Case Law Details
ACIT Vs M/s Agro Life Science Corporation (ITAT Kolkata)
In the present case the amount of excise duty refund and interest subsidy was treated by the AO as revenue receipt subject to tax. The reason given by AO is that the impugned amount was given to assessee after the commencement of commercial Production. However, the Ld. CIT(A) reversed the order of AO on the ground that on identical facts and circumstances the Hon’ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys (supra) has treated the impugned receipt as capital in nature and accordingly not chargeable to tax.
Held by ITAT
The incentives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve Public Purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone.
Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in Industrial development, which is certainly a purpose in the Public Interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere Production and Trade Incentives, as held by the Tribunal.
In view of the above proposition, we hold that the incentives received by assessee in the form of excise duty refund and interest subsidy are capital in nature and accordingly not chargeable to tax.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-9, Kolkata dated 21.06.2016. Assessment was framed by ACIT, Circle-31, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.02.2016 for assessment year 2013-14. The grounds of appeal raised by the Revenue reads as follows:-
“1. ”That on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in allowing the amount of Rs.2,34,84,055/- and Rs.82, 192/- on account of Excise Duty refund and interest subsidy respectively as capital receipt.”
2. That the Ld. CIT(Appeals) has not taken into account the verdict in the following cases:
a) Sehanay Steel Pres Works Ltd. & Ors vs. CIT (1997) 228 ITR 253
b) Kesoram Industries & Cotton Ltd. vs. CIT (1991) 191 ITR 518
3. “Any other ground, appellant craves leave to submit on or before the hearing of appeal.”
Shri Arindam Bhattarchejee, Ld. Departmental Representative appeared on behalf of Revenue and Shri Sanjev Kedel, Ld. Authorized Representative appeared on behalf of assessee.
2. Solitary issue raised by Revenue is that Ld. CIT(A) erred in treating the amount of ₹2,34,84,055/- and ₹82,192/- towards excise duty refund and interest subsidy as capital receipt not chargeable to tax.
3. Briefly stated facts are that assessee is partnership firm and engaged in business of manufacturing & trading agro chemical products. The assessee is having its factory in the state of Jammu and Kashmir. The assessee as per Industrial Policy (2002-2005) applicable in the State of Jammu & Kashmir received the refund of excise/custom duty and interest subsidy for ₹2,35,84,055/- and ₹82,192/- which was claimed as capital receipt not chargeable to tax. The assessee submitted that refund of custom/excise duty and interest subsidy was given for the promotion of industry in the State of Jammu and Kashmir. Therefore, the subsidy received by its nature is of capital receipt not chargeable to tax. The assessee in support of its claim relied on the judgment of Hon’ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys vs. CIT (2011) 333 ITR 335 (J&K). However, Assessing Officer assumed that the incentive was given to the assessee for extending assistance in carrying out the business in more profitable and competitive manner after the commencement of commercial production. Therefore the same is in the nature of revenue subsidy and taxable under the Act. The AO also observed that no capital expenditure was incurred by assessee out of such incentive as discussed above. The amount of incentive given to assessee was available for the utilization as per its volition. In view of the above, AO held that the incentive received by assessee are chargeable as business receipt and accordingly added to the total income of assessee. Aggrieved, assessee preferred an appeal before Ld. CIT. The assessee before Ld CIT(A) submitted that the amount of subsidy was received by it in terms of Industrial Policy (2002-2015) which is on account of promotion of industry in the State of Jammu & Kashmir. Therefore, the same has to be treated as capital in nature. The assessee in support of its claim relied on various judgments as detailed under:-
a) Sahney Steel 7 Press Works Ltd. Vs. CIT [1997] 228 ITR 253 (SC)
b) Kesoram Industries and Cotton Mills Ltd. vs. CIT 191 ITR 734 (Cal) c) CIT vs. Dusad Industries 162 ITR 734 (MP)
Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO by observing as under:-
“4. Conclusion:
4.1 The issue of treatment of Excise Duty Refund and Interest subsidy has been considered by Hon’ble High Court (J & K) in the case of Shree Balaji Alloys (2011) 333 ITR 335 (J&K) and have been held to be capital receipt.
4.2 The Special Bench of Hon’ble ITAT in the case of Vinod Kumar Jain in It No.65 & 68 of 2010 (SB) held these receipts to be of capital nature.
4.3 in the case of a sister concern of appeal viz. Krihi Rasayan Exports Pvt. Ltd, the CIT(A)-XII, Kolkata has considered this issue for AYs 2010- 11, 2011-12 and 2012-13 and has held these receipts as capital receipts
4.4 in the case of DCIT v Gloster Jute Mills Lt. in ITA No. 766/Kol/2010, the Hon’ble ITAT has held similarly.
4.5 In view of thee judgment, the AO is directed to treat the Excise Duty Refund and Interest Subsidy as capital receipts.”
Aggrieved by the above finding of Ld. CIT(A), the Revenue is in appeal before the Tribunal.
5. Before us both parties relied on the order of Authorities Below as favourable to them.
6. We have heard the rival submissions made by the parties. We have also examined the orders passed by the Authorities Below and the judgments/ orders cited by the representatives of both the parties. In the present case the amount of excise duty refund and interest subsidy was treated by the AO as revenue receipt subject to tax. The reason given by AO is that the impugned amount was given to assessee after the commencement of commercial Production. However, the Ld. CIT(A) reversed the order of AO on the ground that on identical facts and circumstances the Hon’ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys (supra) has treated the impugned receipt as capital in nature and accordingly not chargeable to tax. The relevant extract of the judgment is reproduced below:-
“25. Considered thus, the paramount consideration of the Central Government in providing the incentives to the New Industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additionally creating opportunities for self-employment, hence a purpose in Public Interest.
26. In this view of the matter, the incentives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve Public Purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone.
27. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in Industrial development, which is certainly a purpose in the Public Interest, the incentives provided by the Office Memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere Production and Trade Incentives, as held by the Tribunal.”
The facts of the case on hand are exactly identical with the case law of Shree Balaji Alloys (supra). The judgment of the Hon’ble High court in the case of Balaji Alloys (supra) was subsequently confirmed by the Hon’ble Apex Court reported in Civil Appeal No.10061 of 2011 in the case of CIT, Jammu & Anr. vs. M/s Shree Balaji Alloys wherein the Hon’ble Supreme Court held as under:-
“The issue raised in these appeals is covered against the Revenue by the decision of this Court in “Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd. ”, reported in (2008) 9 SCC 337, or in the alternate, in “Commissioner of Income Tax vs. M/s Meghalaya Steels Ltd. ”, reported in (2016) 3 SCALE 192. The appeals are, therefore, dismissed.”
In view of the above proposition, we hold that the incentives received by assessee in the form of excise duty refund and interest subsidy are capital in nature and accordingly not chargeable to tax. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. We hold accordingly. This ground of Revenue’s appeal is dismissed.
7. In the result, Revenue’s appeal stands dismissed.
Order pronounced in the open court 04/04/2018
