Income Tax Appellate Tribunal - Jaipur
Shree Cement Limited, Beawar vs Acit, Ajmer on 28 December, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 162/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2012-13
Shree Cement Limited cuke Assistant Commissioner of Income
Bangur Nagar, Vs. Tax, Circle-2,
Post Box No. 33 Central Revenue Building, Ajmer,
Beawar, Rajasthan Rajasthan
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCS8796G
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA. No. 181/JP/2016
fu/kZkj.k o"kZ@Assessment Years : 2012-13
Assistant Commissioner cuke Shree Cement Limited
of Income Tax, Vs. Bangur Nagar,
Circle-02 Post Box No. 33
Ajmer Beawar, Rajasthan
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCS8796G
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA. No. 178/JP/2016
fu/kZkj.k o"kZ@Assessment Years : 2013-14.
Shree Cement Limited cuke Assistant Commissioner of Income
Bangur Nagar, Vs. Tax,
Post Box No. 33 Circle-02
Beawar, Rajasthan Ajmer
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCS8796G
vihykFkhZ@Appellant izR;FkhZ@Respondent
2 ITA No. 162, 181, 178 & 182/JP/2016
Shri Cement Limited, vs. ACIT, Ajmer
vk;dj vihy la-@ITA. No. 182/JP/2016
fu/kZkj.k o"kZ@Assessment Years : 2013-14.
Assistant Commissioner cuke Shree Cement Limited
of Income Tax, Vs. Bangur Nagar,
Circle-02 Post Box No. 33
Ajmer Beawar, Rajasthan
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCS8796G
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Shri Vijay Shah (C.A.)
jktLo dh vksj ls@ Revenue by : Shri Varindra Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 26/10/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 28/12/2017
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the assessee and the Revenue directed against the orders passed by ld. CIT(A), Ajmer dated 09.12.2015 for A.Y. 2012-13 & 2013-14 respectively. Given the similarity of facts and common grounds of appeal involved in all these cases, all these appeals were heard together and are being disposed off by this consolidated order.
2. For Assessment Year 2012-13, respective grounds of appeal taken by the assessee and the Revenue are as under:
ITA No. 162/JP/2016 (Ground of Assessee's appeal):i) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was not justified and erred in law in confirming the 3 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer disallowance u/s 80-IA by Rs. 47,70,86,078/- by making adjustment in the transfer price of power captively consumed.
ii) That on the facts and in the circumstances of the case the ld.
CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the AO on account of Education Cess amounting to Rs. 1,42,79,859/-.
iii) That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and erred in confirming the disallowance made by the AO on account of profit on sale of investment amounting to Rs. 1,76,22,643/- & profit on sale of fixed assets amounting to Rs. 1,18,52,588/- while computing book profit u/s 115JB of the Act."
ITA No. 181/JP/2016 (Ground of Revenue's appeal):"In view of the facts and circumstances of the case, the Ld. CIT(A), Ajmer has erred in :
i) Deleting the disallowances made by the AO on account of sales tax subsidy by treating the amount of Rs. 31,86,07,921/- as capital receipts instead of revenue receipt;
ii) Deleting the disallowance made by the AO on account of sales tax subsidy by treating the amount of Rs. 31,86,07,921/- as capital receipt and the same is not includible in the book profit u/s 115JB of the IT Act, without appreciating the facts of the case.
3. Regarding ground No. 1 of assessee's appeal, briefly the facts of the case are that the deduction u/s 80-IA was claimed by the assessee on its power undertakings i.e, 42MW unit at Beawar, 72MW unit at Ras & 25 MW GPP at Ras amounting to Rs. 1,79,79,51,830/-. For computing the profitability of units captively consumed, market value or arm's Length rate was considered at annual average landed cost (AALC) of 4 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer electricity purchased from the Grid for its Jaipur unit i.e. Rs. 6.51 per unit.
3.1 The AO has reduced the claim of the assessee by Rs. 47,70,86,078/- by adopting transfer price at Rs. 5.36 per unit based on annual average landed cost of electricity purchased from the Grid by all units of the assessee located in Rajasthan (i.e Khushkhera, Suratgarh and Jaipur) on the contention that transfer price as adopted by the assessee does not reflect fair market value as it is based on power purchased from one unit only.
3.2 The ld. CIT(A) affirmed the disallowance made by the AO on the contention that Jaipur unit for which AALC has been adopted by the assessee does not represent relevant geographical area where the eligible undertaking of the assessee is situated. Since the eligible undertaking is situated in the state of Rajasthan, AALC computed on the basis of power purchased by all the three cement units (i.e Khuskhera, Suratgarh and Jaipur) which is located in the state of Rajasthan shall constitute the fair market value in terms of explanation to Section 80IA(8) of the Act. Now, the assessee company is in appeal before us against the said findings of the ld CIT(A).
4. During the course of hearing, the ld AR submitted that issue is squarely covered in favour of assessee by the decision of the Tribunal in the assessee's own case for AY 2007-08 to AY 2009-10 vide order dated 27.01.2014 wherein it has been held that:
• Value at which state grid has sold power to the cement unit of the assessee constitutes market value in terms of Explanation to Sec. 80IA(8) 5 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer • Where a basket of 'market values' are available for relevant period and relevant geographical area where the eligible unit is situated, the assessee has discretion to adopt any one of them as 'Market Value' • If the value adopted by assessee is market value, it is not permissible for revenue to recompute the profit & gains of the eligible unit by substituting it with any other Market Value.
It was submitted that the above view has also been again upheld by the Tribunal in assessee's own case for AY 2010-11 vide order dated 27.04.2016.
5. It was submitted that the fact of the present case is similar to AY 2010-11. In the said year, transfer price rate was adopted by considering rate of sale of power through one of the mode. However, AO adopted the rate by considering average of sale to all the mode.
Similarly in the present case, rate has been adopted by considering AALC of one of the unit whereas AO adopted the rate by considering average of AALC of all the units. Hence disallowance made in present case needs to be quashed since Departmental appeal has been dismissed in AY 2010-11 by stating that as long as the assessee has adopted a 'Market Value' as the transfer price, it is sufficient compliance of law. Substitution of another market rate by the AO is not permissible.
6. It was submitted that only contention of CIT(A) is that the Tribunal order of earlier year is not applicable since in the present case, market value adopted of Jaipur unit does not represent relevant 6 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer geographical area. The said fact does not hold good since the eligible power units of assessee is situated at Beawer & Ras which is in Rajasthan and AALC of Jaipur unit adopted also falls under the same geographical area of Rajasthan as assessee's eligible units.
It was submitted that the said contention of CIT(A) is contradictory to the fact that the CIT(A) itself in Para 5.4 III has considered AALC of Jaipur, Suratgarh & Khushkhera (by stating Rajasthan as the geographical area) after considering the fact that eligible power units is not located in any of the said areas.
7. It was submitted that Sec. 80IA(8) only refers to adoption of market value as the open market rate or arm's length price. It does not require to compute market price by averaging of all the rates available. Hence, rate adopted by CIT(A) by computing average of all the units cannot be justified.
8. The ld. AR has further submitted that the above view of the Tribunal has been affirmed and matter has since been decided by the Hon'ble Rajasthan High Court in assessee's own case (in D.B. ITA No. 85/JP/2014 dated 22/08/2017) wherein the Hon'ble High Court has held as under:-
"24. The issue no. 2 is with regard to the claim of the assessee for the value of the goods or services for the purposes of section 80IA(8).
25. In view of the submissions made by Mr. S. Ganesh, price which has been given to the sister concern is to be determined on the basis of principle laid down by the Supreme Court in case all 7 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer the four conditions are fulfilled as stated in his submissions and more so the Tribunal has given the finding which reads as under:-
"10. We have heard the rival submissions and perused the evidence on record. We have also gone through the facts of the case, assessment order, order of CIT(Appeals), the principles and the judicial decisions relied upon and documents produced by both the parties. At the outset, we find that the revised return filed by the Assessee has been accepted by the AO by clear finding in the Assessment Order. Once revised return is validly filed & accepted, the original return is non-est as it is completely substituted by the revised return. Now let us deal with 'Market Value'. On perusal of the assessment order & all other records, we find that facts with regard to adaptation of 'market value' clear. The assessee has adopted a 'value' which is market value and the department has substituted the same by another value. The department is contending that the 'market value' as adopted by AO is the most appropriate since it represents price charged by the State Grid to various customers including the assessee. Hence, the same should be considered. The AR of the assessee submits that the value adopted by assessee represents 'market value' since it is based on real transactions between unrelated parties and the details for the same are available in public domain. The issue before us is whether in such situations where there are two or more market values available and if the Assessee has adopted a 'value' which is 'market value', whether it is permissible for the Revenue to still replace the same by another 'market value'.......
11. At this stage, it is necessary to refer to the relevant provisions of the Act i.e. Sec 80IA(8), which states that-
"Where any goods or services held for the purposes of the eligible business are transferred to any other business 8 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date "Explanation - For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market."
12. On perusal of the above, it could be clearly seen that the statute provides that the assessee must adopt 'Market Value' as the transfer price. In the open market, where a basket of 'Market Values' [say like, independent third party transactions, grid price (average annual landed cost at which grid has sold power to the assessee), Power exchange Price for the relevant period etc.] are available, the law does not put any restriction on the assessee as to which 'Market Value' it has to adopt, it is purely assessee's discretion. So long as the assessee has adopted a 'Market Value' as the transfer price, that is sufficient compliance of law. AO can adopt a different value only where the value adopted by assessee does not correspond to the 'market value'. Even if assessee's Cement Unit has purchased power, also from the Grid or that assessee's Power Unit has also partly sold its power to grid or third parties that by itself, does not compel the assessee or permit the Revenue, to adopt only the 'grid price' or the price at which the Eligible Unit has partly sold its power to grid or third parties, as the 'market value' for captive consumption of power to compute the profits of the eligible unit. Any such 9 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer attempt is clearly beyond the explicit provisions of section 80IA(8) of the Act. Underlying principles forming the basis of our findings given here in before in this order are also supported by the decision of Special Bench of Hon'ble Bangalore Tribunal in Aztec Software & Technology Services Ltd. vs. ACIT [2007] 107 ITD 141 [Bang] [SB] as well as Mumbai Tribunal decision in the case of ACIT vs. Maersk Global Service Centre (1) Pvt. Ltd [2011] 133 ITD 543 [Mum] wherein while interpreting the Transfer Pricing provisions, the courts have held that it is the assessee who is the best judge to know the transactions undertaken & thus finding out the comparable cases from the vast database available in the public domain. Once the assessee has adopted the same, the AO has to examine whether the same is market price or not. AO has the power to adopt the market price only when the price adopted by the assesee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also substantial and hence it cannot be said that the assessee has hand picked some transactions, which are beneficial to it. The DR submitted that since the assessee has itself drawn power from the grid, the grid rate represents the 'best market value' & hence the same should only be adopted. We are not agreeable to the above contention of the department. No doubt the grid rate is market value but there is no concept of 'best' market value in law. If by using the said adjective, Revenue seeks to infer that grid rate is the only market value in the present context, such inference is also clearly not tenable. Further, in case there are options, the option favorable to the Assessee is to be adopted. This is a well settled principle of law laid down by the courts time and again including Supreme Court in the 10 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer case of CIT vs. Vegetable Products Ltd. [1973] 88 ITR 192 [SC] and other High Courts as pointed out by the AR.
