Itat/218/2023 Ia No: Ga/1/2023, Ga/2/2023 Principal Commissioner Of Income Tax - 1 Kolkata v. M/S Sova Ispat Ltd., Kolkata

IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/218/2023IA NO: GA/1/2023, GA/2/2023PRINCIPAL COMMISSIONER OF INCOME TAX - 1 KOLKATAVSM/S SOVA ISPAT LTD., KOLKATA BEFORE:THE HON'BLE THE CHIEF JUSTICE T. S. SIVAGNANAM ANDThe HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 16 OCTOBER, 2023. Appearance:Ms. Smita Das De, Adv...for appellantMr. J.P. Khaitan, Sr. Adv.Ms. Swapna Das, Adv.Mr. Siddharth Das, Adv.….for respondent The Court :- We have heard Ms. Smita Das De, learned Advocateappearing for the appellant and Mr. J.P. Khaitan, learned SeniorAdvocate duly assisted by Ms. Swapna Das, Mr. Siddhartha Das,learned Advocates appearing for the respondent. There is a delay of 966 days in filing the appeal. We aresatisfied with the explanation offered and accordingly the delay infiling the appeal is condoned. The application for condonation of delayis allowed. This appeal filed by the revenue under Section 260A of theIncome Tax Act, 1961 is directed against the order dated 19.08.2020 passed by the Income Tax Appellate Tribunal “A” Bench, Kolkata inI.T.A. No.2067/Kol/2019 for the assessment year 2012-13. Therespondent has raised the following substantial questions of law :- i)Whether on the facts and in the circumstances of the casethe Learned Tribunal was justified in law to accept thecontention that the amount of Rs.5,45,08,669/- bookedby the assessee as income on account of remission ofsales tax under West Bengal Incentive Scheme 2000 isexempt under Income Tax Act 1961 despite the fact thatthe essence derives benefit on sales tax payment by wayof rebate/incentive on Sales Tax paid?the Learned Tribunal was justified in law to accept thecontention that the amount of Rs.5,45,08,669/- bookedby the assessee as income on account of remission ofsales tax under West Bengal Incentive Scheme 2000 isexempt under Income Tax Act 1961 despite the fact thatthe essence derives benefit on sales tax payment by wayof rebate/incentive on Sales Tax paid? ii)Whether on the facts and in the circumstances of the casethe Tribunal was justified in law to uphold the order ofthe Learned Commissioner of Income Tax (Appeal) bydeleting the addition of Rs.5,45,08,669/- made by theAssessment Officer on account of Industrial PromotionAssistance (IPA) incentives treating the same as Revenuereceipts ?the Tribunal was justified in law to uphold the order ofthe Learned Commissioner of Income Tax (Appeal) bydeleting the addition of Rs.5,45,08,669/- made by theAssessment Officer on account of Industrial PromotionAssistance (IPA) incentives treating the same as Revenuereceipts ? It is not in dispute that the substantial questions of law whichhave been raised by the revenue in this appeal were answered againstthe revenue in the case of Principal Commissioner of Income-tax V.Budge Budge Refineries Ltd. reported in [2022] 139 taxmann.com 124(Calcutta). The operative portion of the judgement reads as follows:- It is not in dispute that the substantial questions of law whichhave been raised by the revenue in this appeal were answered againstthe revenue in the case of Principal Commissioner of Income-tax V.Budge Budge Refineries Ltd. reported in [2022] 139 taxmann.com 124(Calcutta). The operative portion of the judgement reads as follows:- “4. The short issue, which falls for consideration, is whether subsidygranted to the respondent assessee in terms of the West BengalIncentive Scheme 2000 could be taxed in the assessment years underconsideration. The other question which would fall for consideration iswhether the decision in the case of Sahney Steel & Press Works Ltd.(supra) has to be applied. The Tribunal perused the West BengalIncentive Scheme 2000 and noted that the scheme was intended toaccelerate industrial development in the State of West Bengal andincentive was given for setting up industries in the State and for suchpurpose the amount of subsidy which was given, was in the nature ofreimbursement of 75% of the Sales Tax/VAT actually paid by theassessee. The Tribunal rightly applied the "purpose test" and foundthat the quantification of the subsidy alone is based onreimbursement of 75% of Sales Tax/VAT actually paid by the assesseeafter the commencement of the project and that such quantificationwould be relevant for the taxability of the same going by the objects ofthe incentive scheme. The Tribunal taking note of the decision of theHon'ble Supreme Court in the case of CIT v. Ponni Sugars & ChemicalsLtd.