Income Tax Appellate Tribunal - Kolkata
Birla Corporatation Limited., Kolkata vs D.C.I.T Cir - 6,Kolkata., Kolkata on 25 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH : KOLKATA
[Before Hon'ble Shri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
I.T.A Nos. 971 /Kol/2012
Assessment Year : 2008-09
DCIT, CIR-6 -vs.- Birla Corporation Ltd., Kolkata.
Kolkata [PAN : AABCB 2075 J]
(Appellant) (Respondent)
I.T.A Nos. 942/Kol/2012
Assessment Year : 2008-09
Birla Corporation Ltd., Kolkata. -vs- DCIT, CIR-6, Kolkata
Kolkata
[ PAN : AABCB 2075 J]
(Appellant) (Respondent)
I.T.A Nos. 298 /Kol/2013
Assessment Year : 2009-10
DCIT, CIR-6 -vs.- Birla Corporation Ltd., Kolkata.
Kolkata [PAN : AABCB 2075 J]
(Appellant) (Respondent)
I.T.A Nos. 329/Kol/2013
Assessment Year : 2009-10
Birla Corporation Ltd., Kolkata. -vs- DCIT, CIR-6, Kolkata
Kolkata
[PAN : AABCB 2075 J]
(Appellant) (Respondent)
For the Respondent : Shri R.S. Biswas, CIT
For the Appellant : Sh. J.P. Khaitan, AR
Sh. Miraj D. Shah, AR
Date of Hearing :. 06.07.2017
Date of Pronouncement : 25.08.2017
2
ITA No.971/Kol/2012
I.T.A. Nos. 942,298 & 329/Kol/2013
M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
ORDER
Per M.Balaganesh, AM
1. These cross appeals by the Revenue and the assessee arise out of the order of the Learned Commissioner of Income Tax (Appeals) -VI , Kolkata [ in short the ld CITA] in Appeal No. 172/VI/Cir-6/10-11/Kol dated 29.3.2012 and Appeal No. 24/CIT(A)- VI/Circle-6/2011-12/Kol dated 7.12.2012 against the orders passed by the DCIT, Circle
-6 Kolkata [ in short the ld AO] under section 143(3) of the Act dated 31.12.2010 and 29.12.2011 for the Asst Years 2008-09 & 2009-10 respectively. As some of the issues involved in these appeals are identical, the same are taken up together and disposed off by this common order for the sake of convenience.
2. Disallowance of Proportionate Compensation Paid for mining activity Ground No. 1 of Revenue Appeal for Asst Year 2008-09 Ground No.1 of Revenue Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures. The assessee is a public limited company is engaged in the business of Manufacturing of cement, Jute goods, PVC goods, calcium carbide, auto trim parts and iron & steel castings. During the course of hearing, it was submitted that for obtaining limestone which is the main raw material for manufacturing of cement, the assessee is required to pay rent / royalty to the State Government in terms of the mining lease which is charged to the profit and loss account. In terms of the mining lease and requirement of the relevant State Land Revenue Law, in addition to the rent / royalty, the assessee is also required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed because of the mining activity. The 2 3 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 assessee claimed payment for mining the raw material by way of rent / royalty as revenue expenditure, payment of compensation to persons whose rights are infringed by the mining activity also as revenue expense. The assessee claimed deduction of the proportionate compensation amount of Rs 22,27,659/-. The ld AO observed that in earlier years, such claims were disallowed treating it as capital in nature as a part of acquisition of the leasing right over and above the fees paid to Government. He observed that the expenditure, if not made, the assessee would not be able to access the land acquired under lease. The situation is analogous to a case when a person buys a tenanted house and then pays off the tenants to get the property vacant. Therefore he concluded that the expense is capital in nature.
2.1. The assessee submitted that compensation was paid in connection with the mining activity for obtaining limestone used as raw material for manufacture of cement. Compensation of Rs 17,11,027/- relates to the assessee's Satna Cement Works and Rs 5,16,632/- relates to its Birla Cement Works. The ld CITA allowed the claim of the assessee by placing reliance on the order of this tribunal in assessee's own case for Asst Year 2006-07 in ITA No. 1936(Kol) of 2010 dated 29.7.2011 and also placing reliance on the order of his predecessor for Asst Year 2007-08 . Aggrieved, the revenue is in appeal before us.
2.2. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee's own case for the Asst Year 2006-07 wherein it was held that :-
"We have heard the parties and perused the material placed on record. The Ld. Counsel for the assessee has elaborated the facts of the case making reference of several decisions of Tribunal and Hon'ble Supreme Court and High Courts. After careful consideration of the same and evidences filed on record and in the paper book, we find that the assessee is required to pay compensation as determined by the local authority/ court to the persons whose rights are infringed because of the mining activity. We also observe that Ld. CIT(A) has properly analyzed the facts of the present case and distinguished the facts decided by the Hon'ble Apex Court in the case of 3 4 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 Enterprising Enterprises vs. DCIT (supra) and then only had come to a conclusion that the compensation was paid for the damaged caused on the infringement of right of the land owner. He has also analyzed that the payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. We, therefore, find no infirmity in the order of the Ld. CIT(A) on this issue and confirmed the same. Ground no. 1 of the Revenue's appeal is thus dismissed.".
The facts in the years under dispute is also analogous to that in earlier years and hence respectfully following the order of this tribunal supra, we don't find any infirmity in the order of the ld CITA in this regard. Accordingly the grounds raised by the revenue in this regard are dismissed.
3. Disallowance u/s 14A of the Act Ground Nos. 2 & 3 of Revenue Appeal for Asst Year 2008-09 Ground Nos. 1 & 2 of Assessee Appeal for Asst Year 2008-09 Ground No. 2 of Revenue Appeal for Asst Year 2009-10 Ground Nos.1 & 2 of Assessee Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures.
The ld AO observed that the assessee had earned dividend of Rs 18,02,47,549/- and claimed the same as exempt. Against the above income, the assessee offered a sum of Rs 4,00,096/- as expenditure disallowable u/s 14A of the Act. It was contended that assessee is engaged in manufacturing and sale of cement, jute goods, vinoleum and auto trims part etc and the investment made by the assessee was out of its own funds and it had not borrowed any money for buying shares or units of Mutual Funds. It was also 4 5 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 submitted that the dividend in respect of units of mutual funds is usually reinvested in the respective schemes without being actually received by the assessee. The dividend warrants received from companies are required to be deposited in the assessee's bank account for which practically no expenditure was incurred. However, there are persons who are looking after the investment portfolio of the company including day to day operation related to it. The expenses related thereto including other incidental expenses have been computed at Rs 4,00,096/-. The ld AO observed that the disallowance made by the assessee had no relation with the investment made by the assessee and does not take into consideration, the huge infrastructure facility utilized by the assessee, which cannot be restricted to the salary of few persons estimated by the assessee. Accordingly, he invoked the provisions of Rule 8D(2)(iii) of the Income Tax Rules (in short IT Rules) and disallowed a sum of Rs 2,63,51,918/- being the 0.5% of average value of investments of Rs 527,03,83,731/- .
3.1. The assessee submitted that the mutual fund investments of the assessee are not in equity oriented funds as defined in the explanation to section 10(38) of the Act and disposal / redemption thereof attracts capital gains tax. Substantial part of the mutual fund investments of the assessee are in Growth Schemes which do not provide for payment of any dividend during the currency of the scheme. Only some of the mutual fund schemes in which the assessee invested provide for payment of dividend. Such dividend is usually reinvested in the respective schemes without being actually received by the assessee. During the relevant previous year, the only change in the share investments of the assessee was by way of fresh investment of Rs 559.85 lakhs in the assessee's own subsidiary company. In respect of its share investments, the assesse received 8 dividend warrants for an aggregate sum of Rs 17,31,232/- which were deposited in the assessee;s bank account for the purpose of encashment. The rest of the dividend income of Rs 17,85,16,317/- was from investment in schemes of mutual funds providing for declaration of dividend. Out of the said mutual fund dividend, dividend 5 6 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 of Rs 15,58,69,753/- was reinvested in the respective schemes without being actually received by the assessee. The balance mutual fund dividend income of Rs 2,26,46,744/- was received in the form of 25 warrants which were deposited in the assessee's bank account. The break up as on 31.3.2008 of the assessee's investments which provided for payment of dividend and those which did not so provide is tabulated as under:-
As at As at Average Percentage
31.3.07 31.3.08 (Rs. In
(Rs. in (Rs. In lakh)
lakh) lakh)
1.Investments in mutual fund 21741.36 10862.19 16301.78 30.93%
schemes and other assets including
shares which provided for
payment of dividend.
