Income Tax Appellate Tribunal - Chandigarh
Vardhman Acrylics Limited, Ludhiana vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A' CHANDIGARH
BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.283/CHD/2014
Assessment Year : 2007-08
M/s Vardhman Acrylics Ltd., Vs The A.C.I.T.,
Chandigarh Road, Circle 1
Ludhiana. Ludhiana.
P A N : A A A C V7 6 0 2E
(Appellant) ( R e s p on d e n t )
Appellant by : S h r i S u b h a s h A gga r w a l
Respondent by : S h r i R a j i n d e r S i n gh , D R
Date of Hearing : 1 2 . 0 5 . 2 0 14
Date of Pronouncement : 2 9 .0 5 . 2 0 14
ORDER
PE R S U S H M A C H O W L A , J M T h i s a p p e a l b y t h e a s s e s s e e i s d i r e c t e d a ga i n s t t h e o r d e r o f t h e Commissioner of In c o m e Tax ( A p p e a l s ) - II, Lu d h i a n a dated 1 0 . 0 1 . 2 0 14 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 a ga i n s t t h e o r d e r p a s s e d u n d e r s e c t i on 1 4 3 ( 3 ) o f t h e A c t .
2. T h e a s s e s s e e h a s r a i s e d t h e f o l l o w i n g gr o u n d s o f a p p e a l :
1. That the Order passed by the Ld.CIT(A) is contrary to law and facts of the case.
2. That the Ld. CIT (A) has erred in law and on facts while taxing the Sales Tax Subsidy amounting to Rs.12,58,32,691/- received from Government of Gujarat as the revenue receipt and not capital receipt as done by the appellant.
3. T h e l d . AR f o r t h e a s s e s s e e a t t h e o ut s e t p oi n t e d o u t t h at t h e i s s u e i n t h e p r e s e n t a p p e a l i s c o v e r e d a ga i n s t t h e a s s e s s e e i n v i e w o f 2 t h e r a t i o l a i d d o w n b y t h e T r i b u n a l i n a s s e s s e e 's o w n c a s e i n e a r l i e r ye a r s .
4. The ld. DR for the revenue placed reliance on the orders of the authorities below.
5. W e h a v e h e a r d t h e r i v a l c o n t e n t i on s a n d p e r u s e d t h e r e c o r d .
The issue arising in the present appeal is in relation to the treatment o f t h e s al e s t ax s ub s i d y. D u r i n g t h e ye a r u n d e r c o n s i de r a t i o n , t h e a s s e s s e e h a d r e c e i ve d s a l e s t a x s u bs i dy o f R s . 1 2 , 5 8 , 32 , 69 5 / - w h i c h w a s d e c l a r e d a s c a p i t a l r e c e i p t s i n t he c o m p u t a t i o n o f i nc o m e . The Assessing Officer show caused the assessee as to why the said r e c e i p t s s h o ul d n ot b e t r e a t e d a s r e v e n u e r e c e i p t s i n t h e ha n d s o f t h e a s s e s s e e i n v i e w o f t h e r a t i o l a i d d o w n b y t h e j u r i s d i c t i on a l H i gh C o u r t i n C IT V s A b h i s h e k In d u s t r i e s Lt d . 2 8 6 IT R 1 ( P & H ) . Reply o f t h e a s s e s s e e b e f o r e t h e A s s e s s i n g O f f i c e r i s i n c o r p o r a t e d a t p a ge s 2 t o 4 o f t h e a s s e s s m e n t o r d e r . T h e A s s e s s i n g O f f i c e r , t h er e a f t e r h a s go n e t h r o u gh t h e c l a i m s o f s u b s i d y g r a n t e d b y t h e G o v e r n m e n t o f G u j r a t a n d h a d h e l d t h e s a m e t o b e re v e n u e r e c e i p t s t ax a b l e i n t h e h a n d s o f t h e a s s e s s e e i n v i e w o f t h e r a t i o l a i d d o w n b y t h e H o n 'b l e P u n j a b & H a r ya n a H i gh C o u r t i n C IT V s A b h i s h e k In d u s t r i e s Lt d .
(supra).
