Income Tax Appellate Tribunal - Kolkata
Dcit, Cir-10(1), Kolkata, Kolkata vs M/S Indian Oil Petronas Pvt. Ltd., ... on 31 January, 2018
1 ITA No. 1468/KOL/2015
Assessment Year: 2009-2010
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member and
Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A. No. 1468/KOL./2015
Assessment year: 2009-2010
Deputy Commissioner of Income Tax,........ ..................Appellant
Circle-10(1 ), Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
-Vs.-
M/s. Indi an Oil Petronas Pvt. Limi ted,..... .................Respondent
Acropolish, 12 t h Floo r,
Unit-I & II,
1858/1, Rajdanga Road,
Kolkata-700 107
Appearances by:
Shri G. Mallikarjuna, CIT, D.R., for the Department
Shri Akkal Dudhwewala, A.R., for the assessee
Date of concluding th e hearing : January 17, 2018
Date of pronouncing the order : January 31, 2018
O R D E R
Per Shri P.M. Jagtap, Accountant Member :
This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-4, Kolkata dated 21.09.2015, whereby he granted relief to the assessee on account of sales tax subsidy by treating it as capital receipt not liable to tax by entertaining the claim made by the assessee for the same without filing a revised return.
2. The assessee in the present case is a Company, which is engaged in the business of manufacturing, trading and terminalling of liquefied petroleum gas. The return of income for the year under consideration was 2 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 filed by it on 29.09.2009 declaring total income of Rs.14,09,87,750/-. During the course of assessment proceedings, a fresh claim was made by the assessee for exclusion of sales tax subsidy received from the Government amounting to Rs.14,91,51,889/- on the ground that the same was capital receipt not chargeable to tax. The relevant details and documents in support of the said claim were also furnished by the assessee before the Assessing Officer. Since the said claim was not made by the assessee in the return of income filed by it and there was no revised return filed by the assessee making the said claim, the ld. CIT(Appeals) did not entertain the same by relying on the decision of the Hon'ble Supreme Court in the case of Goetz India Limited [284 ITR 323] and proceeded to complete the assessment under section 143(3) vide an order dated 25.03.2013 without considering the claim of the assessee for exclusion of sales tax subsidy.
3. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee and after considering the submissions made by the assessee as well as the case laws cited in support, the ld. CIT(Appeals) admitted the claim of the assessee for exclusion of the sales tax subsidy for the following reasons given in paragraph no. 5.2 of his impugned order:-
"5.2. I have considered the submissions of t he AR and perused various judicial decisions cited befo re me in suppo rt of the appellant's claim. It is observed th at t he claim made by th e appellant in the present appeal that the amo unt of incent ive of Rs.14,91,51,889/- received in the form of sales tax remission from the West Bengal Government under the "West Bengal Incent ive Scheme, 1999 is a capital receipt not liable to tax was admittedly not made in the return of income filed u/s 139(1) as well as u/s 139(5). In the course of proceedings u/s 143(3) befo re the appellant however made this cl aim by filing a letter and thereafter submitted support ing documents Fro m the assessment o rder I find that the AO rejected the claim of the appellant primaril y on the ground th at such 'claim was not made by the appellant in the ret urn of income and therefore there was no question of allowing deduction In respect of subsidy received by the appellant from the St ate Government by way of sales tax remission. In view of the judicial decisions and the ratio laid do wn by the Supreme Court in the case of Jute Corporation of India Lt d Vs CIT (187 ITR 6 88) & National Thermal Po wer Co. Ltd Vs CIT (229 ITR 383) and Calcutta, Bombay & Delhi High Courts in Mayank Poddar (HUF) vs. WTO (262 3 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 CTR 633), CIT vs. Prut hvi Brokers and Shareholders Pvt. Ltd, (252 CTR
151), CIT vs. Jai Parabolic Springs Ltd (3 06 ITR 42) and also ITAT, Kolkata in the case of DCIT vs. Ramesh Chandra Kedia (ITA No. 2072/Kol/2007) dated 27.06.2008, I am inclined to hold that an assessee is legally entitled to make a fresh claim in the appellate proceedings even if such claim was not made in the return of income.
