE ABOVE ORDER OF CIT(APPEALS) , THE REVENUE IS IN APPEAL BEFORE US. 13. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND LD.AR SUBMITS THAT THE SIMILAR ISSUE WAS DECIDED BY THIS TRIBUNAL FOR ASSE SSMENT YEAR 2005-06 IN ASSESSEES OWN CASE AND PLACED RELIANCE ON THE SAME. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS RIGHTLY POINTED OUT BY THE LD.AR THAT THE ISSUE ON HAND WAS COVERED BY THE ORDER 02-07-2014 O F B BENCH, KOLKATA IN I.T.A. NO.: 766/KOL./ 2010 ASSESSMENT YE AR: 2005- 2006. WE FIND THAT THE CIT-A RELIED ON THE ORDER DATED 28.03.2008 OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2004-05 AND ALLOW ED ALLOWED UNABSORBED DEPRECIATION OF RS.71,61,090/- AND BUSIN ESS OF RS.48,83,095/- PERTAINS TO 100% EOU UNIT. THE RELEV ANT PORTION OF WHICH IS REPRODUCED AS UNDER: 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT IT IS C LEAR THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE TRIBUNAL IN EARLIER YEARS. IT IS NOT THE CAS E THAT HONBLE JURISDICTIONAL HIGH COURT HAS REVERSED THE ORDER OF THE TRIBUNAL. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY I.T.A. NO.: 94/KOL./2011 ASSESSMENT YEAR: 2006-2007 8 INFIRMITY IN THE ORDER OF LD. CIT(APPEALS). HENCE, WE UPHOLD THE SAME. 15. IN THE PRESENT CASE, THE COORDINATE BENCH OBSER VED THAT THE SIMILAR ISSUES HAVE BEEN DECIDED IN FAVOUR OF ASSES SEE BY THIS TRIBUNAL IN EARLIER YEARS AND NO ORDER AS SUCH BROU GHT TO OUR NOTICE THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS REVE RSED THE ORDER OF THE TRIBUNAL. IN VIEW OF THE SAME, WE FIND NO MERIT IN THE ORDER OF CIT(APPEALS) AND ACCORDINGLY, GROUND NO-2 RAISED BY THE REVENUE IS DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF JULY, 2016. SD/- SD/- P.M.JAGTAP, S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER KOLKATA, THE 27 TH DAY OF JULY, 2016 COPIES TO :(1) DEPUTY /ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE-1, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. GLOSTER JUTE MILLS LTD., 21, STRAND ROAD, KOLKATA-700 001 (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.