20266.97 52538.79 36402.88 69.07%
2. Investments in growth schemes
of mutual funds and other assets
which did not provide for payment
of dividend.
In course of the assessment proceedings, the assessee had submitted to the Assessing Officer a statement in respect of the expenditure incurred by it in connection with its investments. In the said statement, the assessee had included the entire remuneration of Shri M.K.Sharma, Officer(Accounts) and 15% of the remuneration of Shri R.C. Jha, Manager (Finance & Accounts), who was required to spend only a part of his time in managing/maintenance of the assessee's investment portfolio. The assessee had also included in the said statement the other expenses incurred by it for managing/maintenance of its investment portfolio such as bank charges, telephone charges, stationery and printing charges and conveyance and other expenses. The aggregate expenditure as per the said statement submitted in course of the assessment proceedings was Rs. 4,00,096/-. However, upon reconsideration of the matter, it was realized that the assessee's Chief Financial Officer, Shri P.K. Chand was required to devote a very small part of his time in connection with the management/maintenance of 6 7 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 the assessee's investment portfolio. Accordingly, the assessee had prepared a fresh statement including therein apart from the expenditure included in the statement furnished to the Assessing Officer, 2% of the remuneration paid to Shri P.K. Chand. According to the said revised statement, the assessee incurred expenditure of Rs. 4,43,903/- for management/maintenance of its investment portfolio, which includes appropriate proportion of the emoluments of the employees involved in such management/maintenance. In this connection, the said revised statement as also another statement listing the job profile of the assessee's Chief Financial Officer and Manager were enclosed. It was submitted that almost the entire expenditure incurred by the assessee is in connection with its business of manufacturing diverse goods. Only the surplus business funds of the assessee were invested by it in safe and liquid investments, which activity is looked after by the aforesaid three officers of the assessee to the extent specified in the assessee's statement of expenditure. The assessee's share investments are practically non-moving with only some addition taking place, if at all. The statement includes not only the employee's remuneration but also other office expenses. It is the assessee's case that the formula in Rule 8D cannot be applied in its case at all. Without prejudice to the said contention, it is pertinent to mention that the formula in Rule 8D viz. 0.5% of the average investment could have at best been applied by the Assessing Officer in respect of investments which provided for payment of exempt dividend income, averaging Rs. 16301.78 lakh. There was no question of making any disallowance of 0.5% in respect of investments which did not provide for payment of any dividend and disposal/redemption of such investments was liable to tax. The amount of disallowance under Rule 8D could have at best been 0.5% of Rs. 16301.78 lakh i.e. 81.51 lakh and not Rs. 263.52 lakh as computed by the Assessing Officer. The said contention of the assessee is strictly without prejudice to its contention that the formula in Rule 8D cannot be applied in its case at all.
3.2. The ld CITA allowed partial relief to the assessee by observing as under:-
7 8 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 "The appellant has submitted an alternate plea that the formula of Rs. 8D viz. 0.5% of the average investment could have at best been applied by the Assessing Officer in respect of investments which provided for receipt for exempted dividend income. The investment on which exempted income is receivable amounts on averaging basis at Rs. 16301.78 lakhs only. The AR further stated that there should have been no disallowance of 0.5% in respect of investments which did not provide for payment of any dividend and disposal/redemption of such investments was liable to tax. It is held that Section 14A is applicable only to the exempted income and Rule 8D can be applied only on the investment yielding exempted income. In this case as per the details submitted by the appellant, the investments yielding exempted income are on the average of Rs. 16301.78 lakh only. The amount of disallowance under Rule 8D should have been only on an amount of Rs. 16301.78 lakh and 0.5% of Rs. 16301.78 lakh will amount to Rs. 81.51 lakh only. Considering the facts and circumstances and the details mentioned herein the disallowance is restricted to Rs. 81.51 lakhs only. The appellant gets relief of Rs. 1,82,00,918/-. The disallowance is restricted to Rs. 81.51. lakhs out of the disallowance made by Assessing Officer of Rs. 2,63,51,918/-. This grounds of appeal is partly allowed".
Aggrieved, both the assessee as well as the revenue are in appeal before us.
3.3. We have heard the rival submissions and perused the materials available on record.
The ld DR vehemently relied on the order of the ld AO. The ld AR prayed that the disallowance made by the assessee voluntarily at Rs 4,00,096/- which was later revised to Rs 4,43,903/- based on the devotion of certain executives of the organization for managing the investment portfolio and other indirect expenses connected thereon , should be accepted and the ld AO had not given any proper finding as to why the said disallowance was not proper. He simply resorted to computation mechanism provided in Rule 8D of the Rules and made disallowance thereon under the third limb of Rule 8D(2)(iii). Alternatively he prayed that 0.5% of dividend bearing investments alone be considered ( i.e investments from where dividends were actually received by the assessee alone excluding the dividends that were reinvested) and also prayed for exclusion of investments made in subsidiaries as they are apparently strategic investments. We find that the ld AO had given a finding in the assessment order as to why the workings of disallowance u/s 14A of the Act need to be rejected . Hence it 8 9 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 cannot be said that the ld AO had mechanically applied Rule 8D(2) of the Rules for making disallowance u/s 14A of the Act. It was argued by the ld AR that 69.07% of the assessee's investments (including in non-equity oriented mutual funds growth schemes) did not provide for payment of any dividend. Upon redemption / disposal of such investments, the assessee would be liable to capital gains tax and income from such investments is not exempt under the provisions of the Act. He argued that even in respect of the assessee's investments in other schemes of mutual funds providing for payment of dividend, the assessee is liable for capital gains tax upon disposal / redemption of the units since such schemes are also not equity oriented. We find that the ld AR also made an alternative argument that only dividend bearing investments should be reckoned for disallowance under Rule 8D(2)(iii) of the Rules and that strategic investments should be excluded. We find lot of force in the alternative argument of the ld AR that only dividend bearing investments are to be considered for making disallowance u/s 14A of the Act. In this regard, the reliance placed by the ld AR on the decision of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141 (Kol) is very well founded wherein it was held that :-
8.1 Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is restored to the file of the AO for recomputation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.
We also find lot of force in the argument of the ld AR that the investments made in subsidiaries would fall under the category of strategic investments as they are admittedly made only for the purpose of obtaining controlling interest in the said companies and not for the purpose of earning dividend income which is exempt. Hence they would stand differently from other regular investments. Reliance in this regard is 9 10 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 placed on the decision of this tribunal in the case of Dy CIT vs Selvel Advertising (P) Ltd reported in (2015) 58 taxmann.com 196 (Kol Trib). We also find that the reliance placed in this regard by the ld AR on the decision of the Hon'ble Delhi High Court in the case of CIT vs Oriental Structural Engineers Pvt Ltd in ITA 605/2012 dated 15.1.2013 wherein it was held that :-
It was the contention of the revenue that Rule 8D of the Income Tax Rules, 1962 had not been applied properly in respect of the assessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under:-
6.3. We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs 6,07,75,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency , because as per submission made by the assessee, it had to form Special Purpose Vehicle (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as expense / interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum of Rs 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld.Commissioner of Income Tax (Appeals), hence we uphold the same.
On going through the above observations we are of the view that this is merely a question of fact and does not involve any question of law much less a substantial question of law, as the Tribunal held that the expenses which have been claimed by the assessee were not towards the exempted income. The disallowance, therefore, was rightly limited to a sum of Rs 40,556/-. The question of interpreting Rule 8-D is not in dispute and the only dispute is with regard to facts which have been settled by the Tribunal.
10 11 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 In view of the aforesaid findings and respectfully following the judicial precedents relied upon, we deem it fit and appropriate to remand this issue to the file of the ld AO with the direction to consider all investments (excluding investments in subsidiary companies) which yielded dividend income to the assessee for computing disallowance u/s 14A of the Act r.w. Rule 8D of the Rules . Accordingly the grounds raised in this regard are partly allowed for statistical purposes.
4. Taxability of Industrial Promotion Assistance Ground Nos. 4 & 5 of Revenue Appeal for Asst Year 2008-09 Ground No. 5 of Assessee Appeal for Asst Year 2008-09 Ground No. 3 of Revenue Appeal for Asst Year 2009-10 Ground No. 5 of Assessee Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures.
