M/s P.S Stell Tubes Pvt.Ltd, BHILAI(CG) V. Assistant commissioner of IT-1, BHILAI(CG)

MA 1/BIL/2012

• Counselvise Citation: [2014] 124 COUNSELVISE.COM (IT) 2645 (ITAT-RAIPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 24-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 07-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHEETAL VERMA
• Assessee Lawyers: R B DOSHI
• Keywords: Question of law; Capital receipt
• Section: 80IB

Judgement Text

INCOME TAX APPELLATE TRIBUNAL,BENCH -RAIPUR . .. . . .. . , ,, , ! ! ! !, ,, , . .. . . .. . BEFORE S/SH.H.L.KARWA,PRESIDENT AN D RAJENDRA,ACCOUNTANT MEMBER ./ ITA NO.121/NGP/1997- # # # # / // / ASSESSMENT YEAR -1994-95 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE, BHILAI. V/S. M/S. P.S. STEEL TUBES PVT. LTD., 27, AKASH GANGA COMPLEX, SUPELA, BHILAI. GIR NO. P-2 ( ) / // / APPELLANT ) ( *+) / RESPONDENT ) ./ ITA NO.296/NGP/1997- # # # # / // / ASSESSMENT YEAR -1995-96 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE, BHILAI. V/S. M/S. P.S. STEEL TUBES PVT. LTD., 27, AKASH GANGA COMPLEX, SUPELA, BHILAI ( ) / // / APPELLANT ) ( *+) / RESPONDENT ) ./ ITA NO.30/BLPR/2009- # # # # / // / ASSESSMENT YEAR -2006-07 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE, BHILAI. V/S. M/S. P.S. STEEL TUBES PVT. LTD., 27, AKASH GANGA COMPLEX, SUPELA, BHILAI ( ) / // / APPELLANT ) ( *+) / RESPONDENT ) ./ ITA NO.116/BPLR/2009- # # # # / // / ASSESSMENT YEAR -2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE, BHILAI. V/S. M/S. P.S. STEEL TUBES PVT. LTD., 27, AKASH GANGA COMPLEX, SUPELA, BHILAI ( ) / // / APPELLANT ) ( *+) / RESPONDENT ) ,, ./ MA NO.01/BLPR/2012- # # # # / // / ASSESSMENT YEAR -2006-07 M/S. P.S. STEEL TUBES PVT. LTD., 27, AKASH GANGA COMPLEX, SUPELA, BHILAI V/S. ASSTT. COMMISSIONER OF INCOME-TAX -1, BHILAI. ( ) / // / APPELLANT ) ( *+) / RESPONDENT ) REVENUE BY : SMT. SHEETAL VERMA, SR.DR. ASSESSEE BY : SH. R.B. DOSHI, C.A. / /DATE OF HEARING :17-12-2014 / /DATE OF PRONOUNCEMENT : 24 -12-2014 # # # # , 1961 1961 1961 1961/ / / / 254 254254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM = == = > > > >, ,, , ! ! ! ! : VIDE ITS ORDERS,DATED 16.08.2012 AND 21.03.2013,THE HONBLE JURISDICTIONAL HIGH COURT HAS DIRECTED TO RE-ADJUDICATE APPEALS FOR THE ABOVE MEN TIONED FOUR ASSESSMENT YEARS(ITA.NO.40 OF 2000 AND TAX CASE 52 OF 2011 & 01 OF 2012). BRIEF BACKGROUND: 2 ITA NO. 121, 296, 30, 116 & MA 01-PS STEEL TUBES ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF G.I.AND M.S.PIPES OF VARIOUS SIZES,HAD CLAIMED THAT POWER AND SALES TAX SUBSIDIE S RECEIVED BY IT WERE CAPITAL RECEIPTS AND HENCE NOT TAXABLE.COMPLETING THE ASSESSMENT ORDERS FOR TH E AY.S.1994-95 AND 1995-96,THE ASSESSING OFFICERS(AO)TAXED BOTH THE SUBSIDIES,AS THEY WERE O F THE OPINION THAT THE RECEIPT WERE OF REVENUE NATURE.IN THE APPELLATE