6. W e f i n d t h a t t h e i s s u e o f t r e a t m e nt o f s a l e s t ax s u b s i d y i n t h e hands of the assessee arose before the Tribunal in IT A No. 7 7 3 / C hd / 2 01 2 M / s V a r d h m a n A c r yl i c s Lt d . V A d d l . C IT , Lu d h i a n a , A . Y . 2 0 0 6 - 0 7 w h e re i n v i d e o r d e r d a t e d 0 2 . 0 8 . 2 0 13 i t wa s h e l d a s under :
3. The issue raised in the present appeal is in relation to the assessability of sales tax subsidy received from the Government of Gujarat amounting to Rs.5,47,60,997/-.3
4. The brief facts relating to the issue are that the assessee was engaged in the manufacturing of acrylic fabric and had production unit at Jhagadia, District Bharuch in Gujarat. The assessee was eligible for sales tax exemption for 12 years under the new Incentive Policy
- Capital Investment Incentive to Premier/Prestigious Unit Scheme 1995-2000. The sale tax subsidy of Rs.5.47 crores received by the assessee were treated as capital receipt by the assessee in the revised return filed. The Assessing Officer asked the assessee to explain why the said sales tax subsidy should not be treated as revenue receipt in view of the judgment of the Jurisdictional High C o u r t i n C I T V s . A b h i s h e k I n d u s t r i e s [ 2 8 6 I T R 1 ( P &H )] .
The reply of the assessee is incorporated at pages 2 and 3 of the assessment order. The Assessing Officer compared the scheme of subsidy under the Gujarat Government with the scheme of subsidy under the Punjab Government and also considered the principle laid down by the Punjab & Haryana High Court in CIT Vs. Abhishek Industries (supra). The Assessing Officer took note of the ratio laid down by the Hon'ble Apex Court in M/s Sahney Steel & P r e s s W o r k s L t d . & O t h e r s V s . C I T [ 2 2 8 I T R 2 5 3 ( S C )] and also distinguished the ratio laid down by the Special Bench of Mumbai Tribunal in DCIT Vs. Reliance Industries Ltd. reported in 88 ITD 273 (SB)(Mum) and held that the nature of the sales tax subsidy was revenue and the same was to be included as income under the head 'income from other sources'.
5. The CIT (Appeals) upheld the order of the Assessing Officer in view of the ratio laid down by the Jurisdictional High Court in CIT Vs. Abhishek Industries (supra) and the order of the Tribunal in assessee's own case relating to assessment year 2005-06 in ITA No.232/Chd/2011 - order dated 25.11.2011.
6. The assessee is in appeal against the order of the CIT (Appeals). The learned A.R. for the assessee fairly pointed out that the issue of chargeability of sales tax subsidy was decided against the assessee in the preceding years following the ratio laid down in CIT Vs. Abhishek Industries (supra). However it was pointed out by the learned A.R. for the assessee that the legal position is uncertain and there are decisions of other High Courts and Jurisdictional Punjab & Haryana High Court under which the sales tax subsidy has been held to be capital receipts. Our attention was drawn to the scheme dated 11.9.1995 placed at pages 56 to 77 of the Paper Book and it was pointed out by the learned A.R. for the assessee that the subsidy was given for establishing new premier/prestigious units in the State of Gujarat. Clause 5(ii,(iv) and (x) lays down criteria of the industry which qualifies for the said scheme It was further pointed out by the learned A.R. for the assessee that the sales tax subsidy available to a unit established in Gujarat varies on account of the amount of investment and also the area where it was located. Certain conditions of the said 4 scheme as per the learned A.R. for the assessee were not there in any other scheme. One such condition was wherein the assessee had to contribute 2% of the sales tax incentives availed and 3% of deferred amount to Gokul Gram Yojna. Another condition prescribed was that unit availing the incentives under the scheme to employ 85% of the local persons as its employees. Further it was provided under the scheme that the unit shall reinvest an amount equal to 50% of the sales tax incentives granted under the scheme in new projects in the State within 15 years after commencing commercial production. The learned A.R. for the assessee pointed out that the unit established by the assessee was prestigious unit and registration certificate was granted on 18.5.2002 and the date of start of commercial production was 6.3.1999. The learned A.R. for the assessee referred to the ratio laid down by the Jurisdictional High Court in CIT Vs. Abhishek Industries (supra) and pointed out that the same is not binding precedent as the policy of the State Government of Punjab was not before the Hon'ble High Court and the entire case before the Hon'ble High Court moved in the absence of the policy, documents of state or industrial policy. It is pointed out by the learned A.R. for the assessee that for deciding the issue the scheme needs to be brought on record. Reliance was placed on the ratio laid down by the Hon'ble Calcutta High Court in C I T V s . R a s o i L t d . [ 3 3 5 I T R 4 3 8 ( C a l )] , w h i c h h a d considered the scheme and had also referred to the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Abhishek Industries (supra) and held that the Central subsidy received towards the cost of plant & machinery was a capital receipt. The learned A.R. for the assessee further placed reliance in CIT Vs. Sham Lal B a n s a l r e p o r t e d i n ( 2 0 1 1 ) 2 0 0 T a x m a n 1 4 ( P &H ) a n d C I T V s . S i y a R a m G a r g ( H U F ) ( 2 0 1 1 ) 2 3 7 C T R ( P &H ) 3 2 1 . Further reliance was placed on the ratio laid down by the Hon'ble Gujarat High Court in CIT Vs. Birla VXL reported in Tax Appeal Nos.316 to 318 of 2012 - judgment dated 12.2.2013, wherein the Hon'ble Court had considered the scheme of subsidy in the State of Gujarat and had held that in order to determine the character of subsidy in the hands of the recipient, purpose of the subsidy is to be considered and source of fund and mechanism of giving the subsidy was immaterial. The Hon'ble Court further held that where the scheme was principally aimed to cover capital outlay of the assessee for undertaking modernization of existing industry, it was capital in nature and it was not taxable in the hands of the assessee. The learned A.R. for the assessee pointed out that the scheme before the Hon'ble Gujarat High Court was for the modernization of existing unit.