The brief facts of this issue is that the ld AO observed that assessee had received Industrial Promotion Assistance provided to one of its unit at Durgapur under West Bengal Incentive Scheme, 2000 to the tune of Rs 2,55,27,120/- which was claimed by it as a capital receipt by way of a separate letter dated 8.12.2010 during assessment proceedings. It was submitted that the 2000 Scheme was formulated by the West Bengal State Government for the promotion of industry in the State. It was applicable in respect of units to be set up and also to expansion projects of existing units having investment in fixed assets. Industrial projects in the large and medium sectors were eligible for the incentives under the scheme provided such projects were covered by a detailed feasibility report/project report and the project had been approved and sanctioned by the financial institutions/banks. It was found that the subsidy was in the 11 12 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 form of relaxation of the tax was more for encouragement to entrepreneurs to establish/ expand industrial unit in the state of West Bengal rather than towards acquisition of specific capital assets in that industrial unit. The intention was with the object of supplementing trade receipt and profits of the assessee company rather than to assist the assessee in acquiring a capital asset, accordingly, it was incidental to carrying on the business of the assessee. Moreover, the subsidy in question has been granted to the assessee only after commencement of production and subsidy granted after commencement of production is operation subsidy which is of revenue nature. The assessee's claim for treating the subsidy in the nature of capital receipt is therefore not accepted. Further, any claim not made through I.T. Return or Revised Return, same is not allowable by AO. The Hon'ble Supreme Court in case of Goetze (India) Ltd. in 284 ITR 323, confirmed this decision. Therefore, fresh claim of reducing the amount in computation furnished with return is not accepted .
4.1. The assessee explained before the ld CITA as below:-
"5.1 The next ground raises the contention that industrial promotion assistance of Rs.4,01,64,232/- received from the West Bengal State Government is a capital receipt and cannot be subjected to tax. The said amount was received by the assessee in terms of the West Bengal Incentive Scheme, 2000 (hereinafter referred to as "the 2000 Scheme ") (Page73 of the paper book) for expansion undertaken at the assessee's Durgapur Cement Works involving an investment of RS.100 crores.
5.2 The Assessing Officer has erroneously mentioned the figure of assistance as Rs.2,55,27,1201- which is actually the amount of assistance pertaining to the preceding year. The correct amount of assistance for the assessment year 2008- 09 is as mentioned in paragraph 5.1 hereinabove. The findings of the Assessing Officer for treating the amount of assistance as a revenue receipt are the same as 12 13 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 those in respect of interest subsidy. Additionally, the Assessing Officer has observed that since the amount was not claimed in the return but by a letter in course of the assessment proceedings, in view of the judgment of the Hon 'ble Supreme Court in Goetze (India) Ltd. v CIT, (2006) 284 ITR 323 (SC), the claim cannot be allowed.
5.3 It is submitted that the decision of the Hon 'ble Supreme Court in Goetze (India) 's case (supra) has no application in the facts and circumstances of the instant case. In that case, the assessee sought to make a claim for deduction by a letter without revising the return. It is submitted that the instant case is not one of any claim for deduction. The assessee's contention is that industrial promotion assistance of Rs.4, 01,64,232/- is a capital receipt and cannot form part of the taxable income. It is settled law that the subject cannot be taxed unless the charging provision clearly imposes the obligation. Even if an assessee includes a capital receipt in his return, that would not preclude him from claiming that such receipt is not taxable. There cannot be any estoppel against the statute. If in law an item is not taxable, no amount of admission or misapprehension can make it taxable. It is always open to an assessee to take the plea that the figure though shown in the return is not taxable in law. Such taxability cannot be decided on the basis of any admission. Reliance in this behalf is placed on the decisions of the Hon 'ble Supreme Court in CIT v Ajax Products Ltd., (1965) 55 ITR 741 (SC) and those of the Hon 'ble Calcutta High Court in CIT v Bhaskar Mitter, (1974) 73 Taxman 437 (Cal) and Maynak Poddar (HUF) v WTO, (2003) 262 ITR 633 (Cal). The same view has also been taken by the Hon 'ble Tribunal in the assessee's own case for the assessment year 2006-07.
5.4 The 2000 Scheme was formulated by the West Bengal State Government for the promotion of industry in the State. The 2000 Scheme was for industries in 13 14 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 large, medium, small scale and tourism sectors. The 2000 Scheme provided for special package of benefits for Mega Projects having a minimum investment of Rs.25 crores. Districts in the State were put under different groups. Group A comprised area falling under Calcutta Municipal Corporation and no incentive was available for any industry located in Group A. 5.5 The 2000 Scheme was applicable in respect of units to be set up and also to expansion projects of existing units having investment in fixed asset. Commercial production in the new unit or the expanded portion of an existing unit was required to commence on or after January 1, 2000. In case of expansion, the fixed capital investment made had to result in increase of the total value of the fixed capital investment by not less than 25% of the net value of fixed assets (land, building and plant and machinery) as on January 1, 2000 or Rs.50 lakhs, whichever was less. Industrial projects in the large and medium sectors were eligible for the incentives under the scheme provided such projects were covered by a detailed feasibility report/project report and the project had been approved and sanctioned by the financial institutions/banks. If the finance for the project was to come from the entrepreneur's own resources, the West Bengal Industrial Development Corporation Ltd. (hereinafter referred to as "WBIDC") had to be satisfied about the arrangement of such finance. Clause 18 of the 2000 Scheme dealt with Mega Projects and provided that the State Government would consider granting special package of incentives to a Mega Project having regard to the characteristics of the project on a case by case basis in the following areas:-
(i) size of investment; (ii) special nature of industry; (iii) employment potentiality; (iv) down-stream effect of industry; (v) ancillarisation effect of the industry; 14 15 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd. A.Yr.2008-09 & 2009-10 (vi) export potentiality.
5.6 The assessee's unit fell under Group B, its expansion project qualified as a Mega Project and it was eligible for the incentives under the 2000 Scheme. The expansion undertaken by the assessee involved increase in manufacturing capacity of cement from 0.6 million tonnes per annum to 1.6 million tonnes per annum and was practically a new unit. The assessee was duly registered under the 2000 Scheme with the Directorate of Industries, West Bengal. In the registration certificate dated April 29, 2005, it was stipulated that the assessee would be eligible or industrial promotion assistance only after the total investment crossed the limit of Rs.25 crores and on starting commercial production.
5.7 WBIDC issued an eligibility certificate dated August 30, 2005 to the assessee for incentives under the 2000 Scheme as a Mega Project. The said certificate recorded the fact that the assessee had made arrangements for financing the project satisfactory to WBIDC. The said certificate was valid for a period of two years from the date of issue. If effective steps for establishment of the project were not taken within the said period, the validity period of the certificate was not to be extended unless an order was passed in that behalf after considering the merits of the case and subject to other condition stipulated in the 2000 Scheme and the order of extension. It was stipulated in the eligibility certificate that during the validity period thereof, the unit shall furnish to the Directorate of Industries, West Bengal and WBIDC the following information :-
(a) Date of taking effective step;
(b) Quarterly progress report on the implementation of the project, physical target achieved and new fixed capital investment made;
(c) Date of commencement of power supply for production purposes;15 16 ITA No.971/Kol/2012
I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
(d) Date of starting commercial production/operation;
(e) Total number and date of appointment of new/additional factory workers in the unit:
(f) Yearly report on the working and performance of the unit;
5.8 One of the conditions stipulated in the said eligibility certificate was that a true account of the value of fixed assets acquired, sold or otherwise disposed of had to be kept . Conditions (III) and (IV) of the eligibility certificate:
(III) If the Industrial unit for which this eligibility certificate is issued without obtaining prior written permission from the State Government or its authorised agent at least sixty day prior to the event;
(a) discontinues taking effective steps for establishing the manufacturing unit;
(b) stops production within year of commencement of production/operation;
(c) permanently closes the unit within a period of five years of commencement of production/operation;
(d) sell or otherwise disposes off wholly or in part or leases out wholly or in part or an change in the ownership of the fixed assets is effected;
(e) closes or shifts the unit to a new location, and/or
(j) changes its name and/or its constitution;
The amount of interest-free loans and other charges (if any) outstanding on the date of occurrence of such event and other benefit/benefits allowed under the 2000 Scheme shall be immediately recoverable from the unit.