In view of these judicial decisions the claim made by the appell ant is admitted for adjudication".
4. The ld. CIT(Appeals) also considered the claim of the assessee for exclusion of sales tax subsidy on merit and allowed the same vide paragraph no. 5.3 to 5.14 of his impugned order, which read as under:-
"5.3 During th e year under consideration t he appellant company received incent ive of Rs.14,91,51 ,889/- in the form of sales tax remissio n under th e 'West Bengal Incent ive Scheme, 1999' and which was credit ed t o the profit and loss account under the said scheme, West Bengal Indust rial Development Corporation Limited issued an " Eligibilit y Certificate to the appellant being No. INC(99)/EC-87(B ) dated 4 t h June 2002. The Eligibility Certificate was issued fo r appell ant's pro ject at Block Sutahat a Block-1, Po st Office Haldia 721602 Police Station Bhabhanipur Dist rict Midnapur (E) fo r the manufacture of blended LPG having capacity of 6,00,000 tonnes. As per the scheme the West Beng al Indust rial Development Corporation Ltd. sanct ioned the incentive in t he form of remission of sales tax on sale of finished goods due fo r payment by it fo r a period of 9 years subject to ceiling of 100% of the gross value of fixed capital assets of t he appro ved pro ject or R.75 cro re whichever is less, as per para 10.1.1(ii), 10 1.7 of t he scheme It therefo re appeared that the incentive in the fo rm of sales tax remission was for setting up of a new industrial unit .
5.4. On perusal of West Bengal Incent ive Scheme. 1999, notified o n 22.06.1999, it is observed that it starts with the wo rdings "Whereas, the Governor is of the opinion that it necessary and expedient to extend incentive fo r pro motion of indust ries in th is State;
Now, therefo re, the G overnor is pleased hereby. in supersession of the West Bengal Incentive Sch eme, 1 993 sanctioned under Commerce & Indust ries Depart ment's No tification No 188-CIIC dated 3003 1993 and amended fro m time t o time, to approve and sanctio n the Incentive Scheme fo r large, medium and small scale industrial unit s as under:
Section 4 of the WBIS provide the applicability of the 1995- Scheme and it says that it shall general ly be applicable to all large, medium cottage and small scale pro jects and tourism units in large/medium sect or to be set up and also to expansion pro jects 4 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 of existing units on o r aft er the 1st April, 1999. The units may be in the private secto r, co-operative secto r, Joint secto r as al so companies/undertakings owned or managed by the St ate Government. Section 6 of the Scheme pro vide the ' Eligibil ity Criteria for incentives under the 1999-Scheme' and section 7 pro vides 'Classification of Develo ped areas and Backward areas' in three groups viz. G roup A, Group B and Group C The appellant's pro ject falls under G roup B. Section 8, 9, 10 and 11 provide for various t ypes of incentives and subsidies which are 'Stat e Capital Invest ment Subsidy' , 'Sales Tax'. 'Waiver o f Electricit y Dut y' and 'Subsidy for co nversion of piped co al gas' etc. From the above, it was observed th at the Scheme-1999 was announced fo r pro motio n of indust ries in the State of West Bengal with vario us incentives and subsidies as mentioned above As per Scheme, the incentives were to be given fo r setting up of new units or expansio n of the existing units and th e same was not to facilitate the trade o r business of the indust ries.
5.5. Thus, th e main o bject and purpose of the Sche me fo r which it was sanct ioned was ' Promotion of indust ries in the St ate of West Bengal' . Similar Schemes were sanct ioned by th e State Government earlier also to pro mote setting up of Indust ries in th e State and under those schemes vario us incentives we re given t o the registered and eligible indust ries. The Prime Object of all th e Schemes was to provide incentives to pro mote indust ries in th e State of West Bengal. With this object West Bengal Incentive Scheme. 1999 was announced by the St ate Government w.e.f. 1 s t April. 1999 which was in supersession of West Bengal Incentive Scheme 1993. It is observed that in the case of appellant company.
