Income Tax Appellate Tribunal - Mumbai
Brijkishore Ramvilas Maniyar, Mumbai vs Assessee on 20 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "B",
MUMBAI
BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M)
ITA NO.8851/MUM/2010(A.Y. 2007-08)
Mr. Brijkishore Ramvilas Maniyar, The Dy. CIT, Cir.15 (1),
801-802, Shivtapi Apartment, Matru Mandir,
Goregaonkar Road, Vs. Opp.Bhatia Hospital, Tardeo,
Gamdevi, Mumbai 400 007 Mumbai .
PAN:AIEPM 7908B
(Appellant) (Respondent)
Appellant by : Shri A.K.Sharma
Respondent by : Shri Pravin Varma
Date of hearing : 20/12/2011
Date of pronouncement : 23/12/2011
ORDER
PER N.V.VASUDEVAN, J.M,
This is an appeal by the assessee against the order dated 29/11/2010 of CIT(A) -26, Mumbai relating to assessment year 2007-08. The ground of appeal raised by the assessee read as follows:
"1. On the facts and in the circumstances of the case and in law the order passed by the learned CIT(A) is arbitrary, unjustified and bad in law.
2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in rejecting the claim of the appellant that the central excise refund is a capital receipt and therefore not liable to be taxed.
3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the order of the assessing officer and holding that the central excise refund although is business income but is not a profit and gains derived from Industrial under 2 ITA NO.3832/MUM/2010&CO 43/M/2011 taking and hence the appellant is not entitled for deduction under section 801B.
4. (a) The above grounds are independent and without prejudice to one another.
(b) The assessee craves leave to add, delete, and alter/modify the above grounds of appeal."
2. The assessee is an individual. He is engaged in the business of manufacturing of IT based electronic products which is Public Address System. The assessee filed the return of income on 30/10/2007 showing the total income at Rs. 17,930/-. The assessee's unit of manufacturer of IT enabled public address system was located in Jammu, and was under the name and style Platinum I.T. Solutions( hereinafter referred to as PITS) and other unit located in the State of Sikkim under the name and style of Peninsula Technologies (hereinafter referred to as PT). The assessee maintained separate books of accounts of these two undertakings showing net profit at Rs. 10,12,51,571/- from the undertaking Platinum I.T. Solutions and Rs. 29,93,267/- from Peninsula Technologies. The assessee has claimed deduction of Rs.10,12,33,644/- u/s. 80 IB in respect of PITS and Rs. 29,93,267/- u/s. 80IB relating to PT. In this way total income was computed at Rs. 17,930/- paying NIL tax.
3. The AO examined the claim of deduction u/s.801B in respect of profits derived from industrial undertaking PITS and found from perusal of trading and Profit & Loss account, for the year ending 31:03:07 relating to PITS, that the assessee has shown credit of Rs.13,71,62,622/- on account of excise self credit representing the refund of excise duty, paid by the Excise Department. It was also noted from the Profit & Loss Account that the assessee has paid excise duty to the extent of Rs.12,88,70,880/- during the previous year relevant to the A. Y. 2007-08. The Assessee was called upon by the AO to give explanation regarding the claim of deduction u/s.801B with reference to the receipt on account of refund of excise self-credit vide order sheet 3 ITA NO.3832/MUM/2010&CO 43/M/2011 noting dated 30.10. 09. The assessee flied a detailed reply vide his letter dated 10/11/2009. The assessee submitted that they are manufacturing IT enabled public address system having unit at Jammu in the notified exempted area since 2004, claiming exemption under Notification 56/2002 dated 17/11/2002, as amended under Central Excise Act and are eligible to claim exemption u/s.801B of the Act. It was further stated that the claim of exemption in respect of excise duty, the Government has formalised methodology that the unit in JK/North Eastern States/Kutch will have to take CEN VAT credit on the inputs and to deposit the excise payable after giving credit of CEN VAT amount upon dispatch of finished goods and thereafter, before 7th of subsequent month, the unit has to file refund claim with the Central Excise Department of the same amount which this unit has deposited cash. The assessee tried to make a point that since the refund of excise duty is representing the excise duty paid, it has got direct nexus with the industrial activities, and therefore, it is "profit derived" from the industrial undertaking, which is eligible for deduction u/s.801B. The assessee has placed reliance on various decisions - CIT v/s. Siddharth Tubes Ltd. 296 ITR 221(MP), Aarti Industries Ltd. v/s. DCIT 95 TTJ 14 (Ahmedabad), Suresh Kuinar Bajoria v/s. ITO 113 TI] 364 (Jaipur) ACIT v/s Dharatnpal Premchand Ltd., 113 TTJ 290 (Delhi), CIT v/s. Madras Motors Ltd. 257 ITR 60 (Mad) and ACIT v/s. P S. Apparels, 101 TTJ 29 Chennai. The claim made by the Assessee may be summarised as follows: -
"1. That the excise duty paid or refunded is directly connected with the activities of the unit and therefore, the same forming part of the profits of the unit will not be taxable and will be exempt u/s.801B of the Act.