PROCEEDINGS,THE FIRST APPEL LATE AUTHORITY(FAA),HELD THAT SUBSIDIES WERE IN THE NATURE OF CAPITAL RECEIPT.AGGRIEVED BY THE ORDE R OF THE FAA,THE DEPARTMENT FILED APPEALS BEFORE THE TRIBUNAL.AFTER CONSIDERING THE RIVAL SUB MISSIONS,TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE AO AND REVERSED THE ORDER OF THE FAA.THE ASS ESSEE AGITATED THE MATTER BEFORE THE HONBLE HIGH COURT AND THE COURT HELD THAT THE TRIBUNAL DID NOT REFER THE NATURE OF BOTH THE SUBSIDIES AVAILED BY THE ASSESSEE,THAT THE TRIBUNAL SHOULD HA VE EXAMINED THE NATURE,OBJECT AND PURPOSE OF SUBSIDIES GRANTED IN LIGHT OF THE DECISION OF THE H ONBLE APEX COURT DELIVERED IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD.(228ITR253),THAT N O FINDING AS TO WHETHER A PARTICULAR SUBSIDY WAS CAPITAL OR REVENUE RECEIPT WAS POSSIBLE TO RECO RD UNLESS THE NATURE,OBJECT AND PURPOSE OF THE SUBSIDY WAS EXAMINED.THE HONBLE COURT HELD THAT TR IBUNAL SHOULD DECIDE ISSUE RELATING TO POWER AND SALES TAX SUBSIDY I.E.GROUND NO.1(C)AND 1(D),SO FAR AS THE AY.1994-95 IS CONCERNED,THAT GROUND NO.1(I)AND 1(II)FOR THE AY.1995-96 SHOULD BE READJUDICATED.FOR THE AY.2006-07 ENTIRE APPEAL WAS RESTORED BACK BY THE HONBLE COURT.WITH REGARD TO APPEAL FOR THE AY.2007-08,THE HONBLE COURT DIRECTED THAT ONLY FIRST GROUND OF AP PEAL HAD TO BE DECIDED AGAIN.IN SHORT,FOR ALL THE FOUR AY.S.CERTAIN DIRECTIONS HAVE BEEN ISSUED BY T HE HONBLE COURT . 2. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR)SUBMITTED THAT HE HAD BEEN DIRECTED BY THE ASSESSEE TO WITHDRAW THE MA FI LED FOR THE AY.2006-07.ACCORDINGLY,THE MA FILED BY THE ASSESSEE STANDS DISMISSED AS WITHDRAWN ITA.121&296/NAG/97-AY.1994-95 AND AY.1995-95: 3. GROUNDS OF APPEAL FILED BY THE AO FOR THE YEAR 1994-95 READ AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN - (C). DELETING THE ADDITION MADE BY ASSESSING OFFICE R ON ACCOUNT OF POWER SUBSIDY AMOUNTING TO RS.9,190/- TREATING IT AS REVENUE RECE IPT. (D). DELETING THE ADDITION MADE BY ASSESSING OFFICE R ON ACCOUNT OF SALES TAX SUBSIDY OF RS.3,47,934/- TREATING IT AS REVENUE RECEIPT. FOLLOWING ARE THE GROUNDS OF APPEAL FOR THE AY.1995 -96: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) ERRED IN ALLOWING THE FOLLOWING RELIEF : (I). DELETING ADDITION ON ACCOUNT OF POWER SUBSIDY RS.23,912/-. (II). DELETING ADDITION ACCOUNT OF SALES-TAX SUBSID Y RS.11,39,812/- AND DIRECTING THE AO TO ALLOW DEDUCTION U/S. 80(I)(A) OF THE IT ACT, 1961 O N THE INTEREST INCOME WITHOUT APPRECIATING THE FACT THAT INTEREST INCOME IS NOT D ERIVED FROM ANY INDUSTRIAL ACTIVITY. DEPARTMENTAL REPRESENTATIVE(DR)ARGUED THAT ISSUE OF POWER SUBSIDY STANDS SETTLED IN LIGHT OF DECISION DELIVERED BY THE HONBLE APEX COURT IN THE MATTER OF SAHNEY STEEL(SUPRA).AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.WE FIND THAT W HILE DECIDING THE MATTER IN THE CASE OF