West Bengal Indust rial Development Corporation Ltd, vide lett er no. INC(99)/EC -87(B ) dated 4th June 2 002 issued Eligibilit y Certificate to the appellant for setting up a new unit fo r th e manufacture of blended LPG at Block - Sutah ata Block-I. Po st Office H aldia-721602 Police St ation Bhabhanipur District Midnapur (E). As per the appro val letter, the appell ant co mpany was granted Incentives in the form of remissio n of sales t ax, exemptio n of sales tax and waiver of elect ricit y dut y As per the Scheme. th e Incentive was provided for sett ing up of new unit, but the mode of calcul ation of incentive was sales tax paid/collected by the appellant In view of the foregoing facts & circumstances. I am of the o pinion th at it would not be correct to say that th e subsidy/incent ive was given to the appell ant for the purpose of assisting in carrying on business or t rade by way of refund of sales t ax o r that there was cessation of l iability o n account of payment of sales t ax attracting the provisions of sectio n 41(1) of the act Though. the method of calculation of incentive/subsidy is collection of sales tax but the purpose of giving the incentive was setting up/expansion of indust ries in the backward areas of the State of West Bengal. On perusal of approval letter/eligibilit y certificate, it is apparent th at the incentive was allowed to th e appellant company fo r setting up a new unit for manufact ure of 6.00,000 tonnes per year of Blended LPG . T he sole objective of th e scheme formul ated by the Stat e Government was to allow incentive to the ent repreneurs to establish the new indust ries or 5 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 expand the existing industries in back ward area for overall economic develo pment of the St ate of West Bengal . On going through the West Bengal Incentive Scheme, it is observed th at the subsidy was not allowed to assist the appellant company in carrying on it s trade or business or carrying out the business operation. The unit which was set up by th e appellant company, is located in the backward area of Village-Hal dia. District-Midnapur in the Stat e of West Bengal . As per the Incentive Sch eme. 1999, the appellant's unit falls under G roup-B of classification of areas. Accordingly. the appellant company had received incentive in th e form of sales tax remission and other incentives specified for group-B locatio n. Since, the incentive has not been allowed to the appellant-company for facilitating its business or trade, th e amount received by the appellant on account of sales tax remissio n, would be capit al in nat ure.
5.6. The Supreme Co urt in the case of CIT vs Ponni Sugars & Chemicals Ltd. (306 ITR 392) applying the principles laid down in the earlier decision In the case of Sahney Steel & Press Wo rks Ltd (supra) held that the character of a subsidy receipt in the hands of the assessee under th e sch eme has t o be determined wit h respect to the purpo se for which the subsidy is granted In th e opinion of the Apex Court, one h as to apply the purpose test. T he point of time at which the subsidy is paid is not relevant . The source is immat erial If the object of the subsidy i s to enable t he assessee to run the business more profit abl y then the receipt is o n revenue acco unt On t he other h and, If th e object of the assist ance under the subsidy sch eme is to enable the assessee to set up a new unit or to expand an existing unit then th e receipt of the subsidy would be on capit al account. In the case of appellant company, t he incentive was received from the West Bengal Government under the West Bengal Incentive Scheme, 1999 in the form sales t ax remissio n However, t he sole object of the incentive scheme was to enable the appellant to set up a new manufacturing unit at village-Haldia. Dist rict-Midnapur. In the case of appellant it h ad Invested a subst antial amo unt in fixed capit al assets for th e purpose of setting up a new unit . Hence, as per the principles laid down by the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Lt d (Supra), the receipt on acco unt of incentive in the form of sales tax remission received by the appellant was o n capit al account .