IV) In case of failure of payment of any amount of installment of loans sanctioned and disbursed under the 2000 Scheme by due date, the entire loan or 16 17 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 the balance of the entire loan, shall be deemed to be due on the date of default and action may be taken for recovery thereof at once. "
5.9 The amount of industrial promotion assistance to which the assessee was entitled was quantified at 75% of the sales tax paid in the preceding year and the amount of assistance was to be adjusted against the sales tax liability of the year of claim. The period for which such assistance was available was twelve years if commercial production commenced within June 30, 2005 and ten years if commercial production commenced between July 1, 2005 to December 31, 2005. The assessee commenced commercial production in December, 2005 and as such was entitled to the assistance for 10 years. It is submitted that it is evident from the provisions of the 2000 scheme and the registration and eligibility certificate granted to the assessee that the object for which the assistance was granted was clearly to enable the setting up of a new unit or expansion of an existing unit and the assistance was on capital account. The assistance was granted because of capital investment in establishing new units or expanding existing units Projects with investment of Rs. 25 crore and above were classified as mega projects. The unit could not be disposed of or closed and had to remain in production for the specified period. In case of default, the benefit allowed under the 2000 scheme was to become immediately recoverable. If loans were not repaid by due date, the entire loan/balance loan was to become due on the date of default and action for recovery could be taken immediately. Measurement of the amount of assistance with reference to the sales tax paid and payment of the assistance by way of adjustment against the sales tax liability merely relate to the form or mechanism through which the assistance is granted and do not determine the character of the subsidy. The amount of sales tax paid is only the measure for determining the quantum of assistance. It is not a case of relaxation of tax or supplementing of trade receipt/profits as erroneously held by the Assessing 17 18 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 Officer. Further, the time of payment of the assistance is also of no relevance. It is submitted that the treatment of the assistance as a revenue receipt by the Assessing Officer is contrary to the law laid down by the Hon'ble Supreme Court and the Hon'ble High Courts including the jurisdictional High Court".
4.2. The ld CITA by following the tribunal order in assessee's own case for the Asst Year 2006-07 held that the ground of appeal on the claim of Industrial Promotion Assistance (IPA) of the assessee being filed first time is accepted. He also accepted the plea of the assessee that the IPA would tantamount to capital receipt as the same was granted for expansion of an existing unit under the West Bengal Incentive Scheme 2000 by placing reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT vs Rasoi Ltd reported in (2011) 335 ITR 438 (Cal) . However, he further held that the said IPA would go to reduce the cost of assets in terms of Explanation 10 to Section 43(1) of the Act and depreciation to be claimed on the reduced cost of assets thereon. Aggrieved, both the assessee as well as the revenue are in appeal before us.
4.3. We have heard the rival submissions and perused the materials available on record including the paper book containing the entire West Bengal Incentive Scheme 2000 and eligibility certificate issued by the competent authority approving the expansion of existing unit thereby approving the fact of assessee falling under the category of 'Mega Unit' under the said scheme. We find that Subsidy could be reduced from the cost only if it is found that the cost for acquiring the asset was directly or indirectly met out of the subsidy. In order to apply the proviso, it is necessary to show that the subsidy had been directly or indirectly used to acquire the asset though it may not be possible to exactly quantify the amount directly or indirectly used for acquiring the asset. For the purpose of applying the proviso, also it has to be found that the asset was acquired by directly or indirectly using the subsidy. It is apparent from the provisions of the 2000 Scheme and the certificate of registration and eligibility certificate that the assistance was to be made 18 19 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 available after the commencement of commercial production without any financial cap and was to be adjusted against the sales tax liability of the year of claim. The industrial promotion assistance was clearly not used directly or indirectly to acquire the assets nor any part of the cost of the assets was met directly or indirectly from the industrial promotion assistance. We find that the issue under dispute is squarely covered by the decision of this tribunal in assessee's own case for Asst Year 2007-08 in ITA No. 683 & 581 /Kol/2011 dated 8.12.2014 wherein the grounds raised by the assessee as well as by the revenue were as under:-
Assessee Ground No. 1That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of Rs 1238000 allowed by the State Govt. is the nature of capital receipt but erred in directing the Assessing Officer (AO) for reducing the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec. 43(1) of I.T.Act.Revenue Ground No. 2
That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subisidy received by the assessee as revenue income of Rs 12,38,000/-.
The decision rendered thereon by this tribunal is as under:-
7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which the expansion of the unit and subsidy under Rajasthan Sales Tax Scheme, 1998 was received explains the purpose of the scheme as incurring capital expenditure for installation of plant and machinery and for eligible for fixed capital investment. Even the issue of assessee is covered in its favour by Tribunal's decision in assessee's own case all along from A Ys 2002-03 to 2006-07. It is not brought to our notice by the Revenue that the matter has been decided by Hon'ble Calcutta High Court, despite a query from the Bench, In such circumstances, and taking a consistent view, we hold that the CIT(A) has rightly treated the sales tax subsidy receipt as 'capital in nature' .
8. In respect to the issue of application of Explanation-10 to Sec.43(1) of the Act we find from the facts of the case that the Rajasthan Govt. has framed a incentive scheme i.e., 19 20 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 R.S.T/C.S.T. Exemptions Scheme 1998 for encouragement of setting up of industrial project or expansion of existing industrial projects. It is also a fact that the maximum limit of the subsidy was restricted with reference to the value of fixed capital investment in land, building, plant & machinery but no part of the subsidiary was specifically intended to subsidize the cost of the any fixed assets, therefore, it cannot be said that subsidy was to meet a portion of cost of asset. According to us, assessee has rightly not reduced the amount of subsidy received from the actual cost/WDV of the fixed assets while claiming depreciation. It is also a fact that revenue during scrutiny assessments of the assessee for AY s 2002-03 to 2006-07 added the subsidy amount as revenue receipt but Tribunal has considered the receipt as 'capital', accepting the contention of the assessee. Even Hon'ble Supreme Court in the case of PJ. Chemicals. Ltd. (supra) has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the "actual cost". By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. In order to invoke Explanation 10, it is necessary to show that the subsidy was directly or indirectly used for acquiring an asset. This is again a question of fact. The relatable subsidy to such asset can be reduced from the cost only if it is found that the cost for acquiring that asset was directly or indirectly met out of the subsidy. Likewise in the proviso, it is necessary to show that the subsidy has been 20 21 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 directly or indirectly used to acquire an asset but it is not possible to exactly quantify the amount directly or indirectly used for acquiring the asset. Here also, a finding of fact is necessary that an asset was acquired by directly or indirectly using the subsidy. The above Explanation and the proviso thereto do not dilute the finding of the Hon'ble Supreme Court in the case of P. J. Chemicals Ltd.(supra) that asset-wise subsidy alone can be reduced from the actual cost. The above Explanation and the proviso therein to explain the law. They are not bringing any new law different from the law considered by Hon'ble Supreme Court in the above cases.
9. In view of the above facts and circumstances of the case and legal position explained by Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra), we are of the vie that subsidy receipt should not be reduced from the actual cost of fixed assets for computing depreciation under the provisions of the Act. Accordingly, this issue of revenue's appeal is dismissed and that of the assessee is allowed".
Respectfully following the aforesaid decision of this tribunal supra , we hold that the IPA received by the assessee would have to be construed as a Capital Receipt and the same need not be reduced from the cost of assets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed.
5. Deduction u/s 80IA of the Act Ground Nos. 6 & 7 of Revenue Appeal for Asst Year 2008-09 Ground Nos. 8 to 12 of Assessee Appeal for Asst Year 2008-09 Ground No. 4 of Revenue Appeal for Asst Year 2009-10 Ground Nos. 8 to 12 of Assessee Appeal for Asst Year 2009-10 The brief facts of this issue is that the assessee claimed the deduction u/s 80IA of the Act in respect of the Thermal Power Plants set up by it at Satna, M.P. and Chanderia, Rajasthan. The electricity generated by the two power plants was transferred to the assessee's cement manufacturing units. Though there was no sale of electricity to any outsider during the previous year relevant to the Asst Year 2008-09, sales to independent third parties were made during the previous year relevant to the Asst Year 2009-10. The electricity transferred from the power plants to the cement manufacturing 21 22 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 units (i.e captive consumption) was valued by the assessee with reference to the amount charged by the concerned State Electricity Board in its bills raised upon the assessee. The assessee took into consideration the average rate charged by the State Electricity Board for the previous month. For the Asst Year 2009-10 also, the assessee took into consideration the average rate charged by the State Electricity Board in the previous month, even though the rates at which electricity was sold by the assessee to third parties were higher than the rate charged by the State Electricity Board. However, the ld AO reworked the profits of the power plants not only for the Asst Year 2008-09 but also for the preceding two years viz. Asst Years 2006-07 and 2007-08 by substituting the value of electricity adopted by the assessee with much lower figures. Such lower figures were taken by the ld AO mainly from orders passed by the concerned State Electricity Regulatory Commission for truing up of financial profits or losses or aggregate revenue requirement of electricity distribution companies and in some cases from orders passed by the Commission for determination of aggregate revenue requirement and generation tariff of electricity generation companies. For the State of Rajasthan, the ld AO also referred to an order dated April 30, 2007 passed by the Regulatory Commission of that State in the matter of determination of tariff for sale of electricity from captive power plant to the distribution licensee. By such substitution, the ld AO determined losses in respect of the two power plants and held that no deduction was available to the assessee u/s 80IA of the Act.