2. The crediting or debiting of the Profit & Loss A/c. in respect of the excise refund is only a mode of accounting the net result being as nil the refund and payment of identical sums.
3. There is no refund of excess excise duty paid but only refund of the amount actually paid.4 ITA NO.3832/MUM/2010&CO 43/M/2011
4. Such refunds not income as such, and even if it is income it is directly derived from the industrial unit. As such. if at all it is taxable, the same would b4e exempt under the provisions of S.80IB,
4. The AO rejected the claim of the assessee relying on the decision of the Hon'ble Supreme Court in the case of Liberty India vs. CIT, 317 ITR 218 (SC). According to the AO the refund of excise duty in view of Notification is more or less equivalent to DEPB or duty draw back benefit, where they were considered only as ancillary profit having got no first degree of nexus. Therefore, in his considered view, on the factual circumstances of the case the ratio of decision of Liberty India Ltd. vs. CIT was fully applicable to the case of the Assessee. Accordingly, the refund of excise duty received by the Assessee was brought to tax treating it as income and also income which cannot be considered as one derived from the Industrial Undertaking eligible for deduction u/s.80-IB of the Act.
5. Before CIT(A) the assessee made a submission that the Excise Duty refund received by the assessee is capital receipt and not chargeable to tax. The CIT(A) after referring to the decision of the Hon'ble Supreme Court in the case of Sahaney Steels Press Work, 228 ITR 253 (SC) and Ponni Sugar & Chemicals Ltd., 306 ITR 392(SC) was of the view that the receipt in question was a revenue receipt chargeable to tax. Such refund of excise duty collected and deposited by the assessee was given not for setting up of a new industrial undertaking or manufacturing units or for purchase of plants or machinery or for purchase of land or for development of area, but was given as incentive to come to a particular area for doing the business that too after start of manufacturing and selling out of excisable goods. Therefore, such incentive is obviously operational aid or Additional Profit or Separate benefit to the assessee which cannot be presumed to be capital receipt but an income or benefit which is undoubtedly a revenue receipts in nature. The CIT(A) was of the view that the contention of the Assessee that the 5 ITA NO.3832/MUM/2010&CO 43/M/2011 memorandum, dated 14th June, 2002 of the Government of India, under which the Assessee got the refund of excise duty did not have as its object the purpose of generation of employment. He held that the said memorandum offered a bunch of incentives, with mixed purposes underlying therein. The purposes of each incentive has to be judged in the context of each one of them with reference to the grantee provided by the Govt. as to how such scheme has helped the assessee. Some of the incentives available by the notification/memorandum are clearly in the capital field but other ones are in the form of financial concessions and for easy market access and commercial benefits. In the opinion of the CIT(A) on examination of the purpose for the grant of central excise duty refund, it was clear that it was obviously for the purpose of attraction and incentives whereby the recipient of such incentive is able to feel secured or safe from economic point of view. The CIT(A) held that the refund of the excise duty under Central excise Notification No. 56 of 2002 paid by the manufacturer is provided just to met out various challenges, difficulties or with a view to attract the manufacturer to a particular area instead of pre-occupied industrial area or developed area. Thus such exemption of duty gives commercial benefit to the assessee. The CIT(A) also referred to the following decisions rendered in the context of the very same scheme by the Amritsar Bench of the ITAT. In this background the Hon'ble Amritsar Bench of ITAT in the case of Vinodkumar Jain Prop. Of M/s. V.K.Metal Works Vs. ITO Ward 1(3) Jammu ITA No.180(ASR)/2009 dated 31/12/2009 and in the case of Shri Balaji Alloys vs. ITO and in the other case of Pee Ell Alloys vs. ITO (ITA No.209/Asr/2009, A.Y 2005-06); Ravenbhel Healthcare (P) Ltd. vs. ITO (ITA No.305/Asr/2009; A.Y 2005-06 and ITO vs. Ravenbhel Healthcare (P) Ltd. (ITA No.302/Asr/2009; A.Y 2005-06), wherein it was held that the receipt in question was a revenue receipt chargeable to tax.
6. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. Before us ld. Counsel for the assessee addressed arguments of 6 ITA NO.3832/MUM/2010&CO 43/M/2011 ground No.2 raised in the grounds of appeal. He brought to our notice that as against decisions of the Amritsar Bench referred to by the CIT(A), appeals were filed before the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys vs. JCIT & Others and the Hon'ble Jammu & Kashmir High Court has to deal with the following question of law.