7. Further contention of the learned A.R. for the assessee was that under the scheme formulated by the Government of Gujarat, there was no outflow of Government and the scheme was formulated to promote industrial growth in the State of Gujarat. The basic idea 5 was to establish units in the State in order to provide employment to the local person for which the Government formulated the scheme under which the sales tax was collected by the assessee, which was not deposited in the accounts of the Government. This incentive was given after start of the unit but the same could not be stated to be for running the unit, as per the learned counsel. The learned A.R. for the assessee placed reliance on the ratio laid down by the Hon'ble Supreme Court in Ponni Sugars & C h e m i c a l s L t d . V s . C I T [ 3 0 6 I T R 3 9 2 ( S C )] a n d p o i n t e d out that the purpose of the scheme was a policy enactment for the State and in order to determine the nature of subsidy granted, the purpose of the scheme was determining factor and timing of release of the amount under the scheme was irrelevant and even the source of such subsidy was irrelevant. The learned A.R. for the assessee further contended that the scheme of the Government of Gujarat which was being followed by the assessee was for a period of 12 years and the industrial policy formulated under the scheme had to be looked into to determine the purpose of the scheme. The learned A.R. for the assessee pointed out that both the decisions in Sahney Steel & Press Works Ltd. Vs. CIT (supra), Ponni Sugars & Chemicals Ltd. Vs. CIT (supra) did not differ that in order to determine the nature of subsidy the purpose for which it was given, was to be seen. Both the decisions of the Hon'ble Apex Court, however, differ on the issue of timing of release of the subsidy under the respective schemes. The learned A.R. for the assessee pointed out that under the scheme, the object of the scheme was to provide employment to the local persons and further 50% of the incentive was to flow back by way of investment in establishing new unit in the State of Gujarat itself, which was in addition to 2% of the amount to be donated to Gram Panchayat. It was further clarified by the learned A.R. for the assessee that the whole purpose for providing incentive after start of production was that the units should remain in production, make sales and earn revenue for the State and in this manner there was a bar on unscrupulous persons in claiming benefit of the subsidy. The learned A.R. for the assessee further placed reliance on the ratio laid down by the Full Bench of the Hon'ble Kerala High Court in CIT Vs. Rubi R u b b e r W o r k s L t d . [ 1 7 8 I T R 1 8 1 ( K e r ) ( S B )] a n d p o i n t e d out that the purpose had to be looked into in order to determine the nature and character of the grant. Further reliance was placed on the decision of the Hon'ble Calcutta High Court in CIT Vs. Balarampur Chini Mills [238 ITR 445 (Cal)] and Shree Balaji Alloys Vs. CIT [333 I T R 3 3 5 ( J &K )] , w h i c h i n t u r n h a d c o n s i d e r e d t h e r a t i o laid down by the Hon'ble Apex Court in Napco Industries L t d . V s . C I T [ 3 1 9 I T R 2 0 8 ( S C )] . T h e l e a r n e d A . R . f o r t h e assessee further pointed out that the Special Bench of Mumbai Tribunal in DCIT Vs. Reliance Industries Ltd. [88 I T R 2 7 3 ( S B ) ( M u m )] h a d c o n s i d e r e d t h e s c h e m e o f Maharashtra and held the incentives to be capital receipt. The scheme of the Government of Haryana was considered 6 in DCIT Vs. Maruti Suzuki India Ltd. in ITA No.2188/Del/2010 and the Tribunal had held the receipt to be capital receipt. Further reliance was placed on Napco Industries Ltd. Vs. CIT (supra).
