Vardhman Acrylics Ltd. V. Commissioner of Income Tax, Ludhiana and another

ITA/146/2014

AI Insights

The case involves M/s Vardhman Acrylics Ltd., the appellant, challenging the decision of the Income Tax Appellate Tribunal, Chandigarh, which affirmed the orders of the CIT (Appeals) and the Assessing Officer. The core issue was whether the sales tax subsidy received by the appellant constituted a capital receipt not liable to tax under the Income Tax Act. The Tribunal had previously held the subsidy as a revenue receipt, primarily relying on a judgment from Abhishek Industries Limited's case. However, the Supreme Court's decision in Ponni Sugars and Chemicals Limited's case, which emphasized the 'nature and purpose' of the subsidy in determining its character, was pivotal in this appeal. The High Court of Punjab and Haryana decided to restore the matter to the Tribunal for a detailed examination of the subsidy’s nature and purpose.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 819336 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 18-12-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Versus Abhishek Industries Limited, Commissioner of Income Tax versus Ponni Sugars and Chemicals Limited, Industrial Organics & Pharmaceuticals Limited versus The Commissioner of Income Tax, Central Circle, Ludhiana
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: RAJESH KATOCH; AKSHAY BHAN; ALOK MITTAL
• Assessee Lawyers: RADHIKA SURI; RINKU DAHIYA
• Keywords: Capital receipt; Commissioner of Income Tax; Income tax appellate tribunal; Revenue receipt; Sales tax subsidy
• Section: 286 ITR 1; 306 ITR 392