"Whether the amount of EXCISE REFUND and INTEREST SUBSIDY received by the appellants-assessees, in pursuance to the incentives announced and sanctioned vide Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) Office Memorandum No.1(13)2000-NER dated 14.6.2002 and Central Excise Notification Nos. 56 and 57 dated 14.11.2002 and other Notifications issued on the subject, pertaining to the Industrial Policy introduced in the State of Jammu and Kashmir, is Capital Receipt and, thus, not liable to tax under the provisions of the Act, or Revenue Receipt, as opined by the authorities under the Act?"
The Hon'ble Court analyzed the entire scheme under which the excise refund in question was allowed in the light of the judicial pronouncements of the Hon'ble Supreme Court in the case of Sahney Steel (Supra), Ponni Sugars (supra) and M/s Mepco Industries Limited, Madurai vs. Commissioner of Income Tax and anr., 2009 (7) Supreme 564 and held as follows:
20) Therefore, in view of the clear legal position adumbrated by the Hon'ble Supreme Court of India on the issue in question, that to determine the nature and intent of the incentives as to whether those were Revenue Receipts or Capital Receipts, the purpose underlying the incentives was the determinative test, there may not be any necessity of referring to the judgments of other High Courts of the Country relied upon by the appellants' learned counsel, some of which had been considered by the Hon'ble Supreme Court of India in the above referred cases.
21) Thus, finding that the New Industrial Policy and other concessions for the State of Jammu and Kashmir has not been correctly appreciated by the Appellate Tribunal, we proceed to examine the true intent and purpose underlying the Policy and the Concessions contemplated by the Office Memorandum of June 14, 2002 and statutory notifications issued in this behalf.7 ITA NO.3832/MUM/2010&CO 43/M/2011
22) Perusal of the Office Memorandum dated 14.06.2002 indicating New Industrial Policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of Jammu and Kashmir. Amendment introduced to the Office Memorandum vide Notification of November 28, 2003 of the Government of India, Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) eloquently demonstrates the Central Government's intention in extending the incentives. The Government's objective, as conveyed by Hon'ble the Prime Minister at Srinagar on April 19, 2003, was, for creation of one lac employment and self employment opportunities in Jammu and Kashmir State.
23) To achieve the purpose and objective referred to herein above, it was, inter alia, provided in the Central Excise Notifications that the exemptions contained in the Notifications would be available only on production of Certificate from General Manager of the concerned District Industry Centre to the Jurisdictional Deputy Commissioner of the Central Excise or the Assistant Commissioner of Central Excise, as the case may be, to the effect that the unit had created Required Additional Regular Employment, which would not, however, include employment provided by the industrial units to Daily wagers or Casual employees engaged in the Units.
24) A close reading the Office Memorandum and the amendment introduced thereto with para No.3 appearing in the Central Excise Notification Nos.56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of employment, so contemplated, was not only casual or temporary; but was on the other hand, of permanent nature.
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 8 ITA NO.3832/MUM/2010&CO 43/M/2011 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, can not, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assesses 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-
assesses, cannot be construed as mere Production and Trade Incentives, as held by the Tribunal.
28) Making of additional provision in the Scheme that incentives would become available to the industrial units, entitled thereto, from the date of commencement of the commercial production, and that these were not required for creation of New Assets cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken, appears to have been intended to ensure that the incentives were made available only to the bonafide Industrial Units so that larger Public Interest of dealing with unemployment in the State, as intended, in terms of the Office Memorandum, was achieved.
29) The other factors, which had weighed with the Tribunal in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for Perpetual Employment, to eradicate the social problem of unemployment in the State by accelerated industrial development.
30) For all what has been said above, the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence Revenue Receipt, cannot be sustained, being against the law laid down by Hon' ble Supreme Court of India in Sahney Steel and Ponni Sugars cases (supra).
9 ITA NO.3832/MUM/2010&CO 43/M/201131) The finding of the Tribunal that the incentives were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the assesses.
7. The aforesaid decision of the Hon'ble Jammu & Kashmi High Court in respect of the very same scheme with which we are concerned in the present appeal, we are of the view that the receipt in question is capital receipt not chargeable to tax. Respectfully following the aforesaid decision, we hold that the receipt in question is capital receipt not chargeable to tax. In view of the above the question of allowing deduction under section 80 IB of the Act on the Excise Duty refund does not arise for consideration.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on the 23rd day of Dec. 2011.
Sd/- Sd/- (PRAMOD KUMAR ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated. 23rd Dec.2011
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"B" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.
10 ITA NO.3832/MUM/2010&CO 43/M/2011
Details Date Initials Designation
1 Draft dictated on 20/12/2011 Sr.PS/PS
2 Draft Placed before author 21/12/2011 Sr.PS/PS
3 Draft proposed & placed JM/AM
before the Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8 Date on which the file goes to
the Head clerk
9 Date of Dispatch of order