13. In the light of the aforesaid, we hold that-
(a) the value adopted by the Assessee be it value as per independent third party trading transactions or as per Power Exchange (IEX etc.) or any other independent transaction (for the relevant period and which has taken place in the relevant area where the eligible unit is located) constitute 'market value' in terms of explanation to Section 80IA(8);
(b) the value at which State Grid has sold power to the Cement Unit of the Assessee (average annual landed cost) also constitute 'market value' in terms of explanation to Section 80IA (8) but the value at which State Grid or third party has purchased power from the Power Unit of the Assessee, which represents its power which is sold when no required by the Cement Unit, does not constitute 'market value' in terms of explanation to Section 80IA(8). It is the 'principle' and not the 'quantum' which is deciding factor;
(c) where a basket of 'market values' are available for the relevant period and relevant geographical area where the eligible unit is situated, then assessee has discretion to adopt any one of them as market value; and
(d) If the value adopted by the assessee is 'market value' as explained above, it is not permissible for Revenue to recomputed the profits & gains of the eligible unit by substituting the said value (as adopted by the Assessee) by any other 'market value'.
14. Accordingly, we delete the disallowance as made by the AO in order u/s 143(3) on account of deduction u/s 11 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer 80IA of the Act and hence the grounds 1 & 2 are accordingly decided in favour of the assessee."
27. The said issue is also covered in favour of the assessee."
9. We have heard the rival contentions and purused the material available on record including the findings of the AO, the ld CIT(A), the orders passed by the Coordinate Benches in the earlier years and the decision of the Hon'ble Rajasthan High Court wherein the view taken by the Coordinate Benches have been affirmed.
10. In the instant case, we find that both the authorities below as well as the assessee has not taken into consideration the provisions of section 80A(6) which has been brought on the statue books by the Finance Act, 2009 and which overrides the provisions of section 80IA(8) of the Act. Unlike section 80IA(8) which defines market value commonly for both sale and purchase by the eligible undertaking, section 80A(6) provides for separate market value with reference to sale and purchase by the eligible undertaking. Another fundamental change which has been brought-in is that the market value is made subject to statutory or regulatory restrictions, if any. In the context of present case where electricity has been generated and captively consumed, determination of the market value for claiming tax exemption has been aligned with the regulatory mechanism in terms of Electricity Act 2003 and related tariff regulations where the rate at which the electricity is supplied by the generating company to the distribution company is not the same at which the electricity is supplied by the distribution company to the consumers. The assessee company 12 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer has determined the market value at annual average landed cost of electricity purchased from the Grid for its Jaipur unit i.e. Rs. 6.51 per unit whereas the AO has determined the market value at Rs. 5.36 per unit based on annual average landed cost of electricity purchased from the Grid by all units of the assessee located in Rajasthan. In our view, the basis on determination of market value both by the assessee and the Revenue is not in consonance with provisions of section 80A(6) of the Act. What has to be determined is the rate at which the electricity would have been supplied by the captive unit to the Grid and not the rate at which assessee has purchased or would have purchase the electricity from the Grid. And the rate at which the electricity would have been supplied by the captive unit to the Grid should be the rate as determined by relevant regulatory and tariff authority as constituted under the relevant Electricity Act.
11. The abovesaid issue has been dealt at length by us (speaking through one of us) in case of M/s Chambal Fertilizers & Chemicals Limited vs CIT (ITA No. 459/JP/12 & others dated 28.10.2016) and relevant discussion is reproduced as under:
"52.2 Now, coming to determination of the market value of the electricity generated and supplied by the captive power plant, the assessee took this value equal to Rs. 4.52 per unit on the basis that assessee was purchasing power from Jaipur Vidhyut Vitran Nigam Ltd. at this price (excluding taxes). Even as per the annual report of CERC, average sale price of electricity was Rs. 4.52 per KWH. However, as per ld CIT(A), the average purchase price of electricity at Rs. 4.48 per 13 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer KWHas per the annual report of CERC can be taken as sale price in open market.
In order to appreciate the matter in right perspective, it would be relevant to refer to the provisions of section 80IA(8) and the explanation thereto which reads as under:
(8) Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date :
Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.
Explanation.--For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market 14 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer We also refer to the amendment brought in by the Finance Act, 2009 in section 80A of the Act where sub-section 6 has been specifically brought on the statue book by the legislation which reads as under:
Amendment of section 80A.
29. In section 80A of the Income-tax Act,--
(a) after sub-section (3), the following sub-sections shall be inserted, and shall be deemed to have been inserted with effect from the 1st day of April, 2003, namely:--
'(4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C-Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.--Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.';
(b) after sub-section (5) as so inserted, the following sub-
section shall be inserted, namely:--
15 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer '(6) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C-Deductions in respect of certain incomes", where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date.
Explanation.--For the purposes of this sub-section, the expression "market value"--
(i) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any;
(ii) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any.16 ITA No. 162, 181, 178 & 182/JP/2016
Shri Cement Limited, vs. ACIT, Ajmer We now refer to the Notes to the clauses to the Finance Bill 2009 and the relevant notes in relating to section 80A(6) reads as under:
"The proposed sub-section (6) provides that notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of Chapter VIA under the heading "C-Deductions in respect of certain incomes", where any goods or services held for the purposes of the undertaking or unit or enterprise or eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the undertaking or unit or enterprise or eligible business and, the consideration, if any, for such transfer as recorded in the accounts of the undertaking or unit or enterprise or eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. The Explanation as proposed in the said sub-section provides that (i) in relation to any goods or services sold or supplied, market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any;
(ii) in relation to any goods or services acquired, market value means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the 17 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer open market, subject to statutory or regulatory restrictions, if any. The said Explanation is clarificatory in nature. This amendment will take effect retrospectively from 1st April, 2009."
We now refer to the Memorandum explaining the Finance Bill 2009 and in particular, introduction of section 80A(6) of the Act which reads as under:
"Amendment in Chapter VIA to prevent abuse of tax incentives:
The profit linked deductions in Chapter VIA are prone to considerable misuse. Further, since the scope of the deductions under various provisions of Chapter VIA overlap, the taxpayers, at times, claim multiple deductions for the same profits.
With a view to preventing such misuse, it is proposed to amend the provisions of section 80A of the Income-tax Act to provide the following, namely :--
(i) deduction in respect of profits and gains shall not be allowed under any provisions of section 10A or section 10AA or section 10B or section 10BA or under any provisions of Chapter VIA under the heading "C.-Deductions in respect of certain incomes" in any assessment year, if a deduction in respect of same amount under any of the aforesaid has been allowed in the same assessment year;
(ii) the aggregate of the deductions under the various provisions referred to in (i) above, shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business, as the case may be;18 ITA No. 162, 181, 178 & 182/JP/2016
Shri Cement Limited, vs. ACIT, Ajmer
(iii) no deductions under the various provisions referred to in (i) above, shall be allowed if the deduction has not been claimed in the return of income;
These amendments will take effect retrospectively from the 1st April, 2003, and will accordingly apply in relation to assessment year 2003-04 and subsequent years.
Further it is also proposed to amend section 80A to provide that the transfer price of goods and services between the undertaking or unit or enterprise or eligible business and any other undertaking or unit or enterprise or business of the assessee shall be determined at the market value of such goods or services as on the date of transfer.
Further, the expression "market value" has been defined to mean,--
(a) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any;
(b) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any.
This amendment will take effect from 1st April, 2009 and will accordingly apply to all cases where the proceedings are pending before any authority on or after such date.
19 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer Further, with a view to preventing the misuse of the tax holiday under section 80-IA of the Income-tax Act, it is proposed to amend the Explanation to the said section to clarify that nothing contained in the said section shall apply in relation to a business referred to in sub- section (4) of the said section which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an undertaking or enterprise referred to in sub-section (1) thereof.
This amendment will take effect retrospectively from 1st April, 2000 and will, accordingly, apply in relation to assessment year 2000-01 and subsequent years."
The provisions of section 80A(6) provides that notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C-Deductions in respect of certain incomes", the provisions of section 80A(6) will apply. In the instant case, it will thus override the provisions of section 80IA(8) read with the explanation. Secondly, it is provided that the said amendment has been brought on the statue books with effect from 1st April, 2009 and will accordingly apply to all cases where the proceedings are pending before any authority on or after such date. Unlike other amendments such as amendment by way of insertion of section 80A(4) and section 80A(5) which has been made effective from the 1st April, 2003, and will accordingly apply in relation to assessment year 2003-04 and subsequent years, the amendment by way of insertion of sub-section 6 to section 80A has been made effective from 20 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer 1st April, 2009 and it will apply to all cases where the proceedings are pending before any authority on or after such date. In the instant case, the return of income was originally filed on 30.09.2008, notice u/s 143(2) was issued on 3.9.2009, assessment order was thereafter passed on 31.12.2010 and subsequently, the order of the ld CIT(A) was passed on 30.03.2012. Accordingly, the proceedings for the impunged assessment year were pending before the Assessing officer and the provisions of section 80 A(6) will apply in the instant case.
It is however noted that the authorities below have not examined the matter after taking into consideration the provisions of section 80A(6) of the Act. As we have stated above, the provisions of section 80A(6) will override the provisions of section 80IA(8) read with the explanation thereto. If we examine and compare the provisions of section 80IA(8) and 80A(6), it is noted are as follows:
1) Unlike section 80 IA(8), section 80A(6) starts with non obstante clause and provides that notwithstanding anything contrary contained in chapter VI-A, application of arm's length price is mandatory for computing profits eligible for deduction, of the eligible unit.
