Case Law Details
Issue :- The assessee’s contention is that the subsidy/benefit so received is a capital receipt not liable to tax whereas the revenue authorities have considered such sales tax benefits/subsidies as revenue receipt and have taxed accordingly.
Held :- Assessee has sold its sales tax incentives and what it has received is not sales tax benefit/incentive but sale consideration on transfer of its entitlement and sale consideration is nothing but is a benefit directly arising from business and, is therefore, a revenue receipt. The learned counsel has vehemently supported the assessee’s claim by relying upon the Government Policy on Wind Power Generation and to substantiate its claim the assessee has also relied upon the Special Bench decision of the Tribunal in the case of Reliance Industries Ltd. 88 ITD 273. The assessee has also relied upon the decision of the Hon’ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys 333 ITR 335; High Court of Punjab & Haryana 237 CTR 321; High Court of Karnataka 35 DTR 104; High Court of Bombay in the case of Chaphalkar Brothers 351 ITR 309 and High Court of Gujarat in the case of Inox Leisure Ltd. 351 ITR 314.
None of the aforementioned decisions is applicable to the facts of present case as in none of the above cases the assessees have sold their entitlement of sales tax subsidy. Whereas in the present case the assessee has sold it sales tax benefit therefore, we have no hesitation to hold that what the assessee has received is sales consideration for the transfer of its sales tax entitlement and by any stretch of imagination we cannot accept the said consideration as sales tax incentive being capital in nature. After considering the facts as stated herein-above, in our view, what the assessee has received is taxable as revenue receipt.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
Before Shri I P Bansal, JM & Shri N K Billaiya, AM
ITA No.7125/Mum/2007 / AY 2003-04)
ITA No.2218/Mum/2008 / AY 2004-05)
ITA No.3833/Mum/2008 / AY 2005-06)
ITA No. 772/Mum/2009 / AY 2006-07)
Sun-N-Sand Hotels Pvt. Ltd. Vs. The Dy CIT
ITA No. 2012/Mum/2009- AY 2005-06)
ITA No. 4566/Mum/2009 /AY 2006-07)
Shalimar Visuals Pvt. Ltd. Vs. The ITO
ITA No. 3960/Mum/2008/ AY 2005-06)
Sun-N-Sand Hotel (Shirdi) Pvt. Ltd. Vs. The ITO
Date of Pronouncement: 08.01.2014
ORDER
Per Bench: All these appeals were heard together and are being disposed off by this common order for the sake of convenience and brevity. All these appeals involve one common issue relating to the taxability of sales tax benefit/subsidy received by the assessee under Power Policy of the State Government as incentive for setting up windmills in the Maharashtra State. We shall first take up ITA No. 7125/Mum/2007.
2. The assessee’s contention is that the subsidy/benefit so received is a capital receipt not liable to tax whereas the revenue authorities have considered such sales tax benefits/subsidies as revenue receipt and have taxed accordingly.
3. Prima facie by going through the grounds of appeal of the assessee, it appears that the issue relates to the tax ability or otherwise of sales tax benefits, but once we understand the facts of the case in the right perspective, the issue would be different.
4. As per the State Government of Maharashtra policy, investment in plant and machinery, new building, land development, technical development and design in a wind power project would be considered as qualifying investment for availing sales tax benefit. The benefit would be 1/6th of investment every year for six years under the condition that the plant has successfully operated every year with a minimum of 12% Plant Load Factor. The benefit may also be availed by other company associated with the promoters.
5. Being encouraged by the government policy, the assessee company invested Rs.10 crore in Wind Power Generation and set up its wind industrial farm in Supa village, and another industrial farm was set up at Varekarwadi. The assessee sold the power generated from Supa village to M/s. Greaves Ltd and power generated from wind mill at Varekarwadi was sold to MSEB directly. As the assessee company has complied with all the necessary conditions as prescribed by the State Government of Maharashtra Policy, the assessee was eligible for claiming sales tax exemption, which was to the tune of Rs. 1.66 cores. As per the policy on wind power generation, there was also a facility of transferring sales tax benefit to the third party. For this eligibility certificate was given by the Director, Maharashtra Energy Development Agency (MEDA). It was stipulated in the said policy that the promoters would be allowed to choose at the most two names of the third party units to get the sales tax benefits. The Entitlement Certificates for units of third party were to be certified by Commissioner of Sales Tax. The amount of sales tax benefit related to the wind energy generation and not to the amount of electricity sold to the third party. After obtaining the Entitlement Certificate for sales tax benefit, the promoters of the project can transfer it to the third party to whom they have sold the electricity. The amount of sales tax benefit is related to the qualifying investment and plant load factor. It is further provided that the electricity sold to the unit/units of the third party can avail sales tax benefit limited only to the qualifying investment.
6. Taking benefit of the aforesaid stipulation in the policy on wind power generation, the assessee sold entire sales tax entitlement of Rs. 1.66 crores for a consideration of Rs. 1.25 crores. The assessee claimed the aforesaid sales tax benefit/entitlements as capital receipt not liable to tax. The main contention of the assessee is that the sales tax incentive received by the company was granted by the Government for bringing about necessary infrastructure in the field of power generation, which was scarce. The assessee further stated that the receipt was in the nature of subsidy from the government for setting up wind power generators in the state and subsidy is always a capital receipt not taxable as revenue income. It is also not liable to be reduced from the cost of windmills for granting depreciation as the same is strictly in the nature of an incentive. The assessee further contended that the subsidy in the form of sales tax exemption was granted by the Government for the commissioning of the windmills as an incentive and not to meet the cost of windmills, which was paid by the company out of its own resources before availing such benefit and, as such, the same is in the nature of capital subsidy not liable to tax. The entire contentions/submissions of the assessee revolve around whether the subsidy is capital or revenue in nature.