[2008] 174 Taxman 87/306 ITR 392 as also the decision of thiscase in the case of Rasoi Ltd (supra) dismissed the appeal filed by therevenue. Before us, the learned Counsel would place heavy relianceon the decision of the Hon'ble Supreme Court in the case of SahneySteel & Press Works Ltd. (supra) and submitted that Tribunal ought tohave followed the said decision and allowed the appeal filed by therevenue. As rightly pointed out by Mr. Sen, learned Counsel appearingfor respondent the decision in Sahney Steel & Press Works Ltd. (supra)was explained considering the facts of the case in Ponni Sugars &Chemicals Ltd. (supra). The relevant portion of the judgement reads asfollows:- "On the facts of that case, it was held that the subsidygiven was to meet recurring expenses. It was not for acquiringthe capital asset. It was not to meet part of the cost. It was notgranted for production of or bringing into existence any newasset. The subsidies in that case were granted year after yearonly after setting up of the new industry and only aftercommencement of production and, therefore, such a subsidycould only be treated as assistance given for the purpose ofcarrying on the business of the assessee. Consequently, thecontentions raised on behalf of the assessee on the facts of thatcase stood rejected and it was held that the subsidy received bySahney Steel could not be regarded as anything but a revenuereceipt. Accordingly, the matter was decided against theassessee. The importance of the judgment of this court inSahney Steel case lies in the fact that it has discussed andanalysed the entire case law and it has laid down the basic testto be applied in judging the character of a subsidy. That test isthat the character of the receipt in the hands of the assesseehas to be determined with respect to the purpose for which thesubsidy is given. In other words, in such cases, one has toapply the purpose test. The point of time at which the subsidyis paid is not relevant. The source is immaterial. The form ofsubsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that theincentive must be utilized for repayment of loans taken by theassessee to set up new units or for substantial expansion ofexisting units. On this aspect there is no dispute. If the objectof subsidy scheme was to enable the assessee to run thebusiness more profitably then the receipt is on revenueaccount. On the other hand, if the object of the assistanceunder the subsidy scheme was to enable the assessee to set upa new unit or to expand the existing unit then the receipt of thesubsidy was on capital account. Therefore, it is the object forwhich the subsidy/assistance is given which determines thenature of the incentive subsidy. The form or the mechanismthrough which the subsidy is given are irrelevant." 5. The above decision clearly points out that form of subsidy isimmaterial and the main eligibility condition of the scheme hasto be looked into and if the same is taken note of it is evidentlyclear from the scheme that the subsidy was for the purpose ofencouraging establishment of large, medium and small scaleindustrial units in the State of West Bengal. As pointed out bythe Hon'ble Supreme Court the object of the assistance underthe subsidy scheme was to enable the assessee to set up a newunit and, therefore, the receipt of the subsidy was on capitalaccount. The test to be applied is the object for which thesubsidy/assistance is given under the incentive scheme andthe form or mechanism through which the subsidy is givenwould be irrelevant. The decision in Ponni Sugars & ChemicalsLtd. (supra) was taken note of and this court has granted reliefto the assessee in Rasoi Ltd. (supra). Subsequently in the caseof Pr. CIT v. Shyam Steel Industries Ltd.[2018] 93 taxmann.com495 (Calcutta), following the decision in Ponni Sugars &Chemicals Ltd. it was pointed out that the scheme in the saidcase being available only to new units and units which haveundergone an expansion, the real purpose of the incentive hasto be seen as capital subsidy and has to be recorded as such,as capital receipt and not a revenue receipt. 6. That apart we also take note of the communication sent by theJoint Secretary to the Government of West Bengal, Commerce andIndustries Department to the Managing Director, West BengalIndustrial Development Corporation dated 23rd March, 2007wherein it has been stated that the State Government hasapproved the package for the assessee for setting up an Edible OilRefinery Plant and Captive Power Generation unit and thereimbursement of 75% of the sales tax paid has been termed asIndustrial Promotion Assistance. Thus, we have no hesitation tohold that the Tribunal had rightly rejected the appeal filed by therevenue and granted relief to the assessee. 7. Furthermore, on the other issue where section 41(1) of the Actcould have been invoked the Tribunal rightly held that the saidprovision could be invoked only when assessee had claimeddeduction in earlier year at the time of creation of liability and if the said liability ceases to exist then the provision of section 41(1)of the Act could not be invoked. Taking note of the facts of theassessee's case the Tribunal has held assessee has not claimedany deduction in the earlier year towards the sales tax portion ofthe subsidy and hence the provision of section 41(1) of the Actcannot be invoked in the facts of the assessee's case. The findingsrendered by the Tribunal clearly point out the correct legalposition. 8. In the result, the appeal filed by the revenue is dismissed andsubstantial question of law are answered against the revenue. Connected application stands dismissed.” Thus, following the above decision, the appeal filed by filed by the revenue is dismissed and the substantial questions of law areanswered against the revenue. Consequently, the connected applications stand closed. (T. S. SIVAGNANAM) CHIEF JUSTICE (HIRANMAY BHATTACHARYYA, J.) GH.