Income Tax Appellate Tribunal - Kolkata
Dcit, Circle-10, Kolkata, Kolkata vs M/S. Bsl Ltd., Kolkata on 14 February, 2020
ITA No. 2105/KOL/2014
Assessment Year: 2008-2009
M/s. BSL Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Before Shri P.M. Jagtap, Vice-President
and Shri Satbeer Singh Godara, Judicial Member
I.T .A. No. 2105/KOL/2014
Assessment Year: 2008-2009
Deputy Commissioner of Income Tax,........ ..................................Appellant
Circle-10, Ko lkata,
Aayakar Bhawan, 3 r d Floor,
P-7, Chowringhee Square,
Kolkata-700069
-Vs.-
M/s. BSL Limited,...........................................................................Respondent
151, Sarat Bose Road,
Kolkata-700020
[PAN:AABCB0639G]
Appearances by:
Shri S.D. Verma, Advo cate & Sh ri Sanjeev Kadel , FCA, for the Appellant
Shri Dhrubajyoti Roy, JCIT, for the Responden t
Date of concluding th e hearing : February 10, 2020
Date of pronouncing the order : February 14, 2020
O R D E R
Per Shri P.M. Jagtap, Vice-President:-
This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-XII, Kolkata dated 01.09.2014 and in the solitary ground raised therein, the Revenue has challenged the action of the Id. CJT(Appeals) in directing the Assessing Officer to treat the interest subsidy received by the assessee as capital receipt not chargeable to tax.
2. The assessee in the present case is a Company, which filed its return of Income for the year under consideration on 25.09.2009 declaring a loss of Rs.10,58,28,082/-. In the assessment originally 1 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited completed under section 143(3) vide an order dated 01.09.2010, the total loss of the assessee was determined by the Assessing Officer at Rs.8,96,39,082/-. The said assessment was subsequently set aside by the ld. CIT vide an order dated 08.12.2010 passed under section 263 with a direction to the Assessing Officer to complete the assessment afresh on certain issues as pointed out in the order under section 263. In compliance with the order of the Id. CIT passed under section 263, a fresh assessment was made by the Assessing Officer vide an order dated 22.12.2011 determining the total loss of the assessee-company at Rs.7,13,55,082/- after making addition of Rs.1,82,84,000/- on account of the interest income.
3. Against the order passed by the Assessing Officer under section 143(3) read with section 263, an appeal was filed by the assessee before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), additional ground was raised by the assessee claiming that the interest subsidy of Rs.3,04,53,559/- received by it under Technology Upgradation Fund Scheme (TUFS in short) during the year under consideration was liable to be treated as capital receipt not chargeable to tax instead of revenue receipt chargeable to tax as offered by the assessee in its return of income. The said additional ground along with the submissions made by the assessee in support of its case on the issue raised therein was forwarded by the ld. CIT(Appeals) to the Assessing Officer seeking the latter's remand report. In the remand report submitted to the ld. CIT(Appeals), the Assessing Officer strongly objected to the admission of the additional ground raised by the assessee by submitting that the issue raised therein was not the subject matter of either the original assessment made under section 143(3) or even the fresh assessment made under section 143(3) read with section 263. The ld. CIT(Appeals), however, did not find the objection raised by the Assessing Officer to be sustainable and after discussing this aspect in detail in the light of various judicial pronouncements, he admitted the 2 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited additional ground raised by the assessee. In the remand report, the claim of the assessee as made in the additional ground for treating the interest subsidy received under TUFS as capital receipt was also challenged by the Assessing Officer by relying mainly on the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Limited [228 ITR 253]. The Id. CIT(Appeals), however, found that the issue raised by the assessee-company in the additional ground was squarely covered in favour of the assessee on merit by the decision of the Kolkata Bench of ITAT in the case of DCIT -vs- M/s. Gloster Jute Mills Limited (ITA No. 766/KOL/2010 dated 02.07.2014), wherein the interest subsidy received by the assessee under the same TUFS was held to be capital receipt by the Tribunal after taking into consideration the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Limited (supra). He accordingly followed the said decision of the Tribunal and directed the Assessing Officer to treat the interest subsidy received by the assessee- company under the TUFS as capital receipt not chargeable to tax. Aggrieved by the order of the ld. CIT(Appeals) giving relief to the assessee on this issue, an appeal was preferred by the Revenue before the Tribunal. The said appeal was dismissed by the Tribunal vide its appellate order dated September 18, 2017 by following the decision rendered by the Coordinate Bench of this Tribunal in the case of M/s. Gloster Jute Mills Limited (ITA No. 766/KOL/2010 dated 02.07.2014), wherein a similar issue relating to the assessee's claim of treating the interest subsidy received under TUFS as capital receipt not chargeable to tax had been allowed by the Tribunal. The said order of the Tribunal dated September 18, 2017 was challenged by the Revenue in the appeal filed before the Hon'ble Calcutta High Court and Their Lordships of Hon'ble Calcutta High Court as per the judgment delivered on 27.03.2019 in I.T.A. No. 15 of 2019 set aside the order of the Tribunal and remanded the matter back to the Tribunal by observing as under:-
"We have examined the impugned order of the Tribunal. The Tribunal has simply referred to the subsidy scheme without specifying the scope, purport or 3 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited the details of it. Simply because the subsidy scheme has been declared by the Tribunal to be capital receipt in the case of other assessees, it pronounced the decision in this case that it was to be treated as such.
