Sales Tax subsidy for expansion of assessee’s existing industry was capital income

DCIT Vs Emami Agrotech Limited (ITAT Kolkata)

Conclusion: Sales Tax subsidy received for expansion of assessee’s existing industry was capital in nature as the purpose of the same was for the expansion of the existing industry of assessee. Moreover, the amounts which were not taxable in the normal computation could not be included while computing the book profit because such amounts did not really reflect a receipt in the nature of income and could not form part of the book profit.

Held: Assessee had obtained incentive in the form of Sales Tax assistance in A. Y. 2013-14 as Industrial Promotional Assistance (IPA) under “The West Bengal Incentive Scheme (WBIS) 2004” issued vide Notification No. 134-CI/O/ Incentive/17/03/I dated 24.03.2004. The said incentive had been granted to encourage additional investments for setting up and/or expansion and modernization of the industrial undertaking located at the respective place to accelerate the development of the backward area of the State and to create large scale employment opportunities. The company had received sales tax assistance, being capital receipt, for expansion of existing industrial undertaking involving huge capital outlay.  The above incentives were set off against sales tax liability payable to Government and accordingly credited to profit and loss account in the books of accounts. Since the said incentives had been granted with the objective of setting up of industries in backward areas, the amount equivalent to sales tax exemption, availed during the year, would constitute capital receipts in the hands of the appellant and should not be taxable. However, while filing original as well as revise return of income, by an inadvertent error, the above amount being capital receipt which was credited to P&L was not excluded from computation of total income under the normal provisions as well as not excluded from Book Profit under section 1 15JB and had been offered to tax. The same was considered and excluded from Computation both under normal provision and under u/s 115JB through letter of modification in the return of income on 12.08.2015. AO did not accept the contention of assessee that the sales tax assistance given by State govt. as incentive was a Capital Receipt and not taxable, and he held it as a revenue receipt and did not allow the claim of assessee. It was held that subsidy in question received by assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee. Merely because the said subsidy was to be received by assessee only after the commencement of production would not change its character, which otherwise was capital in nature. Moreover, the amounts which were not taxable in the normal computation could not be included while computing the book profit because such amounts did not really reflect a receipt in the nature of income and could not form part of the book profit.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This is an appeal preferred by the Revenue against the separate order of the Ld. Commissioner of Income Tax(Appeals)-4, Kolkata dated 19.09.2019 and 20.09.2019 respectively for assessment year 2013-14 and 2014-15 respectively.

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