5.7. The Calcutt a High Court In the case of CIT vs , Rasoi Ltd (33 5 ITR 438) observed th at the assessee received a subsidy amount of Rs.5 ,34,86,887/- as Indust rial Pro motion Assistance from th e Government of West Bengal. In the books of account , th e said amount was shown as inco me under the head "Other Inco me" . In the notes to acco unts, the assessee mentio ned th at although th e amount had been accounted fo r in the abo ve manner, th e company has been legall y advised that it was of the nature of capit al receipt fo r the purpose of comput ation of taxable income and in the return of income filed by the assessee, it claimed the amount to be in the nature of capit al receipt The AO dismissed the claim of the appellant and h eld that the subsidy was utilized fo r meeting 6 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 revenue disbursements and therefore, was supplement ary t rade receipts and to be considered as revenue receipts The CIT (A) confirmed th e order of the AO. However. the ITAT allowed th e appeal of the assessee and hel d it as capit al in nature. On appeal before the Hon'ble High Court the revenue contended th at for determining the nature of subsidy, the three factors are required to be seen-(i) whet her the benefit of incentive/subsidy was available only to new units o r expanded unit s without any intentio n to supplement the trade receipt s or it was in the nature of a help with an int ention to supplement t he trade receipt s of an existing undertak ing, (ii) whether the benefit is given before t he start of production o r aft er th e st art of productio n, (iii) wheth er the scheme, by which benefit is given, permits the beneficiary to utilize th e money according to its wish or whether it restrict s o r put any limit on the utilizatio n of the amount In this case, t he assessee has, by virt ue of the scheme, got back the sales-t ax payable by it to the State Government and thus. the same sho uld be treat ed as revenue receipt as held by th e Supreme Court in th e case of Sahney Steel & Press work s Lt d (supra) The assessee contended that the object of the scheme was helping the indust ries with capit als In the case of Sah ney St eel & Press Wo rks Lt d (supra), the question was wheth er the grant of subsidy h ad fallen within the purview of Sec. 41 (1) of the Act and such question was answered against the assessee However, m the case of assessee, although the subsidy was equivalent to the amount paid by t he assessee to the St ate Government by way of sales-tax, yet . th e same could not be termed as subsidy "in terms of refund of sales- tax paid" After hearing both the parties, the Hon'ble Calcutta High Court held as fol lows:
"The object of the subsidy is for expansion of their capacit ies, modernizatio n, and improving their mark eting capabilities and thus, tho se are for t he assist ance on capital account. Similarl y, merely because the amount of subsidy was equivalent to 90% of the sales-t ax paid. As pointed o ut by th e beneficiary does no t impl y that the same was in the fo rm of refund of sales-t ax paid. As painted out by the Supreme Court in the case of Sen airam Doongarmall vs C IT, Assam, repo rted in AIR 1961 (SC) 1579, it is the qualit y of th e payment th at is decisive of the charact er of th e payment and not the method of the payment o r its measure and makes it fall within capit al or revenue Thus, in the case before us, the amount paid as subsidy was really capit al in nature" .
5.8. In the case of appellant , the incentive in the form of sales tax remissio n, though , calculated on the basis of payment/collection of sales-t ax, was received by it under the West Bengal Incentive Scheme, 1999 for setting up of new manufacturing unit . I find that the decision of the Honble Calcutt a High Court In the case of Rasoi Ltd (supra) is squarely applicable to the facts of the appellant' s case and therefo re the Incentive received by way of sales t ax remissio n is capital in nat ure.
5.9. Similar issue was decided by the Hon'ble Jurisdictional High Court in the case of CIT vs. M/s. St rassenburg Pharmaceuticals Lt d 7 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 (G.A. 20142 of 2011) dated 21.07.2011 holding that various amounts received by the assessee as subsidy under the West Bengal Indust rial Promotion Assist ance is capital in nature following the decision in the case of M/ s Rasoi Limited (supra).