SAHNEY STEEL THE HONBLE COURT HAD HELD THAT SUBSIDIES ON POWER CONSUMED AND EXEMPTION FROM PAYMENT OF WATER CHARGES, ETC. WERE REVENUE RECEIPTS,THAT T HE AMOUNTS RECEIVED WERE PRODUCTION INCENTIVES AND WERE OPERATIONAL SUBSIDIES,THAT SAME HAVE TO BE TREATED CAPITAL SUBSIDIES.RESPECTFULLY,FOLLOWING THE ABOVE WE HOLD THAT POWER SUBSIDY HAS RIGHTLY BEEN HELD REVENUE SUBSIDY BY THE AO.REVERSING THE ORDER OF TH E FAA,WE DECIDE GROUND NO.1(C)IN FAVOUR OF THE AO. 3 ITA NO. 121, 296, 30, 116 & MA 01-PS STEEL TUBES 3.1. GROUND NO.1(D)DEALS WITH SALES TAX SUBSIDY.DR RELIE D UPON THE CASE OF BRAKED INDIA LTD. (44TAXMANN.COM.125)OF MADRAS HIGH COURT AND ARGUED THAT SUBSIDY WAS CONTINGENT UPON COMMENCEMENT OF PRODUCTION,THAT SUBSIDY WAS DEPENDE NT UPON CARRYING OUT THE BUSINESS OPERATION,THAT THE OBJECT OF THE SUBSIDY WAS TO ENA BLE THE ASSESSEE TO RUN ITS BUSINESS MORE PROFITABLEY.THE AR CONTENDED THAT THE OBJECT OF THE SUBSIDY WAS TO HELP THE ASSESSEE IN CAPITAL AREA. HE RELIED UPON THE ORDER OF THE MUMBAI SPECIA L BENCH DELIVERED IN THE MATTER OF RELIANCE INDUSTRIES(88ITD273) AND PONNI SUGARS AND CHEMICALS LTD.(306 ITR392).HE REFERRED TO NOTIFICATION ISSUED BY M P GOVERNMENT DATED.16.10.1 986. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THERE WERE DIVERGENT VIEWS ABOUT TREATMENT TO BE GIVEN TO SUBS IDIES.BUT MATTER WAS SETTLED FINALLY BY THE HONBLE SUPREME COURT WHEN IT DELIVERED THE DECISIO NS IN THE CASE OF SAHENY STEEL (SUPRA).LATER ON IN THE MATTER OF PONNI SUGARS(SUPRA)THE CONCEPT OF TAXABILITY OF SUBSIDY BECAME MORE CLEAR.COURTS ARE OF THE VIEW THAT THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE ASSESSEE WHETHER REVENUE OR CAPITAL HAS TO BE DETERMINED WITH RESPEC T TO THE PURPOSE FOR WHICH THE SUBSIDY WAS GIVEN AND THAT THE POINT OF TIME AT WHICH IT IS PAI D, ITS SOURCE OR ITS FORM WERE IRRELEVANT ;IF THE OBJECT OF THE SUBSIDY WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON THE REVENUE ACCOUNT ; ON THE OTHER HA ND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT.A S THE FACTS OF TWO CASES CANNOT BE IDENTICAL,SO,TO DECIDE THE ISSUE OF SUBSIDY ON THE BASIS OF ANY OTHER CASE WOULD NOT BE PROPER.THE HONBLE APEX COURT HAS DIRECTED THE HONBLE BOMBAY HIGH COURT TO DECIDE THE ISSUE OF SALES TAX SUBSIDY ON MERITS.IN OUR OPINION,MATTER OF SALES TA X SUBSIDY HAS TO BE DECIDED CONSIDERING THE ENTIRE SCHEME AS APPEARING IN THE NOTIFICATION OF 1 6.10.1986.AS THE AO HAD NOT BENEFIT OF CONSIDER THE WHOLE SCHEME,SO,IN THE INTEREST OF JUS TICE WE ARE DIRECTING THE MATTER TO HIS FILE FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDED THE I SSUE AFTER GOING THROUGH THE SAID NOTIFICATION.HE SHOULD GIVE A CLEAR FINDING ABOUT NATURE, OBJECT AN D PURPOSE OF THE SCHEME MENTIONED IN THE NOTIFICATION.HE WOULD AFFORD A REASONABLE OPPORTUNI TY OF HEARING TO THE ASSESSEE.GROUND