2) Market value, in section 80-IA(8) is defined commonly both for transfer and acquisition by the eligible unit. Section 80A(6) provides for separate market value with reference to transfer or acquisition by the eligible unit.
3) Determination of market value is made subject to statutory or regulatory restrictions, if any.21 ITA No. 162, 181, 178 & 182/JP/2016
Shri Cement Limited, vs. ACIT, Ajmer In this context, it would be relevant to refer to decision of the Hon'ble High Court of Calcutta in case of Commissioner of Income-tax, Kolkata - III vs. ITC Ltd [2016] 7 ITR OL 166 (Cal) where the Hon'ble High Court has held as under:
"17. We have considered the submission advanced by Mr. Khaitan but we are unable to agree with him. The benefit under Section 80-IA was intended to encourage the business of generating power. An entrepreneur who wants to avail the benefit of Section 80IA cannot hope to get any benefit more than what has been contemplated by the Act. It was a fortuitous circumstance that the entrepreneur in this case has a home consumption of electricity which any other entrepreneur engaged in the generation of electricity would not have. But that cannot be a reason why two entrepreneurs engaged in the same business will get benefit at rates computed differently. In order to avoid any such discrimination, the legislature has taken care to provide that the price which can be charged has to be the same, which electricity would fetch in the open market. It is true that at the relevant point of time the explanation added to sub-section 8 of Section 80-IA quoted above was not there in the statute. But this fact by itself does not advance the case of the assessee because what was already there during the relevant assessment year reads as follows:--
'Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.' 22 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer Clause 2 to the explanation has been added to clarify what was obvious already. The assessing officer was correct in the view he took that the assessee can compute the price of the electricity sold to the paper unit at the market rate and for that purpose he also gave an opportunity to adduce evidence to the assessee. The assessee did not, however, avail the same and contented itself by disclosing the price at which power was purchased by the paper unit of the assessee from the Andhra Pradesh State Electricity Board. The rate at which electricity was purchased from Andhra Pradesh State Electricity Board by the paper unit of the assessee can by no means be the market rate at which the power plant of the assessee could have sold its production in the open market. In the open market the buyer would obviously be a distribution company or a company engaged both in generation and distribution. Therefore, the rate at which electricity is sold to any such company can only be the market rate contemplated by the section. The judgment in the case of Thiru Arooran Sugars Ltd. (supra) has no manner of application for the simple reason that the Court in that case was concerned with the question as to the market value of sugarcane grown by the assessee at home. The Supreme Court was of the opinion that the sugarcane grown at home would be deemed to have been sold to the sugar mill at the same rate at which sugar cane was purchased by the sugar mill. That obviously is correct because if the sugarcane grown at home had not been sold to the sugar mill of the assessee itself, the sugarcane would have been sold in the open market. The 23 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer rate of sale in the open market would be the same at which sugarcane was purchased by the sugar mill of the assessee. But in the case before us the electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution.
The rate at which electricity could have been sold to any such company is not the same at which such companies sale electricity to the consumers. The rate at which electricity can be supplied to a consumer by the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by Sections 61 and 62 of the Electricity Act 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There are provisions in Section 62 so that the generating companies can recover expected revenue on the basis of the tariff fixed by the commission. There are similarly provisions in Section 61 so that the distribution licensee can derive reasonable return. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees. The assessee's generating unit cannot as such claim any benefit under Section 80-IA of the I. T. Act computed on the basis of rates chargeable by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulation commission for sale of electricity by the generating companies."
24 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer The above decision of the Hon'ble High Court though has been rendered in the context of section 80IA(8) read with the explanation, to our mind, it resonates the intent behind introduction of section 80A(6) of the Act and Electricity Act, 2003, and should therefore be considered as a guiding precedent while determining the arm's length pricing in the context of electricity generated by the captive power plant which are subject to tariff regulations.
The decisions cited by the ld AR have been rendered prior to introduction of section 80A(6) and prior to Electricity Act, 2003, and in any case, the decision of the Hon'ble Calcutta High Court (supra) lays down the current proposition of law which is binding on us in absence of any contrary decision."
12. In the instant case, as we have noted above, the authorities below have not examined the matter after taking into consideration the provisions of section 80A(6) of the Act wherein the market value of the electricity sold and purchased are to be determined separately and has been made subject to statutory and regulatory restrictions. Further, the earlier decisions of the Coordinate Benches are distinguishable as the provisions of section 80A(6) were not considered in those decisions. The decision of the Hon'ble Rajasthan High Court wherein the decision of the Coordinate Benches has been affirmed therefore doesn't support the case of the assessee. In the interest of justice and fair play, following our decision in case of Chambal Fertilizers (supra) and given the provisions of section 80A(6) which overrides section 80IA(8) and are clearly applicable in the instant case and have not been considered 25 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer by the authorities below, we deem it appropriate to set aside the matter back to the file of the Assessing officer to examine the same afresh taking into consideration the above discussions.
13. Regarding ground No. 2 of assessee's appeal, briefly the facts of the case are that the assessee has claimed deduction on account of education cess (EC) & secondary and higher education cess (SHEC) on Income tax & Dividend Distribution Tax amounting to Rs. 1,42,79,859/-, as eligible revenue expense u/s 37 of the Act while computing total income for the year under consideration. The AO disallowed the above claim on contention that EC & SHEC are in effect additional surcharge and if surcharge is not allowable as revenue expenditure, then education cess should be treated similarly while computing total income.
14. The ld. CIT(A) affirmed the contention of the AO that education cess is in the nature of additional surcharge and therefore not allowable as deduction while computing business income. As EC & SHEC claimed by the assessee is not on its services, sales, purchase or production, rather it is on the profit or gains carried out by the assessee, it is covered under section 40(a)(ii) of the Act. Now, the assessee company is in appeal before us against the said action of the ld CIT(A).
15. During the course of hearing, the ld AR submitted that education cess was introduced vide Finance Act, 2004 as a levy for the specific purpose of fulfilling the commitment of the Govt. to provide and finance universalized quality basic education.
26 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer It was submitted that as stated in the speech of Hon'ble Finance Minister while placing the Budget for the year 2004-05 before the Parliament, entire amount collected as cess shall be earmarked for education which shall include providing nutritious cooked midday meal.
16. It was submitted that the Hon'ble Apex Court in Dewan Chand Builders & Contractors -vs-UOI (Civil Appeal No. 1830 to 1832 of 2008) has held that Cess earmarked for specific purpose and not forming part of the consolidated fund should be considered as 'fee' and not 'tax'. Following the said principles, Hon'ble Delhi High Court in Dalmia Cement (Bharat) Limited -vs.-CIT (2013) 357 ITR 419 (Del) held that Cess payable under Tamil Nadu Panchayat Act, 1958 which does not form part of consolidated fund is not in the nature of Tax or Duty.
17. The word 'Cess' was present in Sec. 10(4) of the erstwhile Income Tax Act, 1922 which specifically provided for disallowance of cess levied on the profit or gains of any business or profession. Subsequently, the said word was omitted from section 40(a)(ii) of the Income Tax Act, 1961.
This being a specific omission on the part of the legislature, it should be construed as the intention of the legislature to allow cess in computing profits and gains from business and profession.
18. In the matter of interpretation of the taxing statutes, the law courts would not be justified in introducing some other expressions 27 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer which the Legislature thought fit to omit. A fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. This view is supported by principles of interpretation expressed in following decisions-
- Orissa State Warehousing Corporation-vs. CIT (1999) 237 ITR 589 (SC)
- Vodafone International Holdings BV-vs.-UOI (2012) 341 ITR 1 (SC)
19. The said omission was clarified by CBDT Circular No. 91/58/66 - ITJ (19) dated 18-05-1967, wherein it has been stated that the effect of the omission of the word 'cess' from Sec. 40(a)(ii) is that only taxes paid are to be disallowed from AY 1962-63 onwards and not the Cess. Since Circular is binding on the Department as also held by Hon'ble Apex Court in the case of Commissioner of Customs-vs.-Indian Oil Corpn. Ltd. (2004) 267 ITR 272 (SC), cess should not be disallowed while computing total income for the year under consideration.
20. Reliance in this regard is placed on the decision of Duncans Industries Ltd.-vs-JCIT (2003) 87 ITD 457 (Kol), wherein relying on CBDT Circular No. 91/58/66-ITJ (19) it has been held that cess does not fall within the prohibitory items of deduction under sec. 40(a)(ii).
21. Further, the issue whether tax shall include cess, has been decided by Hon'ble Lucknow Tribunal in DCIT-vs.-Yuvraj Singh (ITA No. 408/Lkw/2011 dated 23.12.2013) wherein it has been held that for computing tax effect, cess should not be considered as part of tax as it does not fall within the characteristics of tax. Similar view has been held 28 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer in Hindustan Lever Ltd. - vs.- CIT (2011) 335 ITR 108 (Cal) cess paid under Assam Agricultural IT Act has been considered too be allowable business expenditure.
22. It was submitted that a contrary view has been taken by Hon'ble Panaji Tribunal in Sesa Goa Ltd.-vs.-JCIT (ITA No. 72/PNJ/2012 dtd. 08- 03-2013) & Hon'ble Mumbai Tribunal in Kalimati Investment Co. Ltd.-vs- ITO (ITA No. 4508/Mum/2010 dtd. 09-05-2012) wherein education cess has been considered as additional surcharge falling within the ambit of sec. 40(a)(ii) of the Act.
However, said decisions has been rendered without considering clarification provided by Circular No. 91/58/66-ITJ(19) dated 18-05- 1967. Further, cess cannot be termed as additional surcharge due to the following:-
(a) Education Cess has been created for specific purpose of providing education. However, for surcharge there is no mention of the purpose for which it is to be used.
(b) Education Cess does not find place in First Schedule as it is not a 'Tax'. While Income Tax & ''Surcharge on Income Tax' for the purposes of Union falls under 'Tax' in First Schedule.
(c) Marginal relief is provided to individuals & HUFs w.r.t.
income tax payable including surcharge. However, no marginal relief is available on education cess. [Refer Memorandum explaining Provisions of Finance Bill (No. 2) of 2004].
29 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
(d) No surcharge is levied on co-operative societies and local authorities. However, education cess continued to be levied on such assesses.
23. It was further submitted that in Sec. 115JB, Explanation 1(a) read with Explanation 2 specifically requires education cess and secondary and higher education cess to be included within the definition of income-tax. In absence of any such inclusion of the term cess under Sec. 40(a)(ii), same cannot be presumed to be covered within the definition of tax.