8. The learned A.R. for the assessee concluded by stating that the Tribunal in the orders relating to the earlier years had merely followed the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Abhishek Industries (supra) and had not considered the factum of the scheme of State of Gujarat. The learned A.R. for the assessee pointed out that ground No.3 raised was purely without prejudice to the ground No.2 raised by the assessee that the subsidy received by the assessee arose in the course of business and the same was to be held as business income in the hands of the assessee. Reliance was placed on the ratio laid down by the Chandigarh Bench of the Tribunal in the case of Abhishek Industries Vs. JCIT in ITA No.321/Chd/2009 relating to assessment year 2004-05 - order dated 27.9.2011.
9. The learned D.R. for the Revenue pointed out that the issue raised vide ground No.2 in the present appeal is squarely covered by the ratio laid down by the Jurisdictional High Court in the case of CIT Vs. Abhishek Industries Ltd. (supra). It was further pointed out that the treatment of subsidy by the assessee in its books of account was also determinative as the assessee was treating it as revenue receipt. In respect of utilization of the scheme it was claimed by the learned D.R. for the Revenue that the same had to be offset against the objectives of the scheme i.e. payment of wages to the employees.
10. We have heard the rival contentions and perused the record. The issue in the present appeal is against the treatment of incentives granted to the assessee under the premium/prestigious unit scheme 1995-2000 of Gujarat. Admittedly similar sales tax subsidy was received by the assessee in assessment years 2003-04 to 2005-06 and the same was held as revenue in nature. The Tribunal in ITA Nos.592 & 824/Chd/2007 relating to assessment years 2003-04 and 2004-05 vide order dated 31.1.2008, following the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Abhishek Industries Ltd. (supra) had decided the issue against the assessee. The assessee is in appeal against the said order of the Tribunal and the matter is sub-judice before the Hon'ble Punjab & Haryana High Court. The appeal of the assessee before the Hon'ble Punjab & Haryana High Court in Income Tax Appeal Nos.632 & 633 of 2008 had been admitted vide order dated 15.12.2008. The assessee in assessment year 2005-06 had moved a declaration under section 158A(1) of the Act in Form No.8 pointing out that as identical question of law was pending before the Hon'ble High Court in the appeal relating to assessment years 2003-04 & 2004-05 and the decision in 7 the appeals pending before the Hon'ble High Court shall apply to the issues raised in assessment year 2005-06. The Tribunal in ITA No.232/Chd/2011 relating to assessment year 2005-06 vide order dated 25.11.2011 had directed the Assessing Officer to apply the ratio settled by the Hon'ble Punjab & Haryana High Court relating to assessment years 2003-04 & 2004-05 to the issues raised in the said appeal, on the receipt of the said judgment. The said directions were given by the Tribunal at the request of the assessee and after the report of the Assessing Officer that the questions of law raised in assessment years 2003-04 & 2004-05 before the Hon'ble Punjab & Haryana High Court were identical to the issue raised in the assessment year 2005-06.
11. The contention of the learned A.R. for the assessee now before us, however, is that the issue is covered in favour of the assessee in view of the ratio laid down by the Hon'ble Supreme Court in Ponni Sugars & Chemicals Ltd. Vs. CIT (supra) with regard to the taxability of incentives bestowed to new/extended sugar factory. It was pointed out by the learned A.R. for the assessee that the Hon'ble Apex Court in Ponni Sugars & Chemicals Ltd. Vs. CIT (supra) following the earlier decision of the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. (supra) had held that the subsidy received by the assessee was in the nature of capital receipt, since the object behind the same was setting up of new unit/expansion of existing business. Further reliance was placed on the decision of the Calcutta High Court in CIT Vs. Rasoi Ltd. (supra) pointing out that the taxability of the receipts given by way of subsidy, essentially boils down to the purpose for which the subsidy was granted. The contention of the assessee was that the purpose of granting exemption from sales tax for a fixed period of time, in the facts of the present case, was clearly to provide incentives for establishment of new industry in the underdeveloped region of the State. As the intention was not to increase the profitability of the eligible unit, the said incentive received by the assessee was capital receipt not liable to tax. Further it was pointed out by the learned A.R. for the assessee that the facts of the present case are squarely covered by the recent decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Birla VXL (supra), which while adjudicating the issue of taxability of subsidy granted under the scheme had held that the subsidy granted for the development of industries in underdeveloped areas was principally aimed to cover the capital outlay of the eligible unit and was capital receipt. Further reliance was placed on the ratio laid down in DCIT Vs. Maruti Suzuki India Ltd. (supra) and Shree Balaji Alloys Vs. CIT (supra). The learned A.R. for the assessee pointed out that the decision of the Hon'ble Punjab & Haryana High Court in CIT Vs. Abhishek Industries Ltd.