NO 1(D) IS DECIDED IN FAVOUR OF THE AO,IN PART. GROUND 1(I)IS ABOUT POWER SUBSIDY.FOLLOWING OUR ORD ER FOR THE EARLIER YEAR,WE DECIDE THE SAID GROUND IN FAVOUR OF THE AO. GROUND NO.1(II)PERTAINS TO SALES TAX SUBSIDY.FOLLOW ING OUR ORDER FOR AY.1994-95,WE RESTORE THE ISSUE OF SALES TAX SUBSIDY TO THE FILE OF THE AO FO R FRESH ADJUDICATION WHO WOULD DECIDE THE MATTER AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE. ITA/30/BLPR/2009-AY.2006-07: GROUNDS OF APPEAL FOR THE ABOVE AY.READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.1,61,86,412/- MADE BY THE ASSESSING OFFICER B Y TREATING OF SALES TAX SUBSIDY AS REVENUE RECEIPT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80IB ON T HE AMOUNT OF SALES TAX SUBSIDY TREATING AS INCOME. 3. THE ORDER OF LD.CIT(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS. FOLLOWING THE ORDERS FOR THE AY.1994-95 AND 1995-96 WE REMIT THE ISSUE OF SALES TAX SUBSIDY TO THE FILE OF THE AO FOR FRESH ADJUDICATION. NOW,WE WILL DISCUSS THE DEDUCTION CLAIMED U/S.80IB OF THE ACT.WE FIND THAT THE ISSUE IS CLOSELY INTERLINKED WITH THE POWER SUBSIDY.THE PURPOSE TEST HAS TO BE APPLIED FOR CLAIM FOR DEDUCTION U/S.80IB OF THE ACT.WE FIND THAT IN THE MATTER OF M EGHALAYA STEELS LTD. (356ITR 235),THE HONBLE GAUHATI HIGH COURT HAS DEALT THE ISSUE AS UNDER: 4 ITA NO. 121, 296, 30, 116 & MA 01-PS STEEL TUBES IN ORDER TO CLAIM DEDUCTION EITHER UNDER SECTION 80 -IB OR UNDER SECTION 80-IC OF THE INCOME-TAX ACT, 1961, AN ASSESSEE HAS TO ESTABLISH THAT THERE IS A DIRECT, INTRINSIC AND FIRST DEGREE NEXUS BETWEEN A SUBSIDY, ON THE ONE HAND, AND THE PROFITS AND GAINS, ON THE OTHER, DERIVED FROM, OR DERIVED BY, THE INDUSTRIAL UNDERTAKING CONCERNED. I F A SUBSIDY GOES TO REDUCE THE COST OF PRODUCTION OF AN INDUSTRIAL UNDERTAKING, THE RESULT ANT PROFITS AND GAINS ARE DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 80-IB OR SECTION 80-IC, AS TH E CASE MAY BE. THE EXPRESSION 'DERIVED FROM' HAS BEEN USED IN SECTION 80-IB, AND IT MEANS THAT I T IS THE BUSINESS OF THE UNDERTAKING, WHICH IS THE DIRECT SOURCE FROM WHICH THE PROFITS AND GAINS ARE DERIVED. IN THE CASE OF A SUBSIDY, THE EXPRESSION 'DERIVED FROM', APPEARING IN SECTION 80-IB, WOULD, LOGICALLY EXTENDED, MEAN THAT THE SUBSIDY PROVIDED BY THE STATE, DIRECTLY AFFECTS THE BUSINES S ACTIVITY OF THE INDUSTRIAL UNDERTAKING. THE SUPREME COURT IN MEPCO INDUSTRIES ' CASE HELD THAT IN EACH CASE, THE NATURE OF SUBSIDY NEEDS TO BE EXAMINED BY THE COURT. CONSEQUENTLY, WITHOUT DETERM INING THE NATURE OF SUBSIDY, INCLUDING THE OBJECT THEREOF, THE IMPACT OF THE SUBSIDY ON THE OP ERATION OF THE INDUSTRIAL UNDERTAKING CANNOT BE DETERMINED. THE SUPREME COURT IN SAHNEY STEEL AND P RESS WORKS LTD. V. CIT [1997] 228 ITR 253 (SC) LAYS DOWN AN IMMENSELY IMPORTANT ASPECT OF A S UBSIDY VIS-A-VIS LIABILITY TO PAY TAX.WHAT THE SUPREME