25. We have heard the rival contentions and purused the material available on record. In the case of M/s Chambal Fertilizers & Chemicals Limited Vs. ACIT, Kota (Supra), we (speaking through one of us) had an occasion to examine the said issue at great length and therein, after considering similar contentions as raised by the ld AR as in the instant case, we have held that the nature of education cess, and secondary and higher education cess is clearly additional surcharge for the purposes of the Union and being a surcharge, it partake the nature and character of tax and thus disallowable under the provisions of section 40(a)(ii) of the Act. The relevant discussion and findings are reproduced herewith:
"62. We have heard the rival contentions of both the parties and perused the material available on the record. In order to appreciate the alternate contentions raised by both the parties, we refer to the provisions of section 40(a)(ii) of the Act which is 30 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer the subject matter of examination before us which reads as under:
Section 40(a)(ii) - Amounts not deductible.
40. Amounts not deductible.
Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--
(a) in the case of any assessee--
(ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.
Explanation 1.--For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.
Explanation 2.--For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;
From the perusal of the aforesaid provisions of section 40(a)(ii), it is clear that :
31 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
1) where any sum is paid on account of any rate or tax levied on the profits or gains of any business or profession; or
2) where any sum is assessed as proportion of, or otherwise on the basis of any such profits and gains, it will not be allowable as a deduction in the computation of income chargeable under the head "Profits and gains of business or profession".
The question that arises for consideration is what is the exact nature of education cess. For the purposes, it would be relevant to refer to the Finance Bill (No. 2) 2004 through which the education cess was first introduced in the legislation.
Chapter II Rates of Income-tax Income-tax (1) Subject to the provisions of sub-sections (2) and (3), for the assessment year commencing on the 1st day of April, 2004, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax as reduced by the rebate of income- tax calculated under Chapter VIII-A of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act) shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided therein.
(2) In the cases to which Paragraph A of Part I of the First Schedule applies, where the assessee has, in the previous year, any net agricultural income exceeding five thousand rupees, in 32 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer addition to total income, and the total income exceeds fifty thousand rupees, then,--
(a) the net agricultural income shall be taken into account, in the manner provided in clause (b) [that is to say, as if the net agricultural income were comprised in the total income after the first fifty thousand rupees of the total income but without being liable to tax], only for the purpose of charging income-tax in respect of the total income; and
(b) the income-tax chargeable shall be calculated as follows:--
(i) the total income and the net agricultural income shall be aggregated and the amount of income-tax shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income;
(ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in the said paragraph A, as if the net agricultural income as so increased were the total income;
(iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax in respect of the total income:
Provided that the amount of income-tax so arrived at, as reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided in that 33 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer Paragraph and the sum so arrived at shall be the income-tax in respect of the total income.
In cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply, the tax chargeable shall be determined as provided in that Chapter or that section, and with reference to the rates imposed by sub- section (1) or the rates as specified in that Chapter or section, as the case may be:
Provided that the amount of income-tax computed in accordance with the provisions of section 112 shall be increased by a surcharge for purposes of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of Part I of the First Schedule: Provided further that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, the amount of income-tax computed under this sub-section shall be increased by a surcharge for purposes of the Union, calculated,--
(a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of such income-
tax where the total income exceeds eight hundred and fifty thousand rupees;
(b) in the case of ever y co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such income-tax;
34 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such income-tax.
In cases in which tax has to be charged and paid under section 115-O or sub-section (2) of section 115R of the Income-tax Act, the tax shall be charged and paid at the rate as specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated at the rate of two and one-half per cent of such tax.
In cases in which tax has to be deducted under sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income-tax Act, at the rates in force, the deductions shall be made at the rates specified in Part II of the First Schedule and shall be increased, by a surcharge for purposes of the Union, calculated in each case, in the manner provided therein.
(6) In cases in which tax has to be deducted under sections 194C, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194LA, 196B, 196C and 196D of the Income-tax Act, the deductions shall be made at the rates specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated,--
(a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of such tax where the income or the aggregate of such incomes paid or likely to be 35 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer paid and subject to the deduction exceeds eight hundred and fifty thousand rupees;
(b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax;
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such tax.
(7) In cases in which tax has to be collected under the proviso to section 194B of the Income-tax Act, the collection shall be made at the rates specified in Part II of the First Schedule, and shall be increased, by a surcharge for purposes of the Union, calculated in the manner provided therein.
(8) In cases in which tax has to be collected under section 206C of the Income-tax Act, the collection shall be made at the rates specified in that section and shall be increased by a surcharge for purposes of the Union, calculated,--
(a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of such tax where the amount or the aggregate of such amounts collected, and subject to the collection, exceeds eight hundred and fifty thousand rupees;
(b) in the case of ever y co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax;
36 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such tax.
(9) Subject to the provisions of sub-section (10), in cases in which income-tax has to be charged under sub-section (4) of section 172 or sub-section (2) of section 174 or section 174A or section 175 or sub-section (2) of section 176 of the Income-tax Act or deducted from, or paid on, income chargeable under the head "Salaries" under section 192 of the said Act or in which the "advance tax" payable under Chapter XVII-C of the said Act has to be computed at the rate or rates in force, such income-tax or, as the case may be, "advance tax" shall be so charged, deducted or computed at the rate or rates specified in Part III of the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the said Act shall be increased by a surcharge for purposes of the Union, calculated in each case in the manner provided therein:
Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply, "advance tax" shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that Chapter or section, as the case may be:
Provided further that the amount of "advance tax" computed in accordance with the provisions of section 111A or section 112 of the Income-tax Act shall be increased by a surcharge for 37 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer purposes of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of Part III of the First Schedule: Provided also that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, "advance tax" computed under the first proviso shall be increased by a surcharge for purposes of the Union, calculated,--
(a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of "advance tax"
where the total income exceeds eight hundred and fifty thousand rupees;
(b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such "advance tax";
(c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such "advance tax".
(10) In cases to which, Paragraph A of Part III of the First Schedule applies, where the assessee has, in the previous year or, if by virtue of any provision of the Income-tax Act, income-tax is to be charged in respect of the income of a period other than the previous year, in such other period, any net agricultural income exceeding five thousand rupees, in addition to total income and the total income exceeds fifty thousand rupees, then, in charging income-tax under sub-section (2) of section 174 or 38 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer section 174A or section 175 or sub-section (2) of section 176 of the said Act or in computing the "advance tax" payable under Chapter XVII-C of the said Act, at the rate or rates in force,--
(a) the net agricultural income shall be taken into account, in the manner provided in clause (b) [that is to say, as if the net agricultural income were comprised in the total income after the first fifty thousand rupees of the total income but without being liable to tax], only for the purpose of charging or computing such income-tax or, as the case may be, "advance tax" in respect of the total income; and
(b) such income-tax or, as the case may be, "advance tax"
shall be so charged or computed as follows:--
(i) the total income and the net agricultural income shall be aggregated and the amount of income-tax or "advance tax" shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income;
(ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax or "advance tax" shall be determined in respect of the net agricultural income as so increased at the rates specified in the said Paragraph A, as if the net agricultural income were the total income;
(iii) the amount of income-tax or "advance tax" determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax or, as the case may be, "advance tax" determined in accordance with sub-clause (ii) and the sum so arrived at shall be 39 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer the income-tax or, as the case may be, "advance tax" in respect of the total income:
Provided that the amount of income-tax or "advance tax" so arrived at, as reduced by the rebate of income-tax calculated under Chapter VIII-A of the said Act, shall be increased by a surcharge for purposes of the Union calculated in each case, in the manner provided therein.
(11) The amount of income-tax as specified in sub-sections (4) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on income-tax", so as to fulfill the commitment of the Government to provide and finance universalised quality basic education, calculated at the rate of two per cent of such income-tax and surcharge."
We now refer to the Notes to clauses of the Finance Bill 2004 which provides as under :
"It is also proposed that the amount of income-tax as specified in sub-clauses (4) to (10) of clause 2 of the Finance (No. 2) Bill, 2004 and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on Income-tax" so as to fulfil the commitment of Government to provide and finance universalised quality basic education, calculated at the rate of two per cent, of such income-tax and surcharge. The Education Cess on Income-40 ITA No. 162, 181, 178 & 182/JP/2016
Shri Cement Limited, vs. ACIT, Ajmer tax shall be payable during the previous year beginning on 1st April, 2004."
We now refer to the Memorandum explaining the Finance Bill 2004:
"2. Subject to certain exceptions, which have been indicated while dealing with the relevant provisions, the Bill follows the principle that changes in the provisions of the tax laws, should ordinarily be made operative prospectively in relation to the current incomes and not in relation to the incomes of past years. The substance of the main provisions in the Bill relating to direct taxes is explained in the following paragraphs:--
Income-tax I. Rates of income-tax in respect of incomes liable to tax for the assessment year 2004-2005 In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 2004- 2005, the rates of income-tax have been specified in Part I of the First Schedule to the Bill and are the same as those laid down in Part III of the First Schedule to the Finance Act, 2003, for the purposes of computation of "advance tax", deduction of tax at source from "Salaries" and charging of tax payable in certain cases during the financial year 2003-2004. It has also been specified that in the case of individuals, Hindu undivided families, association of persons and body of individuals having total income exceeding Rs. 8,50,000, the tax so computed after rebate under Chapter Vlll-A shall be enhanced by a surcharge of ten per 41 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer cent, for purposes of the Union. In the case of every artificial juridical person, the tax so computed shall be increased by a surcharge of ten per cent, for purposes of the Union. Further, in case of a firm, a local authority, a co-operative society and a company, the tax so computed shall be enhanced by a surcharge of two and one-half per cent for purposes of the Union. II. Rates for deduction of income-tax at source during the financial year 2004-05 from income other than "Salaries"
The rates for deduction of income-tax at source during the financial year 2004-05 from incomes other than "Salaries" have been specified in Part II of the First Schedule to the Bill and apply to income by way of interest on securities, interest other than "interest on securities", insurance commission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indians). The rates are the same as those specified in Part II of the First Schedule to the Finance Act, 2003. The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union to be calculated as follows:
(i) in the case of every individual, Hindu undivided family, association of persons and body of individuals at the rate of ten per cent, of such tax where the income or the aggregate of such incomes paid or likely to be paid exceeds Rs. 8,50,000;
(ii) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent, of such tax; and 42 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer
(iii) in the case of every artificial juridical person, at the rate of ten per cent, of such tax.
An additional surcharge, to be called the Education Cess to finance the Government's commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge.
III. Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 2004-2005 The rates for deduction of income-tax at source from "Salaries" during the financial year 2004-2005 and also for computation of "advance tax" payable during that year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income-tax during the financial year 2004-2005 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year, assessment of persons who are likely to transfer property to avoid tax, or assessment of bodies formed for short duration, etc. An additional surcharge, to be called the Education Cess to finance the Government's commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted inclusive of surcharge.
43 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer We now refer to Chapter VI of the Finance Bill 2004 which talks about Education Cess:
"81. (1) Without prejudice to the provisions of sub-section (11) of section 2, there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Education Cess, to fulfil the commitment of the Government to provide and finance universalised quality basic education.
(2) The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise, such sums of money of the Education Cess levied under sub-section (11) of section 2 and this Chapter for the purposes specified in sub-section (1), as it may consider necessary.
Education Cess on excisable goods.
83. (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), being goods manufactured or produced, shall be a duty of excise (in this section referred to as the Education Cess on excisable goods), at the rate of two per cent, calculated on the aggregate of all duties of excise (including special duty of excise or any other duty of excise but excluding Education Cess on excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.
44 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer (2) The Education Cess on excisable goods shall be in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 (1 of 1944) or any other law for the time being in force.
(3) The provisions of the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be. Education Cess on imported goods
84. (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under section 12 of the Customs Act, 1962 (52 of 1962) and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including--
(a) the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act, 1975 (51 of 1975);
(b) the countervailing duty referred to in section 9 of the Customs Tariff Act, 1975 (51 of 1975);
45 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
(c) the anti-dumping duty referred to in section 9A of the Customs Tariff Act, 1975 (51 of 1975); and
(d) the Education Cess on imported goods.
(2) The Education Cess on imported goods shall be in addition to any other duties of customs chargeable on such goods, under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force.
(3) The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on imported goods as they apply in relation to the levy and collection of the duties of customs on such goods under the Customs Act, 1962 or the rules or the regulations, as the case may be.
Education Cess on taxable services.
85. (1) The Education Cess levied under section 81, in the case of all services which are taxable services, shall be a tax (in this section referred to as the Education Cess on taxable services) at the rate of two per cent, calculated on the tax which is levied and collected under section 66 of the Finance Act, 1994 (32 of 1994). (2) The Education Cess on taxable services shall be in addition to the tax chargeable on such taxable services, under Chapter V of the Finance Act, 1994 (32 of 1994).
(3) The provisions of Chapter V of the Finance Act, 1994 (32 of 1994) and the rules made thereunder, including those relating to refunds and exemptions from tax and imposition of penalty shall, 46 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer as far as may be, apply in relation to the levy and collection of the Education Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules, as the case may be.
We now refer to the Finance Minister's speech while introducing the Finance Bill 2004 in the Parliament:
"22. In my scheme of things, no issue enjoys a higher priority than providing basic education to all children. The NCMP mandates Government to levy an education cess. I propose to levy a cess of 2 per cent. The new cess will yield about Rs. 4000 - 5000 crore in a full year. The whole of the amount collected as cess will be earmarked for education, which will naturally include providing a nutritious cooked midday meal. If primary education and the nutritious cooked meal scheme can work hand in hand, I believe there will be a new dawn for the poor children of India."
On perusal of the Finance Bill and the relates notes to the clauses and the memorandum explaining the Finance Bill, it is clear that income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge for the purposes of the Union. Further, as per section 2(11), the amount of income-tax shall be further increased by an additional surcharge for the purposes of the Union to be called the "Education Cess on income-tax". We have also gone 47 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer through the Finance Act 2004 and found that the provisions therein regarding education cess are pari- materia to the provisions contained in the Finance Bill 2004. Even the subsequent Finance Acts contains identical provisions except the fact that another additional surcharge for the purposes of Union, to be called the "Secondary and Higher Education Cess on income tax" has been introduced which has the same character as that of education cess. The nature of education cess is therefore clearly additional surcharge for the purposes of the Union and being a surcharge, it partake the nature and character of tax.
Similarly, under chapter VI of the Finance Bill 2004 which contains detail provisions on levy of education cess, clause 81 (1) provides that without prejudice to the provisions of sub-section (11) of section 2, there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Education Cess. Further, clause 83 (1) provides that the Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Central Excise Tariff Act, 1985 , being goods manufactured or produced, shall be a duty of excise (in this section referred to as the Education Cess on excisable goods), at the rate of two per cent. Similar is the position in respect of education cess levied on import of goods where it is held as duty 48 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer of Customs and education cess on taxable service where it is held as service tax.
It is therefore clear that across all tax legislation - direct taxes as well as indirect taxes on goods and services, education cess has been defined as tax. The speech of the Finance Minister therefore has to be read and understood in the context of the Finance Bill which we have discussed above. Though the levy has been termed as a education cess, what is relevant to determine is its exact nature rather than its nomenclature. The nature of education cess is clearly tax and nothing else.
Now looking at the issue from the angle of recovery of education cess, there is no separate machinery in the Income tax Act for recovery of unpaid education cess and imposition of interest and penalty in case of default in payment of unpaid cess. This also clearly indicates that cess is a part of tax and all recovery mechanisms & consequences pertaining to recovery of tax apply to recovery of cess also without explicit mention of the word "education cess". Infact, clause 83 (3) of the Finance Bill 2004 makes this position crystal clear when it states that "the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the 49 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be." Though the same has been stated in the context of Central Excise Act, in our view, the same equally applies in the context of the Income tax Act given that the nature and character of levy of education cess is identical across all tax legislations.
We now refer to the judgement of the Hon'ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). In this case, the assessee who carried on the business of raising coal from coal mines and selling it, paid road and public works cess under the Bengal Cess Act, 1880 and education cess under the Bengal (Rural) Primary Tax Act, 1930,in relation to the coal mines, which it had taken on lease. The cess was leviable under the respective statutes on the annual net profits to be calculated on the average annual net profits for the last three years, for which the accounts had been made up. The question was whether these cesses paid by the assessee under the aforesaid Bengal Acts fell within the mischief of section 10(4) of the Income-Tax Act, 1922 and it was held as under:
"Now it is quite clear that the aforesaid cesses would be allowable deductions either under clause (ix) or clause (xv) of sub-section (2) of section 10 unless they fell within section 10(4). We have 50 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer already referred to the provisions of both Acts under which the cesses are levied which show that their assessment is not made at a proportion of the profits of the assessee's business. What has to be determined is whether the assessment of the cesses is made on the basis of any such profits. The words "profits and gains of any business, profession or vocation" which are employed in section 10(4) can, in the context, have reference only to profits or gains as determined under section 10 and cannot cover the net profits or gains arrived at or determined in a manner other than that provided by section 10. The whole purpose of enacting sub-section (4) of section 10 appears to be to exclude from the permissible deductions under clauses (ix) and
(xv) of sub-section (2) such cess, rate or tax which is levied on the profits or gains of any business, profession or vocation or is assessed at a proportion of or on the basis of such profits or gains. In other words, sub-section (4) was meant to exclude a tax or a cess or rate the assessment of which would follow the determination or assessment of profits or gains of any business, profession or vocation in accordance with the provisions of section 10 of the Act."
"The road cess and public works cess are to be assessed on the annual net profits under sections 72 to 76 of the Cess Act, 1880. The net annual profits have to be calculated on the average of the net profits for the last three years of the mine or the quarry and if the annual net profits of the property cannot be ascertained in the aforesaid manner then it is left to the Collector to determine the value of the property first in such manner as he 51 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer considers expedient and determine 6 per cent. on that value which would be deemed to be the annual net profits. The Cess Act of 1930 follows the same pattern so far as the ascertainment of annual net profits is concerned. These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under section 10 of the Act. It is not possible to see, therefore, how section 10(4) could be applicable at all in the present case. Thus, on the language of the provisions both of the Act and the two Cess Acts the applicability of section 10(4) cannot be attracted. But even according to the decided cases such cesses cannot fall within section 10(4). "
It is thus clear that Section 10(4) of the 1922 Act excludes only cess, rate or tax which is levied on the profits or gains of any business, profession or vocation, or is assessed at a proportion of or on the basis of such profits or gains, in accordance with the provisions of section 10 of the Act. The "road and public works cess" levied under the Bengal Cess Act, 1880 and "education cess" levied under the Bengal (Rural) Primary Tax Act, 1930 was thus held as not a cess levied as part of the tax under the Income-Tax Act and accordingly, it was allowed as a permissible deduction. If we were to read the provisions of section 10(4) being pari-materia with the provisions of section 40(a)(ii) and apply the ratio of the aforesaid Supreme Court judgement in the context of education cess, it will supports the view that the education cess presently 52 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer levied under the Income-Tax Act, 1961 could not be allowed as a deduction under section 40(a)(ii) of the Act.
The reason for the same is that as we have already held above that the basic character of education cess is nothing but levy of tax. Such levy of education cess is on the profits/gains of the business of the assessee. Where there are no profits/gains in a particular year, there would not be any levy of education cess. The levy of education cess is thus clearly on the profits or gains of the business. Further, even though measurement and calculation of such levy of education cess is as a percentage of income tax, the basis of measurement of such levy will not determine or alter the basic character of such levy which continues to remain as tax. It satisfies both the first and the second limb of section 40(a)(ii). The first limb talks about the payment of tax levied on the profits or gains by the assessee and the second limb talks about the determination and assessment thereof by the Assessing officer on the basis of such profits or gains. It is, thus, clear that the aforesaid judgement of the Hon'ble Supreme Court support the case of the Revenue that education cess whose determination and assessment is based on the profits or gains of business, computed in accordance with the provisions of the Income tax Act, could not be allowed as a deduction under section 40(a)(ii) of the Act.
53 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer The above view also find supports from the decision of the Coordinate Bench in case of Sesa Goa Ltd Vs JCIT [2013] 60 SOT 121 (Panaji) wherein it was held as under:
"35. We heard the rival submissions and carefully considered the same. In our opinion, education cess and secondary higher education cess levied by the assessee has been collected as part of the income-tax and the provisions of section 40(a)(ic) & (ii) are clearly applicable and the assessee is not entitled for the deduction. The said payment is not a fee but is a tax. In case of fees, payment is made against getting certain benefit or services while tax is imposed by the Government and is levied for which the person who pay the tax is not promised in return to get any benefit or service. The assessee is not getting any benefit or services in return by making the payment towards the education cess and secondary higher education cess. Therefore, it cannot be said that it is an expenditure incurred wholly and exclusively for the purpose of the business and is not part of tax. We do not find any infirmity or illegality in the order of the CIT(A) while confirming the disallowance made by the assessing officer in this regard. Thus, disallowance of Rs.19,72,00,814/-is hereby confirmed. Thus, this ground stand dismissed."