Judgement Text

"Income Tax Appeal No.146 of 2014 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Income Tax Appeal No.146 of 2014 Date of Decision: 18.12.2014 M/s Vardhman Acrylics Ltd. ..Appellant versus Commissioner of Income Tax, Ludhiana and another ..Respondents CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S.WALIA Present: Ms. Radhika Suri, Senior Advocate with Ms. Rinku Dahiya, Advocate, for the appellant (ITA No.146 of 2014) Mr. Akshay Bhan, Senior Advocate, with Mr. Alok Mittal, Advocate, for the appellants. Mr. Rajesh Katoch, Advocate, for the respondents (in ITA Nos.146 of 2014, 632,633 and 635 of 2008 and 330 of 2007. Mr. Rajesh Sethi, Senior Standing Counsel with Mr. Sachin Gupta, Advocate and Mr. Arun Biriwal, Advocate for ITA No.32 of 2012. Mr. Sumit Ahuja, Advocate, for Ms. Urvashi Dhugga, Senior Advocate, for the respondents in (ITA Nos.241,242,467, 819 of 2008, 515 of 2009 , 113 of 2010 and 128 of 2012 RAJIVE BHALLA, J. (ORAL) By way of this order, we shall decide Income Tax Appeals Nos. 330 of 2007, 241, 242 467, 632, 633, 635, 819 of 2008, 515 of 2009, 113 of 2010, 32, 128 of 2012 and 146 of 2014 as common questions of law arise for adjudication. KUMAR VIRENDER 2014.12.23 16:28 I attest to the accuracy and authenticity of this docunt High Court Chandigarh Income Tax Appeal No.146 of 2014 2 The assessee challenges order dated 02.08.2013 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, `A' Chandigarh (for short “the Tribunal”) and orders passed by the CIT (Appeals) and the Assessing Officer by raising the following substantial question of law:- “ Whether on the facts and in the circumstances of the case, the Tribunal erred in law in not holding that incentives/subsidies in the form of exemption from sales tax received by the appellant constituted capital receipt not liable to tax under the provisions of the Act?” Counsel for the assessee states that though in 286 ITR 1 (P&H) Commissioner of Income Tax Versus Abhishek Industries Limited, sales tax subsidy has been held to be a revenue receipt but the Hon'ble Supreme Court has, while considering the nature of sales tax subsidy held in 306 ITR 392 (SC), Commissioner of Income Tax versus Ponni Sugars and Chemicals Limited, that it is the nature and purpose of a subsidy that would determine whether it is a capital or a revenue receipt, thereby clarifying that sales tax subsidy shall be a revenue receipt depending upon its nature and purpose. Counsel for the assessee further submits that in a similar case ITA No.420 of 2007 (P&H) Industrial Organics & Pharmaceuticals Limited versus The Commissioner of Income Tax, Central Circle, Ludhiana and another, a Division Bench of this court has, after considering the judgment in Ponni Sugar and Chemical Limited's case (supra), remitted the matter to the Tribunal to record KUMAR VIRENDER 2014.12.23 16:28 I attest to the accuracy and authenticity of this docunt High Court Chandigarh Income Tax Appeal No.146 of 2014 3 an opinion, whether sales tax subsidy availed by the assessee is a revenue or capital receipt, after considering its nature and purpose. Counsel for the revenue relies upon the judgment in Abhishek Industries Limited's case (supra), but is not in a position to either distinguish the judgment in Ponni Sugars and Chemicals Limited's case (supra) or deny the fact that a similar controversy has already been restored to the Tribunal in Industrial Organics & Pharmaceuticals Limited's case (supra). We have heard counsel for the parties, appraised the impugned order and the substantial question of law. The assessee is, admittedly, in receipt of a sales tax subsidy. The question that requires an answer is, whether the subsidy is a revenue or a capital receipt? The Tribunal has affirmed orders passed by the CIT (Appeals) and the Assessing Officer holding that the sales tax subsidy received by the assessee is a revenue receipt by primarily relying upon a judgment of this Court in Abhishek Industries Limited's case (supra). It is true that in Abhishek Industries Limited's case (supra) a Division Bench of this Court has held that sales tax subsidy is a revenue receipt but a perusal of the judgment in Ponni Sugars and Chemicals Limited's case (supra), reveals that the Supreme Court has held that whether a subsidy is a revenue or a capital receipt would depend upon the nature and purpose of a subsidy. A relevant extract from the judgment in Ponni Sugars and Chemicals Limited's case (supra) reads as follows:- “ Shri Ganesh, learned senior counsel appearing on KUMAR VIRENDER 2014.12.23 16:28 I attest to the accuracy and authenticity of this docunt High Court Chandigarh Income Tax Appeal No.146 of 2014 4 behalf of the assessee, submitted that the benefits were conferred on the assessee under the 1980 and 1987 schemes, namely, additional price by reason of enhancement of free sale sugar quota, which resulted in the benefit of additional price, which price had to be utilized only for repayment of loans taken by the assessee to establish a new unit or for expanding the existing unit. The said schemes were not meant for a running unit. The second benefit, according to learned counsel, lay in the rebate of excise duty under which the assessee was required to pay excise duty on the manufacture of additional quota of free sale sugar. According to learned counsel, in judging the character of the incentive, the “purpose test” is applicable. In other words, according to learned counsel, the character of the receipt in the hands of the assessee had to be determined with respect to the purpose for which the subsidy was given and that the point of time at which it is paid or its source or its form was irrelevant. In this connection, learned counsel also places reliance on the same judgment of this court in the case of Sahney Steel and Press Works Ltd.” It would also be appropriate to point out that a similar controversy came up for consideration before a Division Bench of this Court in ITA No.420 of 2007 (P&H), Industrial Organics & Pharmaceuticals Limited versus The Commissioner of Income Tax, Central Circle, Ludhiana and another. After considering the KUMAR VIRENDER 2014.12.23 16:28 I attest to the accuracy and authenticity of this docunt High Court Chandigarh Income Tax Appeal No.146 of 2014 5 judgments in Abhishek Industries Limited's case (supra) and Ponni Sugars and Chemicals Limited's case (supra), the order passed by the Income Tax Appellate Tribunal was set aside and the matter was restored to the Tribunal for re-determining the question whether sales tax subsidy is a revenue or a capital receipt by reference to the nature and purpose of the subsidy. Consequently, we allow this appeal, set aside order passed by the Income Tax Appellate Tribunal and restore the appeals to the Tribunal to adjudicate the nature and purpose of the sales tax subsidy and thereafter record an opinion whether it is a capital or revenue expenditure after taking into consideration the judgment of the Hon'ble Supreme Court in Ponni Sugars and Chemicals Limited's case (supra). Parties are directed to appear before the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh, on 20.1.2015. ( RAJIVE BHALLA ) JUDGE ( B.S.WALIA ) 18.12.2014 JUDGE VK KUMAR VIRENDER 2014.12.23 16:28 I attest to the accuracy and authenticity of this docunt High Court Chandigarh "