COURTCLARIFIES IS THAT WHEN A SUBSIDY IS GI VEN FOR THE PURPOSE OF SETTING UP OF AN INDUSTRY, SUCH A SUBSIDY IS A CAPITAL RECEIPT. WHEN, HOWEVER, THE SUBSIDY IS GIVEN FOR THE PURPOSE OF OPERATING AN INDUSTRY MORE PROFITABLY, THE SUBSIDY WOULD BE REVENUE RECEIPT AND, BEING REVENUE RECEIPT, IT HAS TO BE TAXED IN ACCORDANCE WITH LAW MEANING THEREBY THAT THE PROFITS AND GAINS DERIVED FROM, OR DERIVED BY, AN INDUSTRIAL UNDERTAK ING IN A CASE, WHERE OPERATIONAL COST IS REDUCED BY PROVIDING SUBSIDY, IN ANY FORM, THE PROFITS AND GAINS EARNED, BECAUSE OF SUCH SUBSIDY, WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB OR SECTI ON 80-IC, AS THE CASE MAY BE. THE PRINCIPLE DEDUCIBLE FROM THE CASES OF SAHNEY STEEL AND PRESS WORKS LTD. V. CIT [1997] 228 ITR 253 (SC); CIT V. RAJARAM MAIZE PRODUCTS [2001] 251 ITR 427 (S C) AND CITV. EASTERN ELECTRO CHEMICAL INDUSTRIES [1999] 9 SCC 20 IS THAT WHEN A SUBSIDY,G RANTED BY THE GOVERNMENT, IS OPERATIONAL IN NATURE, WHICH HELPS IN GENERATION OF PROFITS FOR AN Y INDUSTRIAL UNDERTAKING, SUCH A PROFIT IS, INDEED, COVERED BY THE PROVISIONS EMBODIED IN SECTION 80-IB OR SECTION 80-IC, AS THE CASE MAY BE. CONSIDERING THE ABOVE WE DIRECT THE AO TO ADJUDICAT E THE ISSUE AFTER TAKING A DECISION ABOUT THE NATURE OF THE SALES TAX SUBSIDY.GROUND NO. 2 IS ALL OWED IN FAVOUR OF THE AO,IN PART. ITA/116/BPLR/2009-AY.2007-08: AS PER THE DIRECTION OF THE HONBLE HIGH COURT ONLY FIRST GROUND OF APPEAL HAS TO BE DECIDED BY US AND THE SAID GROUND OF APPEAL,FILED BY THE AO,READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.38,09,332/- MADE BY THE AO BY TREATI NG THE SALES TAX SUBSIDY AS REVENUE RECEIPTS WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,16,716/- MADE BY THE AO ON ACCOUNT OF INTEREST ON FDR/STDR AND RS.55,698/- SECURITY DEPOSIT WITH SEB HAS NOT BEEN DERIVED FROM ELIGIBLE BUSINESS FOR COMPUTING DEDUCTION U/S. 80IB, THE DEDUCTION INVOLV ES QUESTION OF LAW. 3. THE ORDER OF LD. CIT(A) IS ERRONEOUS BOTH IN LAW AN D ON FACTS. AS THE ISSUE OF SALES TAX SUBSIDY HAS BEEN RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION,SO,WE RESTORE THE ISSUE TO THE FILE OF THE AO FOR THIS YEAR ALSO.GROUND NO.1 IS ALLOWED IN FAVOUR OF THE ASSESSEE IN PART. AS A RESULT,APPEAL FILED BY THE AO FOR ALL THE FOUR AYS. STAND PARTLY ALLOWED. ? #? A B / C # D / E / H . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH ,DECEMBER,2014. / E 24 I ,2014 / . SD/- SD/- (H.L.KARWA/ . .. . . .. . ) ( ! ! ! ! / RAJENDRA) PRESIDENT/ > > > > /ACCOUNTANT MEMBER /RAIPUR. I DATE: 24.12.2014 5 ITA NO. 121, 296, 30, 116 & MA 01-PS STEEL TUBES / // / *#J, *#J, *#J, *#J, K, K, K, K, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ) 2. RESPONDENT / *+) 3. THE CONCERNED CIT(A)/ L M , 4. THE CONCERNED CIT / L M 5. DR ITAT,RAIPUR BENCH/ , *## , . . ., 6. GUARD FILE/ . +, *# //TRUE COPY//