5.1. The ld CITA in principle accepted that the rate at which the State Electricity Board sold electricity to the assessee was to be considered for determining the profit eligible for deduction u/s 80IA of the Act. However, instead of accepting the average rate charged by the State Electricity Board for the previous month, the ld CITA directed that the rate should be taken on weighted average basis for the annual consumption and further that such rate should be reduced by the amount of electricity duty and cess. The ld CITA upheld the action of the ld AO in re-working the profits of the earlier years and 22 23 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 directed him to adopt the rate of electricity for the earlier years on the same basis as directed for the Asst Years under appeal. The revenue is in appeal against the said direction of the ld CITA and the assessee is in appeal in so far as the ld CITA directed that the annual weighted average rate should be considered; that electricity duty and cess should be excluded and that the earlier years figures should also be re-worked on the same basis.
5.2. It is necessary to mention that the ld CITA while deciding the matter relied upon an order dated June 30, 2006 passed by this tribunal in the case of ITC Ltd for the Asst Year 2002-03. The said order of this tribunal was considered by the Hon'ble Calcutta High Court in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal) but the view taken therein was not approved by the Hon'ble High Court. In ITC's case (supra) it was held by the Hon'ble Calcutta High Court, that the quantum of benefit u/s 80IA of the Act was to be worked out with reference to the market rate at which electricity could have been sold to the distribution licensee by a generating company and that benefit cannot be claimed on the basis of rate chargeable by the distribution licensee from the consumer. Such view was taken on the basis that the electricity generated by an assessee in his captive power plant could not be sold to anyone other than a distribution company or a company which was engaged both in generation and distribution and that as such only the rate fixed by the Tariff Regulatory Commission for sale of electricity by a generating company to a distribution licensee can be taken into consideration for computing the benefit u/s 80IA of the Act.
5.3. The ld AR submitted that ITC's case decided by the Hon'ble Calcutta High Court related to the Asst Year 2002-03 when the provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 were in force. The Electricity Act, 2003 (hereinafter referred to as "the 2003 Act") which repealed the said legislation came into force on June 10, 2003. The 2003 Act was applicable and in force during the previous years 23 24 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 relevant to the Asst Years 2008-09 and 2009-10 involved herein. He argued that having regard to the provisions of the 2003 Act and the regulations made in terms thereof by the States of Madhya Pradesh and Rajasthan, it was open to an assessee having a captive power plant to sell electricity even to a consumer at a mutually agreed rate. In other words, under the provisions of the 2003 Act and the regulations made thereunder it is not the position that a captive power plant can sell electricity only to a distribution company or a company which is engaged in both generation and distribution. The ld AR made specific reference to certain provisions of the Electricity Act 2003 as under:-
(a) Sub-paragraphs (i) and (x) of paragraph 4 of the statement of objects and reasons of the 2003 Act state that the main features of the 2003 Act are, inter alia, de-licensing of generation and freely permitting captive generation. It is also stated that where there is direct commercial relationship between a consumer and a generating company or a trader, the price of power would not be regulated and only the transmission and wheeling charges with surcharge would be regulated.
(b) Clause (47) of section 2 of the 2003 Act defines open access to mean use of transmission lines or distribution system or associated facilities by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the appropriate Regulatory Commission.
( c) Section 7 of the 2003 Act permits setting up of generating station without obtaining a licence if the technical standards are complied with.
(d) Section 9 permits setting up of captive generating plant and the owner is given the right to open access for the purpose of carrying electricity from his captive generating plant to the destination of his use.
24 25 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
(e) Section 39(2)(d) provides that one of the functions of a State transmission utility, that is, the State Electricity Board or Government company notified by the State Government, will be to provide non-discriminatory open access to its transmission system for use by any consumer as and when such access is provided by the State Regulatory Commission under section 42(2).
(f) Section 40 of the 2003 Act vide clause (c) stipulates that it shall be the duty of a transmission licensee to, inter alia, provide non-discriminatory open access to its transmission system for use by any consumer as and when such open access is provided by the State Regulatory Commission under sub-section (2) of section 42.
(g) Sub-section (2) of section 42 enjoins upon the concerned State Regulatory Commission to introduce open access within one year of the appointed date (viz. June 10, 2003).
(h) Section 49 of the 2003 Act provides that where the appropriate Regulatory Commission has allowed open access to certain consumers under section 42, such consumers, notwithstanding the provisions contained in section 62(1)(d), may enter into an agreement with any person for supply or purchase of electricity on such terms and conditions (including tariff) as may be agreed upon by them. Section 62(1)(d) is the provision relating to determination of tariff by the appropriate Regulatory Commission in respect of retail sale of electricity. Section 62(1)(a) provides for determination of tariff by the appropriate Regulatory Commission in respect of supply of electricity by a generating company to a distribution licensee.
(i) Section 61 of the 2003 Act provides for specification by the Regulatory Commission of the terms and conditions for determination of tariff.
25 26 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
(j) Section 62 of the 2003 Act contains provisions relating to determination of tariff by the appropriate Regulatory Commission.
(k) Section 63 of the 2003 Act provides that notwithstanding anything contained in section 62, the appropriate Regulatory Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government.
(l) The Madhya Pradesh Electricity Regulatory Commission (Terms and Conditions for Intra-State Open Access in Madhya Pradesh) Regulations, 2005 (enclosed in page 27 of supplementary paper book I) framed in exercise of the powers conferred, inter alia, by sections 39(2)(d), 40(c) and 42(2) of the 2003 Act define "open access customer" as meaning a person permitted under the said Regulations to receive supply of electricity from another person other than the distribution licensee of his area of supply, or a generating company (including captive generating plant) or a licensee, who has availed of or intends to avail of open access. Regulation 3 contains provisions relating to eligibility of open access customers for open access and conditions to be satisfied. Subject to operational constraints and other relevant factors, Regulation 3.3 provides that open access shall be allowed, inter alia, to all open access customers.
(m) The Madhya Pradesh Electricity Regulatory Commission (Power Purchase and Other Matters With respect to Conventional Fuel Based Captive Power Plants) Regulations, 2006 (enclosed in Page 54 of Supplementary Paper book I) vide Regulation 3.2 provide, inter alia, that the distribution licensee shall have the option of procuring medium term / long term power from the owner of a captive power plant on competitive bidding, using the guidelines specified by the Ministry of Power, Government of India and in such an event, the State Regulatory Commission shall accept the tariff for power purchase as decided through such competitive bidding.
26 27 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
(n) The Rajasthan Electricity Regulatory Commission made the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004 in exercise of the powers conferred by section 42 of the 2003 Act. Regulation 4(1) provides that subject to the provisions of the said Regulations, licensees, generating companies including persons who have established a captive generating plant and consumers shall be eligible for open access to the intra state transmission system of the State Transmission Utility or any transmission licensee or the distribution system of a distribution licensee subject to payment of transmission/wheeling charges.
(o) The Rajasthan Electricity Regulatory Commission made the Rajasthan Electricity Regulatory Commission (Tariff for Captive Power Plants) Regulations, 2007 (enclosed in page 81 of Supplementary Paper book I) which vide Regulation 4 provide an option to the captive power plant to sell electricity to distribution licensee within the state under different mode of commercial arrangements and balance to third party or to other than the distribution licensee within the state through open access. If the captive power plant is willing to sell power to the distribution licensee then it is required to give 10 days notice stating whether it will supply firm power or non-firm power. Regulation 5 contains provisions relating to tariff for sale by captive power plant to licensee under firm power supply and vide sub-regulation (2) provides option of determination of the tariff through transparent competitive bidding, which is to be adopted by the State Regulatory Commission. In such case, the provisions of the said Regulations for determination of tariff are not to apply.
(p) The tariff determined by the Rajasthan Electricity Regulatory Commission on April 30, 2007 for sale of electricity from captive power plants to the distribution licensee (enclosed in page 90 of supplementary paper book I) was not found workable as noted by the Government of Rajasthan, Energy Department in a communication 27 28 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 dated September 12, 2008 containing policy directives for fixation of tariff for sale of power by captive power plants to distribution companies (enclosed in page 95 of the supplementary paper book I). It was noted in the said communication that the cost of power generation had increased quite considerably after the fixation of tariff under the captive power plant policies of the State Government and the captive power plants were unwilling to supply power to distribution companies. As such, the State Government issued policy directives to the Rajasthan State Electricity Regulatory Commission under section 108(1) of the 2003 Act with regard to price to be paid to the captive power plants.
