JCIT (OSD) Vs Grasim Industries Limited (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, dismissed the Revenue’s appeals for Assessment Years 1996-97 to 2000-01 and upheld the order of the Commissioner of Income Tax (Appeals) holding that sales tax, entry tax, purchase tax, VAT exemptions and similar incentives received by the assessee under various State Government schemes constituted capital receipts not chargeable to tax. The common issue in all appeals was whether the incentives received from the Governments of Maharashtra, Madhya Pradesh, Rajasthan and Haryana for establishing industrial units in notified or backward areas were taxable as revenue receipts or exempt as capital receipts.
The assessee had received incentives under various State Government schemes after setting up industrial units in notified areas. For Assessment Year 1996-97, it received sales tax exemption incentives of ₹17.50 crore. In its original return, the assessee had offered the subsidy as a trading receipt, and the original assessments also treated the subsidy as a revenue receipt. During the first round of appellate proceedings before the Tribunal, the assessee raised an additional ground claiming that the sales tax incentives should be treated as capital receipts, relying on the Special Bench decision of the Mumbai Tribunal in DCIT v. Reliance Industries Ltd. (88 ITD 273). The Tribunal admitted the additional ground and remitted the matter to the Assessing Officer (AO) for examination of the nature of the incentives and the relevant State Government schemes after granting an opportunity of hearing. The Revenue did not challenge this remand order before the High Court, and the Tribunal observed that the directions issued in the first round had therefore attained finality.