As regards the Circular No.91 / 58 / 66 - ITJ (19), dt.18.5.1967, the effect of omission of the word "cess" from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessments for the years 1962-63, onwards. In this regard, in 54 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer the first place, it has to be seen that "cess", as contemplated in the aforesaid Circular, relates to the cess which is leviable under some other Statutes and which is a charge on the profits of the assessee, as in the aforesaid case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). Secondly, the present education cess has been levied much after the date of the aforesaid Circular and more importantly, the education cess, as contemplated under the Finance Act, is nothing but a part of income-tax, chargeable under the provisions of the Act. Therefore, the aforesaid Circular is not relevant in the present context.
The case of Duncans Industries Ltd rendered in the context of cess levied under the West Bengal Rural Employment Production Act, 1976 and the West Bengal Primary Education Act, 1973 and not in the context of cess levied on the profits or gains of the business of the assessee in accordance with the provisions of the Income tax Act, doesn't support the case of the assessee for the reasons as discussed above.
63. Now coming to the contention of the ld AR that the language of section 115JB especially explanation 2 which specifically includes education cess within the ambit of income tax and in absence of such inclusion in section 40(a)(ii), the education cess is not a tax for the purposes of section 40(a)(ii). As we have already held above that the basic character of education cess is tax. Given that, we donot see a necessity for a 55 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer specific inclusion of education cess in section 40(a)(ii). As far as Section 115JB is concerned, the specific inclusion of education cess is by way of an explanation and an explanation is always understood to mean what is intended originally at the time of enactment. In our view, the said explicit definition of income tax to include education cess is clarificatory in nature and the same cannot be taken as a basis of argument to contend that in absence of such clarification in context of section 40(a)(ii), education cess is not part of tax.
63.1. Now coming to the contention of the AR that where the legislature wanted certain taxes other than income-tax to be excluded for the purposes of computation of taxable income, it has specially provided for the same. The instances are amounts paid as wealth-tax, securities transaction tax and fringe benefit tax in section 40 of the IT Act. Had there been any intention of disallowing education cess, such provision would have been specifically been enacted which has not been done. We have given a careful consideration to the aforesaid contention of the ld AR but we are afraid we are unable to accede to the same. As we have already held above, the basis character of education cess as intended by the legislature is tax which is levied on the profits or gains of the business and given that such tax has already been provided in section 40(a)(ii) as not an allowable deduction, there was nothing more that was required or expected from the legislature. The levy of wealth tax, securities transaction tax and fringe benefit tax are not on the profits or 56 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer gains of business or profession, hence, there was a necessity felt by the legislature and which was specifically provided for.
64. In light of above discussions and the facts and circumstances of the case, we are of the view that ld CIT(A) has rightly disallowed the claim of education cess as an allowable deduction under section 40(a)(ii) of the Act. In the result, ground taken by the assessee is dismissed."
26. Our above view has been fortified by a recent decision of the Hon'ble Supreme Court in case of SRD Nutrients Private limited vs Commissioner of Central Excise, Guwahati (Civil Appeal No. 2781-2790 of 2010 dated 10.11.2017) wherein the issue for consideration was where the appellant was entitled for refund of education cess and higher education cess which was paid along with excise duty once the excise duty itself was exempted from levy. The Hon'ble Supreme Court has held that education cess and higher education cess would partake the character of excise duty and entitled to the refund where excise duty itself was exempted from levy. While laying down the said legal proposition, the Hon'ble Supreme Court has also affirmed the decision of Hon'ble Rajasthan High Court in case Banswara Syntex limited and has held as under:
"20) One aspect that clearly emerges from the reading of these two circulars is that the Government itself has taken the position that where whole of excise duty or service tax is exempted, even the Education Cess as well as Secondary and Higher Education Cess 57 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer would not be payable. These circulars are binding on the Department.
21) Even otherwise, we are of the opinion that it is more rational to accept the aforesaid position as clarified by the Ministry of Finance in the aforesaid circulars. Education Cess is on excise duty.
It means that those assessees who are required to pay excise duty have to shell out Education Cess as well. This Education Cess is introduced by Sections 91 to 93 of the Finance (No.2) Act, 2004. As per Section 91 thereof, Education Cess is the surcharge which the assessee is to pay. Section 93 makes it clear that this Education Cess is payable on 'excisable goods' i.e. in respect of goods specified in the first Schedule to the Central Excise Tariff Act, 1985. Further, this Education Cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are levied and collected by the Central Government under the provisions of Central Excise Act, 1944 or under any other law for the time being in force. Sub-section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those related to refunds and duties etc. shall as far as may be applied in relation to levy and collection of Education Cess on excisable goods. A conjoint reading of these provisions would amply demonstrate that Education Cess as a surcharge, is levied @ 2% on the duties of excise which are payable under the Act. It can, therefore, be clearly inferred that when there is no excise duty payable, as it is exempted, there would not be any Education Cess as well, inasmuch as Education Cess @ 2% is to be calculated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil.
58 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
22) It is rightly pointed out by the learned counsel for the appellants that the CESTAT in the earlier two judgments given in Bharat Box Factory Ltd. and Cyrus Surfactants Pvt. Ltd., held that Education Cess and Higher Education Cess would also refundable along with excise duty and in view thereof, another co-ordinate Bench of CESTAT could not take a contrary view in Jindal Drugs Ltd. Judicial discipline warranted reference of the matter to the Larger Bench which it did not do. In the impugned judgment, while preferring to follow the view taken in Jindal Drug Ltd. the Tribunal has not given any reasons for adopting this course of action. The Rajasthan High Court in the case of Banswara Syntex Ltd. while holding that surcharge taken in the form of Education Cess shall also be refundable has given the following reasons in support of the said view:
"15. The very fact that the surcharge is collected as part of levy under three different enactments goes to show that scheme of levy of Education Cess was by way of collecting special funds for the purpose of Government project towards providing and financing universalised quality of basic education by enhancing the burden of Central Excise Duty, Customs Duty, and Service Tax by way of charging surcharge to be collected for the purpose of Union. But, it was made clear that in respect of all the three taxes, the surcharge collected along with the tax will bear the same character of respective taxes to which surcharge was appended and was to be 59 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer governed by the respective enactments under which Education Cess in the form of surcharge is levied & collected.
16. Apparently, when at the time of collection, surcharge has taken the character of parent levy, whatever may be the object behind it, it becomes subject to the provision relating to the Excise Duty applicable to it in the manner of collecting the same, obligation of the tax payer in respect of its discharge as well as exemption concession by way of rebate attached with such levies. This aspect has been made clear by combined reading of sub-sections (1),(2) & (3) of secion 93.
xxx xxx xxx
18. The Explanation appended to Notification dated 26.06.2001 included within the ambit of Excise Duty any special Excise Duty collected under any Finance Act when under Finance Act, 2004 it was ordained that Education Cess to be collected as surcharge on Excise Duty payable on excisable goods and shall be a Duty of Excise, it became a special Duty of Excise by way of Education Cess chargeable and collected under Finance Act, 2004 and fell within 60 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer the ambit of clause (3) of Explanation appended to Notification dated 26/6/2001. Consequently, rebate became available on collection of surcharge on Excise Duty under Finance Act, 2004 in terms of existing Notification dated 26/6/2001 immediately. Later Notification including the Education Cess in enumerative definition in the circumstances was only clarificatory and by way of abandoned caution, but not a new rebate in relation to Excise Duty or any part thereof as statutorily pronounced as well as specified Excise Duty levied and collected under the Finance Act."
We are in agreement with the aforesaid reasons accorded by the Rajasthan High Court, since it is in consonance with the legal principle enunciated by this Court. For this purpose, we may refer to the judgment in the case of Collector of Central Excise, Patna v. Tata Engineering and Locomotive Co.10 In that case, issue pertained to valuation of cess which was levied @ 1/8 per cent of ad valorem 'value' of the central excise duty. The Court held that the calculation of 1/8 per cent ad valorem of the motor vehicle for the purposes of the levy and collection of the automobile cess must be made that was being calculated since automobile cess was to be levied 61 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer and calculated as if it was excise duty. As a fortiorari, the Education Cess and Higher Education Cess levied @ 2% of the excise duty would partake the character of excise duty itself."
27. In light of above discussions, respectfully following the decision of the Hon'ble Supreme Court in case of SRD Nutrients Private limited (supra) where education cess and higher education cess have been held to partake the character of excise duty, the legal proposition so laid down by the Hon'ble Supreme court will apply with equal force in the context of income tax, and following our decision in case of Chambal Fertilizers (supra) wherein we have held that across all tax legislation - direct taxes as well as indirect taxes on goods and services, the nature and character of education cess and higher education cess is clearly tax and nothing else, we are of the considered view that the assessee's claim of deduction on account of education cess (EC) & secondary and higher education cess (SHEC) on income tax & dividend distribution tax amounting to Rs. 1,42,79,859/-, as eligible revenue expense u/s 37 of the Act is not permissible in view of the provisions of section 40(a)(ii) of the Act.
28. Regarding ground No. 3 of assessee's appeal, briefly the facts of the case are that during the year under consideration, the assessee excluded profit on sale of investments amounting to Rs. 1,76,22,643/- and profit on sale of fixed assets amounting to Rs. 1,18,52,588/-, while computing book profit u/s 115JB. The claim was disallowed by the AO on the contention that section 115JB is an overriding section which is 62 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer introduced for a specific purpose. No addition or deduction can be made except those specified in Explanation 1 and 2 of section 115JB. Reliance in this regard was placed on the decision of Rain Commodities Limited- vs.-DCIT (ITA No. 673/Hyd/2010 dated 24.12.2010). The ld. CIT(A) confirmed the addition made by the AO by placing reliance on the decision of Coordinate Bench dated 27.01.2014 in the assessee's own case for AY 2008-09.
29. During the course of hearing, the ld AR fairly conceded that the issue has since been covered against the assessee by the decision of Coordinate Bench (ITA No. 504/JP/2012 dated 27.01.2014) in the assessee's own case for AY 2008-09. Respectfully following the same, we hereby confirm the order of the ld CIT(A) and dismiss the ground of appeal taken by the assessee.