8(supra) was not applicable to the facts of the present case. It was further pointed out that the Hon'ble Punjab & Haryana High Court in the succeeding decision in CIT Vs. Sham Lal Bansal, Income Tax Appeal No.472 of 2010 (supra) and CIT Vs. Sia Ram Garg (HUF) (supra) had held the subsidy received by the assessee therein to be capital receipt.
12. We find that the issue raised before us is sub-judice before the Hon'ble Punjab & Haryana High Court in assessee's own case in assessment years 2003-04 & 2004-
05. The issue is also pending in assessment year 2005-06. The Tribunal in assessee's own case in earlier years vide order dated 31.1.2008 had decided the issue against the assessee which is now subject matter of appeal before the Hon'ble High Court. The learned A.R. for the assessee vehemently stated that the facts of the case were squarely covered by the decision of the Hon'ble Gujarat High Court in CIT Vs. Birla VXL (supra) wherein it is held that the subsidy granted under the scheme was for capital outlay of the unit. In the written submissions filed, the learned A.R. for the assessee has also pointed out that the scheme before the Hon'ble High Court was the Sales Tax Scheme predeceasing the scheme under consideration, which scheme is not before us. The learned A.R. for the assessee has failed to point out the contents of the earlier scheme of State of Gujarat and whether the scheme under consideration for the year under appeal is similar to the earlier scheme of State of Gujarat. In the absence of the same, we find no merit in the reliance placed upon the decision of the Hon'ble Gujarat High Court in CIT Vs. Birla VXL (supra) and the plea of the assessee that the facts of the case are squarely covered by the said decision. I t m a y a l s o b e b ro u g h t o n re c o rd t h a t t h e a s s e s s e e i t s e l f i n t h e p re c e d i n g y e a r i . e . a s s e s s m e n t y e a r 2005-06 had filed a declaration under section 158A(1) of the Act and it was pointed out that the issue was identical to the issue raised in assessment years 2003-04 and 2004- 0 5 , w h e re t h e a p p e a l o f t h e a s s e s s e e w a s p e n d i n g b e f o re t h e H o n ' b l e H i g h C o u r t . R e q u e s t w a s m a d e b e f o re u s t o apply the decision of the Hon'ble High Court in assessment years 2003-04 and 2004-05 to the issue raised in assessment year 2005-06. In view of the above said f a c t s a n d c i rc u m s t a n c e s a n d re s p e c t f u l l y f o l l o w i n g t h e e a r l i e r o rd e r o f t h e Tr i b u n a l i n a s s e s s e e 's o w n c a s e , w e c o n f i r m t h e o rd e r o f t h e C I T ( A p p e a l s ) i n h o l d i n g t h a t t h e s a l e s t a x s u b s i d y re c e i v e d b y t h e a s s e s s e e i s re v e n u e i n n a t u re . T h e g ro u n d N o s . 1 a n d 2 r a i s e d b y t h e a s s e s s e e a re t h u s d i s m i s s e d .
97. T h e s a i d o r d e r o f t h e T r i b u n a l w a s f o l l o w e d i n a s s e s s e e 's o w n c a s e r e l a t i n g t o a s s e s s m e n t ye a r 2 0 1 0 - 1 1 i n IT A N o . 9 1 1 / C h d/ 2 0 13 v i d e o r d e r d a t e d 2 0.0 1 . 2 0 1 4 .
8. T h e i s s u e r a i s e d b ef o r e u s i s i d e nt i c a l t o t h e i s s u e b e f o re t h e T r i b u n a l i n a s s e s s ee 's own case and following the same parity of r e a s o n i n g, w e h o l d t h a t t h e s a l e s t a x s ub s i d y r e c e i v e d b y t h e a s s e s s e e is assessable in the hands of the assessee as revenue receipt. The gr o u n d o f a p p e a l r a i s e d b y t h e a s s e s s e e i s t hu s , di s m i s s e d .
9. In t h e r e s u l t , t h e a pp e a l f i l e d b y t h e a s s e s s e e i s d i s m i s s e d .
O r d e r p r o n o u n c e d i n t h e o p e n C o u r t o n 2 9 t h M a y, 2 0 1 4 .
Sd/- Sd/-
( T. R . S O O D ) ( S U S H M A C H O W LA )
A C C O U N TA N T M EM B E R J U D IC IA L M E M B E R
D a t e d : 2 9 t h M a y, 2 0 1 4
'Poonam'
Copy to:
The Appellant, The Respondent, The CIT(A), The CIT,DR Assistant Registrar ITAT,CHD.