Vardhman Textiles Ltd. Vs CIT (Punjab and Haryana High Court)
The Punjab and Haryana High Court decided a batch of appeals involving common issues arising from an order of the Income Tax Appellate Tribunal (ITAT), Chandigarh, relating to Assessment Year 2000–2001. The appeals were filed under Section 260A of the Income Tax Act, 1961 challenging the Tribunal’s order dated 25 January 2008. The appellant sought the setting aside of the Tribunal’s decision. When the appeal was admitted earlier, several questions of law were framed, including the nature of sales tax subsidy granted under a State Industrial Policy, the eligibility of the assessee as a 100% export-oriented unit for exemption under Section 10B, entitlement to benefits under Section 80HHC, and whether the sale of an import licence fell within the scope of Section 80-I of the Act. During the hearing, the appellant’s counsel stated that questions relating to Sections 80HHC and 80-I had already been decided against the assessee and that the question regarding Section 10B was not pressed. Consequently, the only issue considered by the court was the nature of the sales tax subsidy or exemption granted under the State Government’s industrial policy.
The appellant was engaged in the business of manufacturing yarn. The State Government had issued a notification on 1 June 1996 introducing an incentive scheme for new industrial units and for existing units undertaking expansion. The scheme granted benefits to industries located in backward areas, including sales tax exemptions. Under the policy, eligible units could receive sales tax subsidy for a period of ten years, subject to a ceiling of 300 percent of fixed capital investment. The appellant set up its industrial unit in a backward area and became eligible for this incentive. During the relevant period, the appellant collected sales tax from customers but did not deposit the amount with the State Government because it was allowed to retain the tax under the exemption scheme.