In our view, that was not the correct approach. The subsidy scheme had to be analysed threadbare. The question whether the subsidy incentive was being utilized for the purpose of meeting the interest liability of the company on loans and advances taken by it to set up its plant and machinery had to be investigated and a firm conclusion ought to have been arrived at. Only if it was so utilized, possibly, the subsidy incentive could be described as a capital receipt. Otherwise it had to be treated as a revenue receipt.
In those circumstances, we remand the matter back to the Tribunal to decide this particular issue upon hearing the parties and by a reasoned order within three months from the date of communication of this order".
Hon'ble High Court of Calcutta thus remanded the matter back to the Tribunal with a direction to decide the issue involved in the assessee's case afresh after examining/ analysing the concerned subsidy scheme and utilization of subsidy incentive for the specific purpose.
4. As per the order/direction of the Hon'ble Calcutta High Court, the case has been fixed for hearing afresh and arguments of both the sides have been heard. It is observed that the interest subsidy in question was received by the assessee under Technology Upgradation Fund Scheme (TUFS in short) of the Ministry of Textiles and the objective and scope of the said Scheme as well as the eligibility criteria for assistance as given in the Resolution dated 31.03.1999 published in the Official Gazette of India is extracted below:-
"Objec tive:-
The Indian t extile indust ry occupies a unique position in the Indian economy in t erms of its cont ribut ion to indust rial production, emplo yment and exports. In spit e of a st rong fibre and production base, fo r various hist orical reasons, this indust ry suffers from severe technological obsolescence and l ack of economies of scale. While relatively high cost of st ate-of-the-art technology and st ructural anomalies in the indust ry have been majo r cont ributory factors, 4 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited perhaps the singlemost import ant factor inhibit ing tech nology upgradat ion has been the relatively h igh cost of capit al, even in real terms, in India, especially fo r an industry usually squeezed for margins. Given the significance of this industry to the o verall h ealth of the Indian eco nomy, it s employment potential and the huge historical backlog o f technology upgradation, particul arl y in the context of the liberalisat ion of the national indust rial and trade policy and globalisat ion of textile track, it has been emphasised by expert s that in order to sustain and improve it s competitiveness and overall long term viability, it is essential for the textile indust ry to have access to t imely and adequate capit al at internatio nally comparable rates of interest in o rder to upgrade its technology l evel.
In the light of the foregoing, it h as been felt nec essary to make operational a focussed and time-bound Technology Upgradat ion Fund Scheme(TUFS) which would provide a focal point for modernisation efforts th rough tech nology upgradation in th e indust ry. The main feature of the TUF Scheme woul d be a five percent reimbursement on the int erest act ually charged by the ident ified financial institutions on the sanctioned pro jects.
Resolution:
It is, th erefore, resolved th at a Tech nology Upgradatio n Fund Scheme be made operational for the text ile, jute and cotton ginning & pressing indust ries w.e.f. 1.4.1999 fo r a period of 5 years i.e., up to 31 s t March 2004, which was subsequently extended up to 31.3 .2007.
The scheme will provide a reimbursement o f five percentage points on the interest ch arged by the lending agency on a project of t echnology upgradat ion in co nformity with th is resolut ion.
With effect from 1 s t J anuary, 2002, an o ption has been pro vided to the Small Scale Textile and Jute Indust ries to avail of eith er 12 percent Credit Linked Capit al Subsidy (CLCS-TUFS) o r 5 perc ent int erest reimbursement under Technology Upgradat ion Fund Scheme. The rate of 12 percent h as been increased to 15 percent w.e.f. 13.01.2005.