5.10. Similar Issue was again decided by t he ITAT, Kolkata In t he case of DC IT -vs.- Ank it India Lt d. (ITA No 1330/KoI/2010). In t he decided case the assessee was engaged in t he production of Wheat products viz Att a. Maida. SUJi and Bran The assessee filed its return of income o n 1/11/2004 disclosing tot al inco me of Rs.57 ,48,960/- The assessment was compl eted u/ s 143(3) of the Act on 29/12/2006 at an assessed inco me of Rs.1,82,06,720/- which. Int er alia. Incl uded addit ion of Rs.4 1,49,365/- as sales tax remissio n t reating it is a regul ar inco me Instead of capital receipt as claimed by the assessee Befo re the AO, the assessee explained that the said remission of sales-tax has been granted by t he Government of West Bengal under West Bengal Incenti ve Sch eme for promotio n of industrializatio n of the backward areas if th e State The incentive was given fo r setting up or expansio n of t he existing units and. th erefo re it was in capital field and hence not includible as revenue receipt However, the contention of t he assessee was not accepted by the AO and relying on the decisio n of Supreme Court In th e case of Sah ney St eel & Press Work s Lt d (supra). The AO held that the amo unt received by th e assessee o n account of sales t ax remissio n was revenue In nat ure and added the same In the income of the assessee. On appeal , the CIT (A) deleted the said addit ion. On appeal by the Department, th e IT AT , Kolkata following the decision of its coordinate bench In th e case of Maith an Alloys Ltd Vs. DC IT (ITA Nos. 996 to 1001 of 2006) and ITAT, Mumbai in the case of DCIT vs. Reliance Indust ries Limited (82 TTJ 765) uphel d t he order of the C IT(A) holding the receipt as capit al in nature. Aggrieved, the Revenue filed further appeal before the Calcutt a High Court The Calcutta High Court in their order In ITAT No. 2 49 of 2011 dated 08.09.2011 dismissed the appeal filed by the depart ment and upheld the order of t he Tribunal .
5.11. Appellant's reliance on the decision in the c ase of DCIT Vs Teesta Agro Industries Ltd (IT A No. 1237. 1 053 & 1753/Kol/2010) dated 07.01.2011 is also found to be of rel evance since the fact s were pari materia with the appellant's case In th at case the AO found that the assessee had claimed that t he incentive received by it in the form of sales-t ax remission under the West Bengal Incentive Scheme. 1999 was a capital receipt , not chargeable to income tax. The AO h eld that unpaid sales tax wh ich was remitt ed by the Govt of West Bengal under WBIS was in the nature of trade receipt and hence taxable as assessee's income. The AO treated the incentive as revenue receipt relying on the decisio n in the cases of Supreme Court in Sah ney St eel & Press Wo rks Ltd vs C IT (228 IT R
253), Madras High Court In CIT vs. Ponni Sugars & Chemicals Lt d. (260 ITR 605). Calcutta High Court in B Marino Ply & Chemicals Ltd vs. C IT (209 ITR 508) and Andh ra Pradesh High Court In C IT vs. Tirumala Bricks & Tiles Facto ry (217 IT R 547) On first appeal, the CIT(A) held that t he assist ance given by the St ate Go vernment by way of sales-tax remission is in the nature of capit al receipt 8 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 and accordingl y he directed the AO t o delete the addit ion. Aggrieved by th e said order, the Revenue filed an appeal befo re the ITAT, Kolkata. After hearing both the sides, the IT AT held as under.
5.12. Similar view was reiterated by the IT AT, Kolkat a in IT O Vs Duroplas India Pvt. Ltd (ITA Nos 1983. 1984 and 1985/Kol/2008) as well wherein the incentive/subsidy received by the assessee from the Government of West Bengal under the WBIS, 1999 was held to be capital in nature as the incentive was pro vided by the Stat e Government for industrial promotio n in the State of West Bengal .