(q) In line with such policy directives, by a letter dt. March 9, 2009, the Rajasthan Power Procurement Centre granted consent to the assessee to supply power to Rajasthan distribution companies from its captive power plant at the rates stipulated in the said communication (enclosed in page 24 of supplementary paper book I). Such rates were higher than the price paid by the assessee for purchase of electricity from the State Electricity Board.
(r) The Rajasthan Rajya Vidyut Prasaran Nigam signified its no objection to the assessee availing open access for sale of power through Indian Energy Exchange and to members of Indian Energy Exchange (enclosed in pages 17 and 18 of the supplementary paper book I).
(s) The assessee sold power through the Indian Energy Exchange at rates which were higher than the price at which electricity was purchased by it from the State Electricity Board.
(t) To be precise, in Rajasthan, the assessee sold power through the Indian Energy Exchange at Rs.5.78 per unit and to the Rajasthan distribution companies at Rs.5.71 per 28 29 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 unit, whereas, it purchased power from the State Electricity Board at the average rate of Rs.4.93 per unit during the financial year 2008-09.
5.4 The ld AR argued that it would be apparent from the aforesaid that during the previous year relevant to the Asst Years 2008-09 and 2009-10, it was open to the assessee to sell electricity to distribution licensees or to consumers. He argued that it was not the position in law that the assessee could sell electricity only to a distribution licensee or a company engaged both in generation and distribution and not to a consumer. Such sale could take place at mutually agreed rates notwithstanding the tariff fixed by the State Regulatory Commission.
5.5. Accordingly, he stated that the judgment of the Hon'ble Calcutta High Court in ITC's case would have no application inasmuch as the law relating to electricity has undergone much change in so far as the Asst Years before this tribunal are concerned. He stated that ITC's case proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission.
5.6. We have heard the rival submissions and perused the materials available on record including the paper book and the relevant provisions of the Electricity Act, 2003 as detailed supra. We find that the main thrust of order of ld CITA was by placing reliance on the decision of this tribunal in the case of ITC Ltd, which was modified by the Hon'ble Jurisdictional High Court. The ld AR fairly brought to our attention the 29 30 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 decision of Hon'ble Jurisdictional High Court in the case of ITC Ltd before us and had duly distinguished the same as not applicable to the facts of the instant case , as admittedly, the Asst Year before Hon'ble Calcutta High Court in ITC Ltd was Asst Year 2002-03. The said decision in ITC Ltd for Asst Year 2002-03 was rendered by taking into account the relevant provisions of Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. These Acts were repealed and a new Electricity Act 2003 was introduced with effect from 10.6.2003. Hence for the Asst Years 2008-09 and 2009-10 (i.e the years under appeal before us) , the assessee would be governed by the provisions of Electricity Act, 2003.
5.6.1. We have already seen that the ITC's case in Hon'ble Calcutta High Court, proceeded on the basis that the open market for the captive power plant was only a distribution company or a company engaged both in generation and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting such price for working out the amount eligible for deduction u/s 80IA of the Act.
30 31 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 5.6.2. We find that the reliance placed by the ld AR on the decision of the Hon'ble Supreme Court in the case of Thiru Arooran Sugars Ltd. v CIT, (1997) 227 ITR 432 (SC), wherein at page 441, it was held as under:-
"In view of the aforesaid, it is very difficult to uphold the contention of Mr. Nariman that in order to find out the market price, there has to be an actual market where there will be "a concourse of buyers and sellers". This argument was specifically rejected by Lord Pearson L. J., in the case of Building and Civil Engineering Holidays Scheme Management Ltd. v. Post Office [1966] 1 QB 247 (CA), in the following words (page
268):
"What is meant by 'market value' ? It is not reasonable to suppose that for the purposes of this proviso there is no market value unless there is a concourse of buyers and sellers. There is no need to infer that there must be an open market, or that there must be a price fluctuating according to the pressures of supply and demand."
In that case Lord Denning also explained the concept of market value in the following words (page 264):
"What is the 'market value' of these stamps ? . . . It does not connote a market where buyers and sellers congregate. The 'market value' here means the price at which the goods could be expected to be bought and sold as between willing seller and willing buyer, even though there may be only one seller or one buyer, and even though one or both may be hypothetical rather than real."
These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre- requisite that an open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee-company actually bought sugarcane from a large number of growers year after year in the ordinary course of business. The price at which it buys sugarcane must be taken to be the market price. If the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was the only buyer in the region where its factory was located."
(emphasis added) 5.6.3. The ld AR submitted that as held in the aforesaid judgement of the Hon'ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was 31 32 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 held not to apply in ITC's case because the Hon'ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. Hence we are in agreement with the arguments of the ld AR.
5.6.4. We find that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year. In our considered opinion, the assessee's method is more appropriate as it factors in variations as and when they take place.
5.6.5. Exclusion of Electricity Duty and Cess as directed by ld CITA Now coming to the decision of the ld CITA to exclude electricity duty and cess, we find that the same has been addressed by the Hon'ble Gujarat High court in the case of CIT vs Shah Alloys Ltd in Tax Appeal No. 2092 of 2010 dated 22.11.2011, which approved the view taken by the Ahmedabad Tribunal in ITA Nos.844, 2072 and 2073/Ahd/2006 dated 8.1.2010, that the price charged by the Electricity Board inclusive of the amount of Electricity Duty represented the market value even though the assessee was not required to charge electricity duty.
5.6.6. In view of our aforesaid findings, we direct the ld AO to accordingly modify the earlier years profits also which were modified by him, in the same lines as directed for Asst Years 2008-09 and 2009-10 herein. Accordingly, the grounds raised by the assessee in this regard deserve to be allowed and that of the revenue deserve to be dismissed.
32 33 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
6. Treatment of Interest Subsidy Ground Nos. 3 & 4 of Assessee Appeal for Asst Year 2008-09 Ground Nos. 3 & 4 of Assessee Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures.
The ld AO observed that during this year, one of the units of assessee company named Chanderia Cement Works at Rajasthan received Interest subsidy of Rs 1,87,37,448/- based on Investment Promotion Policy of Rajasthan Government which is applicable to all new investment and investment made by the existing units and enterprises for modernization /expansion / diversification subject to the condition that such unit shall commence commercial production / operation owing to such investment during the operative period of the scheme i.e 1.7.2003 to 31.3.2008. As per the scheme a unit shall be eligible for subsidy under the scheme from the date of payment of sales tax and the amount of subsidy shall be subject to a maximum of 50% of the additional amount of Rajasthan Sales Tax & CST of VAT payable or deposited by the unit over and above the highest tax payable or deposited whichever is higher, in any of the three immediately preceding years. Subject to above clause interest subsidy shall be 5% on maximum side. The said subsidy has been considered by the assessee as capital receipt. The assessee claimed that since subsidiary was realized in the form of sales tax, it is treated as capital receipt and not offered for tax. The ld AO observed that the said subsidy is in the form of relaxation of the tax and was more for encouragement to entrepreneurs to establish / expand industrial unit in the state of Rajasthan rather than towards acquisition of specific capital assets in that industrial unit. The intention is with the object of supplementing trade receipt and profits of the assessee company rather than to assist the assessee in acquiring a capital asset and accordingly the said subsidy is 33 34 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 incidental to the carrying on the business of the assessee. Based on these observations, he treated the interest subsidy as a revenue receipt.
6.1. The assessee reiterated the submissions made before the ld AO and also tried to distinguish the earlier order of the ld CITA on the very same issue in the earlier year. The ld CITA observed as under:-
"16. The whole of the subsidy has been given in respect of setting up of a captive power plant which is not in the nature of expansion. This scheme has been termed as a scheme of interest subsidy. Under this scheme an assessee becomes eligible only if it borrows funds from banks/financial institutions etc. for investing in the new industry/expansion/modernization allowed under this scheme. The subsidy amount is calculated @ 5% of the funds borrowed for use in the projects as per this scheme. The subsidy is given only till the assessee pays interest on the borrowed funds. If no interest is payable then the subsidy will not be allowed to the assessee. There is a limit to which subsidy can be claimed which is decided on the basis of the Sales Tax paid in three earlier years. All these features of this scheme show that the subsidy is not given for meeting a part of the capital expenditure incurred by the assessee but for meeting a part of the interest which will be payable on the loan taken for investing in the capital assets. The subsidy granted is revenue receipts which has been granted after setting up of the new industries and after commencement of production. In Sahney Steel & Press Works Ltd. vs. CIT (1997) 228 ITR 253/94 Taxman 368, the Hon'ble Supreme Court stated that the concept of a subsidy (generally) is a "helping hand" provided to industries in their early days to enable them to come to competitive level with other established industries. Subsequently, in Paragraph 31 the Supreme Court, while dealing with subsidies granted after setting up of a new industries and after commencement of production, described such subsidies as "an assistance given for the purpose of carrying on the business of the assessee.