7. We have explained herein-above, as to how the assessee got the consideration for the transfer of sales tax benefit. In our considerate view, what the assessee has done is that it has sold its benefits/ entitlements to the third parties. What the assessee has received is consideration in respect of sale of the entitlement/ benefits. We failed to persuade ourselves to consider/accept this consideration as sales tax benefit/ subsidy. This is nothing but consideration for the transfer of the entitlement and, hence, clearly taxable as revenue receipt in the nature of benefit convertible into money arising from business. Our view is also fortified by the agreement for transfer of sales tax incentive available from wind farm project exhibited at pages 56 to 63 of the paper-book in the case of Sun & Sand Hotels Pvt. Ltd in ITA No. 7125/Mum/2007. This agreement clearly states that it is for transfer of sales tax incentive to Grasim Industries Ltd. The relevant clauses of the said agreement read as under:
“……
B. The vendor has represented that it has set up a wind power project Commissioner on 29/02/2001 and the said Project is eligible for availing of Sales Tax benefits and that such Sales Tax benefit are transferable to any party under the Government Resolution No. NCP- 1099/CR-202/Energy-7 dated 1/10/1999 and as per the procedure laid down by the Finance Department the Government of Maharashtra vide Notification No. STA – 1098/Taxation2, dated 24/08/1998
………….
D Being a power generation unit, the Vendor is eligible under the Power Generation Promotion Policy, 1998 to obtain a certificate of Entitlement from the Commissioner of Sales Tax and eligibility certificate from MEDA
E The Vendor is agreeable to transfer the said Sales Tax benefits to the Purchaser and the Purchaser is agreeable to avail of the said Sales Tax benefits on certain terms and conditions hereinafter appearing and the said Entitlement Certificate is transferable to any industry subject to the said Scheme of Incentives within the Maharashtra and the transferee of such Entitlement Certificate can avail the benefits under the Entitlement Certificate up to the period by which monetary ceiling specified in the eligibility certificate gets exhausted or till the last day of the period mentioned in the Entitlement Certificate whichever is earlier.
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3 THE PURCHASE AND PAYMENTS BY THE PURCHASER
(1) The Purchaser shall in consideration of the Sales Tax Exemption entitlement be liable to pay to the vendor as and by way of Entitlement Fee, an amount equivalent to 75% of the sales tax liability utilized out of the entitlement amount. The Purchaser shall avail of the exemption Entitlement amount received from the Vendor and accordingly shall pay such entitlement fee to the extent of the entitlement amount actually utilized, within 10 days of filing of the monthly Sales Tax return (hereinafter referred as “due date”) as per the Bombay Sales Tax Rules. The Purchaser agrees to make available to the vendor copies of Sales Tax returns filed along with other allied documents for the purposes of cross verification of Sales Tax benefits absorbed and payment due to the Vendor. The Purchaser agrees that the Entitlement fees shall be paid to the Vendor through cheques which are payable at par by the bankers in Mumbai.
(2) The Purchaser shall furnish similar document to the Vendor for availing Entitlement amount for the next financial year on mutually agreed terms for next year. The Vendor in turn shall arrange Entitlement Certificate on or before the date as mutually agreed to renew the agreement further on mutually agreed terms and conditions for the next year and/or the subsequent years.”
A perusal of the above clauses clearly establishes the fact that the assessee has sold its sales tax incentives and what it has received is not sales tax benefit/incentive but sale consideration on transfer of its entitlement and sale consideration is nothing but is a benefit directly arising from business and, is therefore, a revenue receipt. The learned counsel has vehemently supported the assessee’s claim by relying upon the Government Policy on Wind Power Generation and to substantiate its claim the assessee has also relied upon the Special Bench decision of the Tribunal in the case of Reliance Industries Ltd. 88 ITD 273. The assessee has also relied upon the decision of the Hon’ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys 333 ITR 335; High Court of Punjab & Haryana 237 CTR 321; High Court of Karnataka 35 DTR 104; High Court of Bombay in the case of Chaphalkar Brothers 351 ITR 309 and High Court of Gujarat in the case of Inox Leisure Ltd. 351 ITR 314.
8. None of the aforementioned decisions is applicable to the facts of present case as in none of the above cases the assessees have sold their entitlement of sales tax subsidy. Whereas in the present case the assessee has sold it sales tax benefit therefore, we have no hesitation to hold that what the assessee has received is sales consideration for the transfer of its sales tax entitlement and by any stretch of imagination we cannot accept the said consideration as sales tax incentive being capital in nature. After considering the facts as stated hereinabove, in our view, what the assessee has received is taxable as revenue receipt.
All the appeals relating to this issue are accordingly dismissed.
9. Before closing, in ITA No 772/Mum/2009 for A.Y. 2006-07, the assessee has raised one more issue relating to dis allowance of expenses under section 14A read with Rule 8D. It is now well settled that application of Rule 8D is prospective and is applicable w.e.f. 01.04.2008, as held by the Hon’ble Jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. 328 ITR 81. We accordingly restore this issue back to the file of the Assessing Officer with a direction to decide this issue afresh without applying Rule 8D.
Accordingly, ITA No. 772/Mum/2009 is partly allowed and all other appeal are dismissed.