5.13. The claim made by the appellant th at the amount received from th e Govt . of West Bengal in the fo rm of sales t ax remissio n for setting up a new unit is capit al in nat ure: also finds suppo rt from the decision of t he following High Courts:
- DCIT vs. Inox Leisure Ltd. (351 IT R 314) (Guj)
- C IT vs. Reliance Industries Ltd. (339 IT R 632) (Bom)
- Shree Balaji Alloys vs. C IT (333 IT R 335) (J&K)
- C IT vs. Chaphalk ar Bros. (215 T axman 145) (Bo m) 5.14. Respect fully fo llowing the principl es laid down in th e judicial pronouncements of the Supreme Court , jurisdictional Calcutta High Court, other High Courts and the juri sdictio nal ITAT, Kolkat a as discussed abo ve. I h ave no hesitation in holding that the incentive of Rs.14 ,91,51,889/- received by the appellant company in the form of sales tax remission under West Bengal Incentive Scheme 1999 is capital In nature. I th ere fore hold th at the said receipt was not assessable as income of the appellant.
The AO is acco rdingly directed to excl ude the sales tax incentive of Rs.14 ,91,51,889/- while assessing the total inco me of t he appellant".
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
5. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the solitary issue involved in this appeal of the Revenue relating to the assessee's claim for exclusion of sales tax subsidy on the ground that it is capital receipt not chargeable to tax is squarely covered in favour of the assessee, inter alia, by the decision of the Hon'ble Calcutta High Court in the case of CIT -vs.- Rasoi Limited [335 ITR 438], on which reliance has been placed by the ld. CIT(Appeals) in his impugned order while giving relief to the assessee on this issue. Even the ld. D.R. has not been able to 9 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 dispute this position. He, however, has supported the additional ground filed by the Revenue raising the issue of violation of Rule 46A of Income Tax Rules by the ld. CIT(Appeals) and contended that when the fresh claim made by the assessee for exclusion of sales tax subsidy, otherwise than by filing a revised return, was not entertained by the Assessing Officer by relying on the decision of the Hon'ble Supreme Court in the case of Goetz India Limited (supra), the ld. CIT(Appeals) ought to have given opportunity the Assessing Officer to examine the said claim of the assessee as required by Rule 46A of the Income Tax Rules. We, however, find merit in the contention raised by the ld. counsel for the assessee in this regard that there being no additional evidence filed by the assessee before the ld. CIT(Appeals) in support of its claim for exclusion of sales tax subsidy, Rule 46A has no application and the ld. CIT(Appeals) was not required to give any opportunity to the Assessing Officer to verify the claim of the assessee. The ld. CIT (D.R.) has urged that such opportunity even otherwise deserves to be given to the Assessing Officer in the interest of substantial justice. It is, however, observed that the ld. CIT(Appeals), who is having co-terminus powers to that of the Assessing Officer, has already examined this issue in detail in the light of the material available on record including the scheme of the West Bengal Government under which the amount of sales tax subsidy in question was received by the assessee and after having satisfied himself on merit, he has allowed the claim of the assesee for exclusion of sales tax subsidy by treating the same as capital receipt not chargeable to tax. Moreover, as already noted by us, this issue is squarely covered in favour of the assessee by the decision of the Hon'ble Calcutta High Court in the case of Rasoi Limited (supra) and since the ld. CIT(Appeals) has given relief to the assessee on this issue by relying on the said decision of the Hon'ble jurisdictional High Court, we are of the view that no cause of justice is going to be served by sending the matter back to the Assessing Officer for examination. We, therefore, uphold the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee for exclusion of sales tax 10 ITA No. 1468/KOL/2015 Assessment Year: 2009-2010 subsidy by treating the same as capital receipt not liable to tax and dismiss this appeal of the Revenue.
6. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 31 s t day of January, 2018.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Accountant Member
Kolkata, the 31 s t day of January, 2018
Copies to : (1) Deputy Commissioner of Income Tax,
Circle-10(1 ), Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
2) M/s. Indi an Oil Petronas Pvt. Limi ted,
Acropolish, 12 t h Floo r,
Unit-I & II,
1858/1, Rajdanga Road,
Kolkata-700 107
(3) CIT(Appeals)-4 , Kolkata,
(4) CIT- , Kolkat a,
(5) The Depart ment al Represent ative
(6) Guard File
TRUE COPY
By Order
Senior Private Secretary,
Head of Office/DDO,
Income Tax Appellate Tribunal
Kolkata Benches, Kolkata
Laha/Sr. P.S.