17. The benefit in payment of interest on borrowed capital has been received in the course of carrying on the business and during the continuation of business. The calculation is not directly related to the investment on Pro rata basis but a scale has been formed to grant the incentive. The reimbursement is after the establishment of industry and start of production therefrom by the appellant. The subsidy was not intended to be contribution towards capital outlay of the industry or directly related to it. The receipt of the incentives from the State Government was incidental to carrying on the business of the assessee and not the primary source of capital investment. This subsidy was to be received year after year by reimbursement from payment of additional sales tax subject to maximum 50% of additional sales tax paid by the industry. The significant fact that under the scheme framed by the Government, no subsidy was given until the time production had actually commenced. Mere setting up of the industry did not qualify an industrialist for getting any subsidy. The subsidy was 34 35 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 given as help not for the setting up of the industry which was already there but as assistance only after the industry commenced production and that too minimum three years prior to it.
19. The interest subsidy was @ 5% of capital as interest out of interest paid by the industry on the money borrowed for this purpose. The appellate courts have held that the sales tax subsidy is a revenue receipt and this is also indirectly exemption out of sales tax in the form of interest being paid by the industry and reimbursement of the same by the State out of the sales tax. Therefore, in view of the above discussion and following the reasoning an decision of my predecessor in the case of the appellant in the assessment year 2007-08, it is held that the reimbursement of interest out of sales tax payable is not a capital receipt in nature as it does not meet the capital expenditure of the assessee and is a profit earned year after year by the appellant. The Hon'ble High Court of Gauhati in the case of CIT vs. Meghalaya Steels Ltd. reported in (2011) 12 Taxman.com 451(Gau) has held impliedly in para 14 that the subsidies i.e. interest subsidy and transport subsidy are revenue receipts and have granted after setting off of the new industries and commencement of the production. This grounds of appeal is rejected".
6.1.1. The ld CITA also observed in respect of alternate plea taken by the assessee that in case the said interest subsidy is treated as revenue receipt, the same would go to increase the deduction u/s 80IA of the Act to the assessee thereby becoming revenue neutral. This alternate plea was rejected by the ld CITA on the ground that the said interest subsidy was not derived from the industrial undertaking and hence not eligible for deduction u/s 80IA of the Act. Aggrieved, the assessee is in appeal before us.
6.2. We have heard the rival submissions and perused the materials available on record. The ld AR drew our attention to page 77 of Supplementary Paper Book Volume III to the order dated 7.6.2007 passed by the Commercial Taxes Officer, Special Circle Bhilwara, Government of Rajasthan , sanctioning a sum of Rs 15,91,813/- towards Interest Subsidy to the assessee. The said order also clearly mentioned that the said interest subsidy of Rs 15,91,813/- would not be paid to the assessee in cash and instead the same would get adjusted with the sales tax liability payable by the assessee. Based on this, the ld AR argued that the interest subsidy also takes the character of sales tax subsidy and hence to be treated as capital receipt. We find that this issue was subject 35 36 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 matter of adjudication in assessee's own case for the Asst Year 2007-08 in ITA No. 686 & 581/Kol/2011 dated 8.12.2014 wherein it was held that the said interest subsidy would have to be treated as a capital receipt but with a direction to reduce the same from the cost of assets as per Explanation 10 to section 43(1) of the Act. Later this order was modified by this tribunal in ITA No. 683/Kol/2011 (assessee appeal) dated 9.7.2015 for Asst Year 2007-08 , wherein the issue as to whether the said interest subsidy is to be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act was restored back to the file of the ld CITA for fresh adjudication. We find that with regard to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above , we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the Act. We find that the subsidy amount was adjusted against the sales tax liability and was not used directly or indirectly to acquire the assets and hence the cost of assets cannot be reduced by the amount of subsidy . We also find that the Hon'ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J&K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon'ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the assessee was entitled to deduction under section 80IB/80IC as profits derived from eligible business according to its judgment in CIT v Meghalaya Steels Ltd., (2016) 383 ITR 217 (SC). Hence respectfully following the said decision of the Hon'ble Supreme Court in Balaji Alloys supra, we hold that the interest subsidy is to be treated only as a capital receipt and accordingly the grounds raised by the assessee in this regard are allowed.
7. Allowability of Initial Depreciation (balance 50% ) on additions made in earlier years 36 37 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 Ground No. 6 of Assessee Appeal for Asst Year 2008-09 Ground No. 6 of Assessee Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures.
The ld AO observed that during the financial year 2006-07 (Assessment year 2007-08), the assessee had purchased & installed new plant & machinery for its manufacturing business. Some of such plant & machinery were put to use for a period of less than 180 days during the said financial year and in respect of such plant & machinery the assessee claimed only 50% of further depreciation (i.e. 10%) u/s 32(1)(iia) in view of the second proviso to Section 32(1) of the IT Act. Now during the year under reference, the assessee claimed further depreciation (balance 10%) on those plant & machinery on the plea that it is entitled to get the balance depreciation this year also. The additional depreciation is only available in the year of purchases, even if it is claimed for part of the year. The same cannot be claimed in the subsequent year. The provision of Section 32(1)(iia) is governed by the provisions of Section 32(1) as it is evident from the Income Tax Act, 1961. Therefore, the claim of additional depreciation of Rs. 4,95,40,388/- is disallowed and added back to the income.
7.1. The ld CITA upheld the disallowance made by the ld AO by observing as under:-
"Therefore, in view of the above facts and circumstances it is clear and unambiguous that the assessee was eligible for additional depreciation @ 10% only during the assessment year 2007-08. During this year the machinery is not new and the additional depreciation @ 10% which was neither claim nor agitated and not disputed in assessment year 2007-08 cannot be claimed in assessment year 2008-09. The additional depreciation for which the assessee was not eligible in assessment year 2007-08 cannot be carried forward under any provision to assessment year 2008-09. An incentive which has been allowed in assessment year 2007-08 as per the eligible rate for the said year 37 38 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 has not eligibility for claim in the subsequent year to the assessee. In view of the above discussion, I dismiss this grounds of appeal".
Aggrieved, the assessee is in appeal before us.
7.2. We have heard the rival submissions and perused the materials available on record. We find that the issue under dispute is squarely covered in favour of the assessee by the decision of this tribunal in the case of Hindustan Gum & Chemicals Ltd vs DCIT in ITA Nos. 462 & 752/Kol/2014 for Asst Year 2008-09 vide order dated 8.3.2017 wherein it was held that :-
6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal supra wherein it was held as under :-
"4. Ground no. 1 relating 10 depreciation on plant and machinery which were put to use less than 180 days during the said financial year. During the previous assessment year (2006- 07) the assessee claimed 50% of depreciation and it was allowed. Now for the year under consideration, the assessee claimed further 10% depreciation to the extent of &.20, 97, 495/- under second proviso to Sec. 32(1)(iia) of the Act. The AD denied the same on the ground that the Act does not have option where assessee can claim remaining depreciation in subsequent year. The CIT(A) confirmed the order of the AD. however, directed the AD to recalculate the amount of depreciation on writ/en down value (WDV).
5. . The Ld AR before us submits that the case in hand is squarely covered by the decision of the Hon 'ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Lid reported in (2016) 380 ITR 423 (Karn).
6. The Ld. Sr. DR relied on the orders of the authorities ' below.
7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd (supra). The facts of the case therein are that the assessee being an existing industrial undertaking had acquired and installed new plant and machinery in the F. Y 2006-07 and claimed 50% of additional 20% depreciation i.e, 10% additional depreciation under section 32(1)(iia) of the Act in the corresponding assessment year 2007- 08 for the reason that the new machinery was acquired after 01-10-2006. The 38 39 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 relevant portions at page no 's at 9 and 10 of which is reproduced herein below for below for better understanding:-
"The language used in clause (iia) of the said section clearly provides that "a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)". The word "shall" used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above. only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent. deduction which shall be allowed.