With effect fro m 6 t h November, 2003, an addit ional option has been pro vided to the powerloom units to avail of 20% capital subsidy under TUFS in lieu of 5% interest reimbursement / 15% CLC S-T UFS on investment in TUF co mpatible specified machinery subject to a capit al ceiling of Rs. 60 lakh and ceiling on capit al subsi dy is Rs.12 Iakh . The capit al ceiling for machinery has been increased from Rs.60 lakh to Rs.1 crore and the ceiling on capit al subsidy has also been increased from Rs.12 lakh to Rs.20 lakh w.e.f. 13 .01.2005.
An additio nal incentive of 10% capital subsidy o ver and above t he 5% interest subsidy has been provided fo r the specified textile processing machinery during a period of one year from 20' April, 2005 t o 19 t h April, 2006, which was subsequently extended upto 31.03.2007, i.e., co-terminus with T UFS.
5 ITA No. 2105/KOL/2014Assessment Year: 2008-2009 M/s. BSL Limited The scope of the scheme, eligibilit y criteria and operat ional parameters are defined below:
1. SCOPE OF THE SCHEME The following will be covered under th e Technology Upgradation Fund Scheme : -
a) Cotton ginning and pressing.
b) Textile indust ry co vering: -
(i) Silk reeling and twisting.
(ii) Wool sco uring and combing.
(iii) Synthet ic fil ament yam text urising, crimping ancl twisting.
(iv) Spinning.
(v) Visco se Staple Fibre (VSF) and Viscose Filament Yarn.(VFY).
(vi) Weaving, knitting including non-wovens, fabric embroidery and technical t extiles.
(vii) G arment/made-up manufacturing
(viii) Processing of fibres, yams, fabrics, garments and made-ups.
c) Jute industry.
II. ELIGIBILITY CRITERIA FOR ASSISTANC E
1. DEFIN ITION OF TECHNOLOGY UPGRADATION Technology Upgradat ion would o rdinarily mean induction of state-of-the-art o r near- st ate-of-the-art t echnology. But in the widely varying mosaic of t echnology obtaining in th e Indian textile indust ry, at least a significant step up fro m th e present technology level to a subst antially high er one for such t railing segments would be essential. Accordingl y, t echnology levels are benchmark ed in terms of specified mach inery for each sector of the textile indust ry. Machinery with tech nology levels lower than th at specified will not be permitted fo r funding under the TUF Scheme.
2. ELIGIBLE MACHINERY Inst allation of the following types of mach inery in a new unit or in an exist ing unit by way of replacement of exi sting machinery and / or expansion will be eligible fo r coverage under TUF sch eme:
2.1 Cotton Ginning and Pressing -
2.2 Spinning/Silk Reeling & Twisting/ Wool Scouring & Combing/ Synth etic filament yam T exturising, C rimping & Twisting-
2.3. Manufacturing of viscose fil ament yarn and viscose stapl e fibre -
2.4. Weaving / Knitting including non-wovens and Tech nical Textiles-_ 2.5 Garment / Made-up manufacturing 6 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited 2.6 Processing of fibre / Yarn / Fabrics / G arment s / made-ups 2.7 Jute indust ry 2.8 Energy saving & process cont rol equipments for vario us secto rs 2.9 Machinery eligible under 20% CLCS-TUFS fo r powerloom sector 2.10. Machinery eligible under 10% capital subsidy for processing sector Note Vide circular No.2 (2004-2005 series) dated 27 t h May, 2004, the machinery eligible for one segment h as be en made eligible for other segment s/activity also unless its eligibility is specifically rest rict ed fo r a particular segment .
1. GENERAL ELIGIBILITY CONDITIONS
3.1 TYPE OF UN ITS :
(1) Existing unit with or without expansion and new units.
(2) Exist ing unit s can modernise and / o r expand with the state-of-the-art technology.
(3) New units must set up th eir entire facilities onl y with the appro priat e eligible t echnology.
(4) A unit can undertake one o r more activities list ed at I-
SCOPE OF THE SCH EME hereinbefore under the scheme. However, multiple activities can be undertak en only in an integral manner, i.e., by way of fo rward o r backward integratio n. It is, ho wever, clarified that weaving / k nitting and garment manufacturing o r weaving / knitt ing and processing or garment manufacturing and processing will be considered as integral activities.
(5) Textile / Jute unit s with 100% foreign equity.
3.2 TYPE OF TEXTILE MACHINERY ELIGIBLE :
(I) Under the TUF Scheme, generally onl y new machinery will be permitted.