30. Now, coming to the appeal filed by the Revenue. In ground no. 1, the Revenue has challenged the action of the ld CIT(A) in deleting the disallowances made by the AO on account of sales tax subsidy by treating the amount of Rs. 31,86,07,921/- as capital receipts instead of revenue receipt. In ground no. 2, the Revenue has challenged the deletion of disallowance made by the AO on account of sales tax subsidy by treating the amount of Rs. 31,86,07,921/- as capital receipt and the same is not includible in the book profit u/s 115JB of the IT Act, without appreciating the facts of the case.
31. The ld. AR submitted that the matter has been decided in favour of the assessee by the recent decision of Hon'ble Rajasthan High Court 63 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer in assessee's own case in DB ITA No. 204/2010 dated 22/08/2017 and DB ITA No. 85/2014 dated 22/08/2017.
32. In DB ITA No. 204/2010 dated 22/08/2017, the substantial question of law framed for consideration by Hon'ble Rajasthan High Court was as under:-
"Whether on the facts and circumstances of the case, the tribunal was justified in holding that the sales tax subsidy received by the assessee of Rs. 18,48,85,506/- in the form of Sales Tax Exemption was a capital receipt and not a revenue receipt ignoring the basic purpose for which the same was given which itself provides that the subsidy was given to the assessee to enhance the production, employment and the sale in the State of Rajasthan which are all post operational activities."
33. While considering the above substantial question of law, the findings of the Hon'ble Rajasthan High Court are as follows:
"6. We have heard counsel for the parties.
6.1 In view of the contentions which have been raised by the counsel for the department and discussions made by the AO as well as CIT(A) in our considered opinion, the tax liability, we have considered original purpose for which the Scheme has been floated by the State Government by going through the Scheme.
6.2 It is very clear that because at the relevant time the State Government need employment generation therefore it has come out with the Generation of Employment for which capital 64 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer investment was necessary and therefore to boost capital investment scheme has been floated for exemption of sales tax which can be capitalized against the capital which has been invested against the loss of interest which they have made investment apart from 1.50 crores and over a period of 11 years they have to realized the investment made.
6.3 We have gone through the Scheme and relevant Budget Speech of the Finance Minister and all the other documents and more particularly the tribunal while considering the Scheme has analyised completely in para no. 5.13 and has come to the conclusion in view of the observations made by the Supreme Court in Pony Sugar (supra).
6.4 In our considered opinion, the tribunal has not committed an error and view taken by the Tribunal is just and proper. It is nothing but capital investment by investing huge amount of 1.57 crores.
6.5 In our considered opinion, the view taken by the tribunal is required to be upheld and the same is upheld.
7. In that view of the matter, the issue is answered in favour of the assessee and against the department."
34. In D.B. ITA No. 85/2014 dated 22.08.2017, the following substantial question was framed while admitting the appeal by the Hon'ble Rajasthan High court:
65 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer "(i) Whether the Tribunal was legally justified in holding that the sales tax subsidy received by the assessee for Rs.
40,53,06,138/- in the form of sales tax exemption and also not to be included in book profit u/s 115JB ignoring the purpose of subsidy, which was given to enhance the production employment and sales in the State of Rajasthan which are post operational activities?"
35. While disposing off the above substantial question of law, the Hon'ble High Court held that "the issue No. 1 is squarely covered by the decision taken today in D.B. ITA No. 204/2010."
36. Respectfully following the decision of the Hon'ble Rajasthan High Court referred supra, we affirm the order of the ld CIT(A) and dismiss both the grounds of appeal of the Revenue.
37. In the result, the assessee's appeal is partly allowed for statistical purposes and revenue's appeal is dismissed.
38. Now, we refer to AY 2013-14 wherein the respective grounds of appeal are as follows:
ITA No. 178//JP/2016 (Ground of Assessee's appeal):
" i) That on the facts and in the circumstances of the case, Ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance u/s 80-IA by Rs. 137,34,88,344/- by making adjustment in the transfer price of power captively consumed.
ii) That on the facts and in the circumstances of the case the ld.
CIT(Appeals) was not justified and erred in law in confirming the 66 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer disallowance made by the AO on account of Education Cess amounting to Rs. 7,03,53,342/-.
iii) That on the facts and in the circumstances of the case the Ld. CIT(Appeals) was not justified and erred in law in confirming the disallowance made by the A.O on account of gift expenses to the tune of Rs. 4,13,437/-.
iv) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and erred in confirming the disallowance made by the A.O on account of profit on sale of investment amounting to Rs. 60,37,35,196/- & profit on sale of fixed assets amounting to Rs. 2,23,82,657/- while computing books profit u/s 115JB of the Act."
ITA. No. 182/JP/2016 (Ground of Revenue's appeal):-
"i) Deleting the disallowance made by the AO on account of sales tax subsidy by treating the amount of Rs. 1,31,82,58,251/- as capital receipts instead of revenue receipt;
ii) Deleting the disallowances made by the AO on account of sales tax subsidy by treating the amount of Rs. 1,31,82,58,251/- as capital receipt and the same is not includible in the book profit u/s 115JB of the IT Act, without appreciating the facts of the case.
iii) Deleting the disallowances made by the AO on account of Electricity Duty Exemption by treating the amount of Rs. 6,57,98,024/-
as capital receipt instead of revenue receipt.
iv) Deleting the disallowances made by the AO on account of Electricity Duty Exemption by treating the amount of Rs. 6,57,98,024/- as capital receipt and the same is not includible in the book profit u/s 115JB of the IT Act, without appreciating the facts of the case."
39. Both the parties submitted that the facts and circumstances are similar to facts and circumstances in AY 2012-13 and respective 67 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer contentions raised therein shall be considered for the impunged assessment year as well.
40. In ITA No. 178//JP/2016 in respect of ground of appeal no. (i),
(ii) & (iv), admittedly the facts and circumstances of the case are similar to AY 2012-13. Our findings and directions contained in ITA No. 162/JP/16 shall apply mutatis mutandis to this appeal as well. In respect of ground no. (iii) relating to disallowance made by the A.O on account of gift expenses to the tune of Rs. 4,13,437/-, we have gone through the order of the lower authorities and donot see any infirmity in the same. Hence, this ground of appeal is dismissed. In the result, assessee's appeal is partly allowed for statistical purposes.
41. In ITA No. 182//JP/2016 in respect of ground of appeal no. (i)& (ii) admittedly the facts and circumstances of the case are similar to AY 2012-13. Our findings and directions contained in ITA No. 181/JP/16 shall apply mutatis mutandis to this appeal as well.
42. In respect of ground no. 3 & 4 of revenue's appeal wherein the Revenue has challenged the action of the ld CIT(A) in deleting the disallowance of electricity duty exemption of Rs 6,57,98,024 holding the same as capital receipt and further not including the same while determining the books profits u/s 115JB of the Act.
43. Briefly, the facts of the case are that during the year under consideration, the assessee company has received Rs 6,57,98,024 by way of electricity duty exemption under Rajasthan Investment Promotion Scheme 2003. The assessee company has treated the same as capital receipt applying the same analogy as in case of sales tax 68 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer subsidy and has not offered the same to tax. In support, reliance was placed on the decision of the Coordinate Benches of the Tribunal for earlier years rendered in the context of sales tax subsidy. The AO also applying the same analogy as in case of sales tax subsidy given that these receipts are also borne out of the same scheme of the Rajasthan Government and the fact that the decision of the Coordinate Benches are under challenge before the Hon'ble High Court, brought these receipts to tax and also added the same to compute the book profits u/s 115JB of the Act.
44. On appeal, the ld CIT(A) held that both sales tax subsidy and electricity duty exemption has been received under the Rajasthan Invesment Promotion Policy of 2003, following the orders of the Coordinate Bench for AY 2006-07 to 2009-10, he deleted the addition so made by the AO. Now, the Revenue is in appeal against the said findings of the ld CIT(A).
45. During the course of hearing, the ld AR submitted that the matter relating to sales tax subsidy has already been decided by the Hon'ble Rajasthan High Court in assessee's favour and given that electricity duty exemption also flows from the same scheme of the Rajasthan Government, the nature of electricity exemption is also directed related to expansion of the undertaking by way of investment of fixed capital and generation of employment opportunity, the same is capital in nature and rightly not offered to tax by the assessee company. It was submitted that the ratio of the decision of the Hon'ble Rajasthan High court though rendered in the context of sales tax subsidy equally applies in the context of electricity duty exemption.
69 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
46. It was further submitted that identical issued has recently been decided by this Bench in case of ACIT vs Hindustan Zinc Ltd (ITA No. 638/JU/2008 & 606/JU/2008 dated 24.04.2017) in the context of electricity duty exemption as per Rajasthan Investment Promotion Policy of 2003 and the nature of the receipt was held to be capital in nature. The relevant findings are as under:
"11.2. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. The ld. CIT (A) deleted the addition, by relying upon the judgment of the Special Bench of this Tribunal rendered in the case of DCIT vs. Reliance Industries Ltd. Ld. CIT (A) decided the issue in para
47 to 50 as under:-
"Decision I have considered the facts of the case and submissions of the ld. A/R and have gone through the original notification dated 28/07/2003 issued by the govt. of Rajasthan, Finance (Tax Division) Department. The important/relevant features for the purpose of deciding the issue are as under:-
i) The notification starts with the "Heading Rajasthan Investment Promotion Policy2003". With a view to provide investors an attractive opportunity to invest in the State of Rajasthan, the following scheme is introduced in the state.
Clause-2: Operative Period :
The scheme shall come into operation with effect from 1st July, 2003 and shall remain in force upto 31st March, 2008. Clause-3: Applicability of the scheme 70 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer The scheme shall be applicable to all new investments and investments made by existing units and enterprises for modernization/diversification, subject to the condition that such units shall commence commercial production/operations owing to such investment during the operative period of the scheme. Clause-5: Eligibility:
The benefit (subsidies as per Clause 7 and exemption as per Clause 9 under this scheme shall be available to all units, other than those covered in the list of ineligible units subject to the fulfillment of the following conditions:-
(i) To claim wage/employment subsidy the unit shall provide:-
(a) Direct employment to at least then persons in case of a new unit and
(b) Twenty five percent additional direct employment subject to a minimum of ten persons in case of diversification, modernization or expansion.
(c) The unit shall be eligible for interest subsidy and/or wage/employment subsidy only if it commences first commercial production/operation during the operative period of the scheme.