It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under section 32(1)(iia) of the Act is a one-time benefit to encourage industrialisation. and the provisions related it have to be construed reasonably, liberally and purposively to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. "
8. Heard both parties and perused the relevant material on record. By reading of Clause (iia) to sub-section (1) of section 32 provides for allowance of initial depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to those who engaged in the business of manufacture or production of any article or thing. Therefore, the assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery, but, where as the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put 10 use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 1BO days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are similar to the decision supra relied on by the assessee. Therefore, we are of 39 40 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 the view that the law laid down by the Hon 'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Lid supra is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-I raised by the assessee is allowed. "
Respectfully following the same, we dismiss Ground No. 2 raised by the revenue".
Respectfully following the said decision supra, we hold that the assessee is entitled for remaining portion of additional depreciation in the asst years 2008-09 and 2009-10 and accordingly the grounds raised by the assessee in this regard are allowed.
8. Provision for Leave Encashment Ground No. 7 of Assessee Appeal for Asst Year 2008-09 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures.
The ld AO observed that the assessee made a provision for leave encashment for Rs 2,49,02,250/- and claimed the same as deduction by following the decision of the Hon'ble Jurisdictional High Court in the case of Exide Industries Ltd reported in 292 ITR 470 (Cal). The ld AO observed that the said decision has been stayed by the Hon'ble Supreme Court and accordingly disallowed the provision for leave encashment on the ground that the same is allowable only on payment basis in terms of section 43B(f) of the Act, which was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us.
8.1. We have heard the rival submissions. We find that though the Hon'ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 40 41 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 470 (Cal) had struck down the provisions of section 43B(f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon'ble Supreme Court which initially in Special Leave to Appeal (Civil) CC 12060 / 2008 dated 8.9.2008 had held as under:-
"The petition was called on for hearing today.
Upon hearing counsel the court made the following Order.
Issue Notice.
In the meantime, there shall be stay of the impugned judgement, until further orders."
Later the Hon'ble Supreme Court in Special Leave to Appeal (Civil) No(s). CC 22889 / 2008 dated 8.5.2009 had held as under:-
"The petition was called on for hearing today.
Upon hearing counsel the court made the following Order Delay condoned.
Leave granted.
Pending hearing and final disposal of the Civil appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the department to recover that amount in case Civil Appeal of the department is allowed.
We further make it clear that the assessee would, during the pendency of this Civil Appeal , pay tax as if Section 43B(f) is on the statute book but at the same time it would be entitled to make a claim in its returns."
Hence from the aforesaid Supreme Court judgement, it could be inferred that the Hon'ble Supreme Court had not stayed the judgement of the Calcutta High Court during Leave proceedings. But the Hon'ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon'ble Supreme Court as stated supra. Accordingly the ground raised by the assessee in this regard is allowed for statistical purposes.
41 42 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
9. Exclusion of unabsorbed depreciation of earlier years before the 1st year of claim of deduction u/s 80IA of the Act The assessee had raised an additional ground in this regard for the Asst Year 2008-09 as below:-
"That the learned DCIT be directed to exclude unabsorbed depreciation of earlier years before the first year of claim, which has already been absorbed and therefore should not be notionally carried forward and taken into consideration for Computation of Deduction u/s 80IA."
We find that the admission of additional ground goes to the root of the matter nd deserves to be admitted. Accordingly the same is admitted and taken up for adjudication. By the additional ground, the assessee seeks direction upon the ld AO to exclude unabsorbed depreciation of earlier years before the first year of claim, which has already been absorbed and therefore should not be notionally carried forward and taken into consideration for computation of deduction under section 80IA of the Act. The said additional ground is in the context of the assessee's claim for deduction under section 80IA in respect of its two captive power plants. The said power plants were set up during the previous year relevant to the assessment year 2006-07. Because of substantial depreciation on new plant & machinery and other expenditure in initial years, the said plants incurred losses. Such losses including unabsorbed depreciation of the power plants were set off against other income of the assessee in those years. The assessee claimed deduction under section 80IA for the first time in the Assessment year 2008-09 when profits were earned. While computing the profit eligible for deduction under section 80IA, the earlier years' loss/depreciation already set off against other income was inadvertently reduced from current year's profit due to which lesser deduction was claimed by the assessee.
9.2. We find that this issue is squarely covered by the decision of the Hon'ble Madras High Court in favour of the assessee in the case of Velayudhaswamy Spinning Mills P 42 43 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 Ltd ; Sudan Spinning Mills P Ltd vs ACIT and CIT vs Mohan Breweries & Distilleries Ltd reported in (2012) 340 ITR 477 (Mad) , wherein it was held as under:-
17. From a reading of sub-section (1), it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent. of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose
10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under :
"(1) It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ;
(2) It is for the purpose of determining the quantum of deduction ; (3) For the assessment year immediately succeeding the initial assessment year ; (4) It is a deeming provision ;
(5) Fiction created that the eligible business is the only source of income ; and (6) During the previous year relevant to the initial assessment year and every subsequent assessment year."
18. From a reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in sub-section does not contemplates to bring set off amount notionally.
43 44 ITA No.971/Kol/2012I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
19. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this court cited supra considered the scope of sub- section (6) of section 80-I, which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with the Division Bench judgment of this court cited supra.
9.3 The Hon'ble Madras High Court in the aforesaid case had categorically held that losses of earlier years prior to the initial assessment year which have already been set off against other income cannot be notionally brought forward for reducing the amount of deduction admissible from the initial assessment year onwards. The Special Leave Petition preferred by the revenue against this order was dismissed by the Hon'ble Supreme Court vide its order dated 5.9.2016 reported in (2016) 76 taxmann.com 176 (SC). Following the said order, subsequent special leave petition preferred by the revenue before the Hon'ble Supreme Court were also dismissed in the case of CIT vs Best Corporation Ltd vide its order dated 21.10.2016 reported in (2016) 76 taxmann.com 295 (SC).
9.4. We also find that the Central Board of Direct Taxes had issued a Circular in this regard vide Circular No. 1/2016 dated 15.2.2016 explaining the meaning of 'Initial Assessment Year'. For the sake of convenience, the said Circular is reproduced hereinbelow:-
SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS - CLARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN SECTION 80-IA(5) CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-I], DATED 15-2-2016 44 45 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 Section 80-IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 1-4-2000, provides for deduction of an amount equal to 100 % of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80-IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80-IA further provides as under--
"Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made".
In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.
The matter has been examined by the Board. It is abundantly clear from sub-section (2) that an assessee who is eligible to claim deduction u/s 80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen ( or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80-IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfilment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80-IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.
The Assessing Officers are, therefore, directed to allow deduction u/s 80-IA in accordance with this clarification and after being satisfied that all the prescribed 45 46 ITA No.971/Kol/2012 I.T.A. Nos. 942,298 & 329/Kol/2013 M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10 conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed.
The above be brought to the notice of all Assessing Officers concerned 9.4. We find that the CBDT had clearly issued a Circular supra explaining the meaning of 'Initial Assessment Year' in the light of decisions rendered by the Hon'ble Madras High Court supra. In view of the aforesaid decisions and CBDT Circular, we hold that the unabsorbed depreciation of earlier years from the eligible unit cannot be set off from the profits of the eligible unit entitled for deduction u/s 80IA of the Act in the years under appeal. We further hold that once the deduction u/s 80IA of the Act is claimed by the assessee from the 'Initial Assessment Year' (as chosen by it), then any loss incurred thereon would have to be set off against the profits of the said eligible unit in the subsequent years while claiming deduction u/s 80IA of the Act in subsequent years. Accordingly the additional ground raised by the assessee is allowed.
10. To sum up, both the appeals of the assessee as well as the revenue for both the years are partly allowed for statistical purposes.
Order pronounced in the Court on 25.08.2017
Sd/- Sd/-
[A.T.Varkey] [ M.Balaganesh ]
Judicial Member Accountant Member
Dated : 25.08.2017
SB, Sr. PS
46
47
ITA No.971/Kol/2012
I.T.A. Nos. 942,298 & 329/Kol/2013
M/s Birla Corporation Ltd.
A.Yr.2008-09 & 2009-10
Copy of the order forwarded to:
1. DCIT, Cir-6, Kolkata, Aayakar Bhawan, 6th Floor, Room No. 6/17, P-7, Chowringhee Square, Kol-69
2. Birla Corporation Ltd., 9/1, R.N. Mukherjee Road, Kolkata-700001.
3..C.I.T.(A)-VI, Kolkata 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches 47