(2) However, the following import ed second hand machinery are also eligible under TUFS:
a) Auto-coners upto 5 years' vint age with a residual life of minimum 10 years;
b) Air jet, Pro jectile, Rapier and Waterjet sh uttleless looms fitted with o r without electronic jacquard / electronic dobby 7 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited and with or without h igh speed direct beam warper with creel and/o r sectional warping machine with auto stop and tension control of upto 10 years' vint age and with a residual life of minimum 10 years. However, the vintage period of 10 years has been increased to 15 years with effect from 22 n d February, 2005".
5. If the relevant TUF Scheme is analyzed with particular reference to its objective and scope as well as the eligibility criteria for assistance, it becomes amply clear that the subsidy was given to the eligible Textile Unit in order to upgrade its technology level so as to sustain and improve its competitiveness and overall long-term viability. Accordingly, the Scheme was framed to make operational a focussed and time-bound Technology Upgradation, which would provide a focal point for modernisation efforts through technology upgradation in the industry. The main feature of the TUF Scheme was a five percent reimbursement on the interest actually charged by the identified financial institutions on the sanctioned projects. It is pertinent to note that options were also provided in the Scheme to the Small Scale Textile and Jute Industries as well as to the Powerloom Units to avail capital subsidy to the extent of certain fixed percentage of the investment in TUF compatible specified machinery. As per the definition of "Technology Upgradation" given in the Scheme, what it meant was induction of state-of-the-art or near-state-of- the-art technology and what it envisaged was at least a significant step up from the present technology level to a substantially higher one for such trailing segments. Accordingly, technology levels were benchmarked in terms of specified machinery for each sector of the Textile Industry. It is thus clear that even though the subsidy in question under TUF Scheme was given in the form of reimbursement of the interest, the objective of giving the said subsidy was to upgrade its technology level by the eligible unit by induction of state-of-the-art or near-state-of-the-art technology and such technology level was benchmarked in terms of specified machinery for each sector of the Textile Industry. The purpose of giving incentive in the form of interest subsidy under the TUF Scheme thus was 8 ITA No. 2105/KOL/2014 Assessment Year: 2008-2009 M/s. BSL Limited to encourage capital investment by the eligible unit in the form of specified machinery in order to induct state-of-the-art or near-state-of- the-art technology or at least a significant step up from the present technology level to a substantially higher one. In our opinion, going by this purpose of the interest subsidy as specified under the TUF Scheme, the amount of interest subsidy in question received by the assessee was a receipt of capital in nature.
6. As regards the issue of utilization of the amount of incentive in question for the purpose of meeting the interest liability of the Company on loans and advances taken by it to set up its plant and machinery, which the Hon'ble Calcutta High Court has directed us to examine or investigate before arriving at any conclusion as regards the nature of the interest subsidy whether capital or revenue, it is observed that neither the Assessing Officer nor the ld. CIT(Appeals) has given any finding on this aspect. In this regard, the ld. D.R. has submitted that this matter requires verification and an opportunity may be given to the Assessin g Officer to verify the same from the relevant record. We are inclined to accept this contention of the ld. D.R. and since the ld. Counsel for the assessee has also not raised any objection in this regard, we restore this issue to the file of the Assessing Officer for the limited purpose of verifying the issue of utilisation of amount of subsidy in question by the assessee. If it is found by the Assessing Officer on such verification that the subsidy amount in question was utilized by the assessee for the purpose of meeting the interest liability on loans and advances taken by it to set up its plant and machinery, the subsidy incentive could be considered as a capital receipt not chargeable to tax. Otherwise, as observed by the Hon'ble Jurisdictional High Court, it has to be treated as a revenue receipt.
9 ITA No. 2105/KOL/2014Assessment Year: 2008-2009 M/s. BSL Limited
7. In the result, the appeal of the Revenue is treated as allowed for statistical purposes Order pronounced in the open Court on February 14, 2020.
Sd/- Sd/-
(Satbeer Singh Godara) (P.M. Jagtap)
Judicial Member Vice-President)
Kolkata, the 14 t h day of February, 2020
Copies to : (1) Deputy Commissioner of Income Tax,
Circle-10, Ko lkata,
Aayakar Bhawan, 3 r d Floor,
P-7, Chowringhee Square, Kolkata-700069
(2) M/s. BSL Limited,
151, Sarat Bose Road, Ko lkata-700020
(3) Commissioner of Inco me T ax (Appeals)-12, Kolkata;
(4) Commissio ner of Income Tax, Kolkat a- , Kolkata;
(5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 10