Clause-7: Subsidies:
In case of new investment made, the sum total of interest subsidy and wage/employment subsidy would be subject to a maximum limit of fifty percent of the tax payable and deposited under the Rajasthan Sales tax Act, 1994, the Central Sales tax Act, 1956 and Value Added Tax Act as and when introduced in the state;
Provided that the maximum limit of 50% prescribed under clause 7(1)(a) and clause 7(i)(b) may be raised by the BIOI to sixty percent in such cases where the investments exceed Rs. 100 71 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer crore but are less than or equal to Rs. 200 crores, and this maximum limit may be raised further to seventy five percent in cases where the investments exceed Rs. 200 crore. Exemptions:
In addition to the subsidies available in clause 7, the eligible beneficiary shall be entitled to claim the following exemption, if applicable:-
50% exemption of electricity duty for seven years. The govt. of Rajasthan vide order dated 28/3/2005 has modified the scheme. After the existing clause 8(vi) of the Scheme the following proviso shall be inserted:-
"Provided that the new project having a total new investment as per column No. 2 of the table given below, shall be exempted from Electricity Duty, on self generated energy in respect of new investment in CPP for 7 years, to the extent a mentioned in Column No. 3 of the table.
S.No. Total New Investments Exemption of
Electricity Duty on
self generated Energy
1 From Rs. 100 crore upto Rs. 200 60%
crore
2 From Rs. 200 crore upto Rs. 400 75%
crore
3 Rs. 400 crore or more 100%
.
48. It is a fact that the appellant had installed a CPP at Chittorgarh LZS, Chanderia during assessment year 2005-06. The company generated 83.0507 crore unit therefrom. In view of the above 72 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer notification, the electricity duty was waived to the appellant extent of Rs. 8,55,50,700/-. Had there been no such waiver, the appellant would have claimed the payment of electricity duty as revenue expenditure.
Further the appellant itself has routed the same through P&L account as revenue item. As per the decision cited by AO in the case of Rajaram Maize Product by the Hon'ble Supreme Court was delivered on 23/7/2001 that the power subsidy received by the respondent was of revenue nature inasmuch as it went towards reduction of the electricity bills.
49. The A/R has cited the decision of Bombay Spt. Bench ITD 273 (2004) in the case of DCIT vs. Reliance Industries Ltd. In this case the following point was to be decided; "whether on the facts and in the circumstances of the cae and in law the assessee company is justified in its claim that the sales tax incentive allowed to it during the previous year in terms of relevant government order constitute capital receipt and is not to be taken into account in computation of total income. The factual position in this case is as under:-
The assessee set up a unit in Patalganga which is a notified area and became eligible for incentive announced by the Govt. of Maharashtra, which begins commercial production in November, 1982. The incentive was in the form of exemption from liable for payment of sales tax for a period of 5 years commencing from 8-6-83 and ending on 7-6-1988. The assessee's claim was that the quantum of the sale tax liable would be claimed as deduction on the basis of that it is a capital receipt or on the basis of that it should be treated as liability under the sales tax liability. But since, it was exempted from payment of sales tax, the same should be treated a paid within the meaning of section 43B so as to adjusted against the amount of subsidy, which the assessee would have received from the statement government. In that year the assesee was exempted from the payment of purchase tax of Rs. 10,82,175/- and sales tax of Rs. 4,29,89,686/- making the total to Rs. 4,40,71,858/-. The Spl. Bench finally decided the issue in favour of the assessee. The Spl. Bench did consider the ratio laid down in the judgment of Supreme Court in Sahiney Steel and Press Works Ltd's case, which is as under:-
"If any subsidy is given, the character of the subsidy in the hands of the recipients-whether revenue or capital-will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of its trade or 73 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer business, it has to be treated as trading receipt. The source of the fund is quite immaterial".
50. In the appellant's case also the title of the Scheme "Rajasthan Investment Promotion Scheme, 2003(Raj. Invest 2003)" itself makes the purpose of the scheme very much clear. If further laid down that the scheme shall be applicable to all new investments and investments made by existing units and enterprises for modernization/expansion/diversification subject to the condition that such units shall commence commercial production/operation owing to such investment during the operative period of the scheme. The scheme is operative w.e.f. 1-7-2003 and was remained in force upto 31- 03-2008. Initially the exemption in clause 8 of the scheme was 50% of the electricity duty for seven years in addition to the subsidy available under clause 7 of this scheme but the appellant has not claimed any deduction mentioned in clause 7. By amendment order dated 28-03- 2005 of Govt. of Rajasthan, the Finance Department (Tax Division), the scheme has been amended to the extent that the emption would be available to 100% if the total new investment is Rs. 400 crore or more in CPP. The appellant has established the CPP in 2005-06 for the first time in Chanderia Smelter Unit.
The capital investment is also more than Rs. 400 crore. The CPP is established within the period from 1-7-2003 to 31-3-2008. The commercial production has also commenced in the same financial year. Thus all the terms and conditions of the scheme do clearly define that the waiver of electricity duty by the Govt. of Rajasthan was with a purpose to held the assessee to establish a new power plant and not to held in day to day operations of the power plant. Therefore, the decision of the Hon'ble Spl. Bench, Bombay in the case of Reliance Industries is fully applicable to the appellant's case. Therefore, the disallowance made by the AO is deleted. The appeal is allowed on this ground."
From above, it can be inferred that ld. CIT (A) considered all the judgments as relied by the parties and by following the decision of the Special Bench deleted the addition. In the present case, there is no 74 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer dispute with regard to the fact that the waiver of electricity duty is linked with the quantum of investment made by the Assessee. The pre condition for availing such incentive is essentially investment made by the assessee. In the Sahney Steel and Press Works Ltd.(supra), the Hon'ble Supreme Court examined the issue and laid down principles on the basis of which a subsidy given to the assessee is required to be categorized. If it is an operational subsidy same would fall within the ambit of revenue and if it is a subsidy for a purpose of setting up and expansion of industry that would be within the ambit of capital.
Admittedly, in the present case, it is not the case of subsidy given by the State Government but it is a sort of incentive in the form of waiver of electricity duty but this waiver is dependent upon the investment made by the assessee and production of power. The ld. CIT(A) has followed the decision of Spl. Bench of this Tribunal rendered in the case of DCIT vs. Reliance Industries Ltd. (Supra) in that case there was incentive in the form of exemption from liability of payment of sales tax for a period of 5 years. In the present case, it is the waiver of the electricity duty. The revenue's case is that had this waiver was not given by the State Government, the payment of electricity duty would be eligible deduction as revenue's expenditure.
75 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer On the contrary, the assessee's case is that the issue is squarely covered by the decision of the Spl. Bench of this Tribunal and also there are other judgments. The Hon'ble Supreme Court rendered in the case of Ponni Sugar (supra) held as under:-
"14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel & Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw material, machinery and finished goods were also of capital nature as the object of granting refund of sale tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring 76 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production, and therefore, such a subsidy would only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a Revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel & Press Work's Ltd.'s case(supra) lies in the fact that it has discussed any analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. The test that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, on has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial 77 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer expansion of existing units. On this aspect there is not dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy assistance is given which determines the nature of the incentive subsidy. The form of the mechanism though which the subsidy is given is irrelevant.
15. In the decision of House of Lords in the case of Seaham Harbour Dock Co. V. Crook [1931] 16 TC 333 the Harbour Dock Co. had applied for grants from the unemployment Grants Committee from funds appropriated by Parliament. The said grants were paid as the work progressed the payment were made several times for some years. The Dock Co. had undertaken the work of extension of its docks. The extended dock was for relieving the unemployment. The main purpose was relief from unemployment. Therefore, the House of Lords held that the financial assistance given to the company for dock extension cannot be regarded as a trade receipt. It was found by the House of Lords that the assistance had nothing to do with the trading of the company because the work undertaken was dock extension. According to the House of Lords, the assistance in the form of a grant was 78 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer made by the Government with the object that by its use men might be kept in employment and, therefore, its receipts was capital in nature. The importance of the judgment lies in the fact that the company had applied for financial assistance to the Unemployment Grants Committee. The Committee gave financial assistance from time to time as the work progressed and the payments were equivalent to half the interest for two years on approved expenditure met out of loans. Even though the payment was equivalent to half the interest amount payable on the loan (interest subsidy) still the House of Lords held that money received by the company was not in the course of trade but was of capital nature. The judgment of House of Lords shows that the source of payment or the form in which the subsidy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily such payments would have been on revenue account but since the purpose of the payment was to curtain/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital nature.
16. one more aspect needs to be mentioned. In Sahney & Press Works Ltd.'s case (supra) this court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock 79 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer Co. (supra) assesee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, receipt of subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business.
17. Applying the above tests to the facts of the present case and keeping in mind the object behind the payment of incentive subsidy we are satisfied that such payment received by the assessee under the Scheme was not in the course of a trade but was of a trade but was of capital nature. Accordingly, the first question is answered in favour of the assessee and against the Department."
11.3 If we apply the purpose test on the facts of the present case, essentially such waiver of electricity duty is related to setting up and expansion of industry hence capital in nature as per notification issued by the State Government. Under these undisputed facts, we do not see any reason to disturb the finding of the Ld. CIT (A), same is hereby affirmed. This ground of the revenue's appeal is dismissed."
80 ITA No. 162, 181, 178 & 182/JP/2016Shri Cement Limited, vs. ACIT, Ajmer
47. Respectfully following the decision of the Hon'ble Rajasthan High Court in assessee's own case wherein the object and purpose test has been held to be determinative of the character of receipt in the hands of the assessee company and our own decision in case of Hindustan Zinc (supra) wherein we have examined the Rajasthan Investment Promotion policy 2003 in context of electricity duty exemption, we affirm the action of the ld CIT(A) and hold the receipt on account of electricity duty exemption as capital receipt. Hence, the same cannot be brought to tax in the hands of assessee company under the normal computational provisions as well as while determining the books profits under section 115JB of the Act. In the result, ground 3 and 4 of revenue's appeal are dismissed.
48. In the result, the revenue's appeal is dismissed.
The respective appeals are thus disposed off with above directions.
Order pronounced in the open court on 28/12/2017.
Sd/- Sd/-
(KUL BHARAT) (VIKRAM SINGH YADAV)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 28/12/2017
*Ganesh Kr.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Cement Ltd., Ajmer
2. izR;FkhZ@ The Respondent- ACIT, Ajmer
3. vk;dj vk;qDr@ CIT 81 ITA No. 162, 181, 178 & 182/JP/2016 Shri Cement Limited, vs. ACIT, Ajmer
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File { ITA No.162, 181, 178 & 182/JP/2016} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar