M/S Vardhman Acrylics Ltd v. Commissioner Of Income Tax, Ludhiana And Another

Income Tax Appeal No.146 of 2014 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Income Tax Appeal No.146 of 2014Date of Decision: 18.12.2014 M/s Vardhman Acrylics Ltd. ..Appellant versus Commissioner of Income Tax, Ludhiana and another ..Respondents CORAM:HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S.WALIA Present:Ms. Radhika Suri, Senior Advocate with Ms. Rinku Dahiya, Advocate, for the appellant (ITA No.146 of 2014)Mr. Akshay Bhan, Senior Advocate,with Mr. Alok Mittal, Advocate,for the appellants. Mr. Rajesh Katoch, Advocate,for the respondents (in ITA Nos.146 of 2014, 632,633 and635 of 2008 and 330 of 2007. Mr. Rajesh Sethi, Senior Standing Counselwith Mr. Sachin Gupta, Advocate and Mr. Arun Biriwal, Advocate for ITA No.32 of 2012. Mr. Sumit Ahuja, Advocate, for Ms. Urvashi Dhugga, Senior Advocate,for the respondents in (ITA Nos.241,242,467, 819 of 2008, 515 of 2009 , 113 of 2010 and 128 of 2012 RAJIVE BHALLA, J.(ORAL) By way of this order, we shall decide Income Tax Appeals Nos. 330 of 2007, 241, 242 467, 632, 633, 635, 819 of 2008, 515 of2009, 113 of 2010, 32, 128 of 2012 and 146 of 2014 as commonquestions of law arise for adjudication. Income Tax Appeal No.146 of 2014 2 The assessee challenges order dated 02.08.2013 passedby the Income Tax Appellate Tribunal, Chandigarh Bench, `A'Chandigarh (for short “the Tribunal”) and orders passed by the CIT(Appeals) and the Assessing Officer by raising the followingsubstantial question of law:- “ Whether on the facts and in the circumstances of thecase, the Tribunal erred in law in not holding thatincentives/subsidies in the form of exemption from salestax received by the appellant constituted capital receiptnot liable to tax under the provisions of the Act?” Counsel for the assessee states that though in 286ITR 1 (P&H) Commissioner of Income TaxVersus AbhishekIndustries Limited, sales tax subsidy has been held to be a revenuereceipt but the Hon'ble Supreme Court has, while considering thenature of sales tax subsidy held in 306 ITR 392 (SC),Commissionerof Income Tax versus Ponni Sugars and Chemicals Limited, that it isthe nature and purpose of a subsidy that would determine whether itis a capital or a revenue receipt, thereby clarifying that sales taxsubsidy shall be a revenue receipt depending upon its nature andpurpose. Counsel for the assessee further submits that in a similarcase ITA No.420 of 2007 (P&H) Industrial Organics &Pharmaceuticals Limited versus The Commissioner of Income Tax,Central Circle, Ludhiana and another, a Division Bench of this court has, after considering the judgment in Ponni Sugar and Chemical Limited's case (supra), remitted the matter to the Tribunal to record Income Tax Appeal No.146 of 2014 3 an opinion, whether sales tax subsidy availed by the assessee is arevenue or capital receipt, after considering its nature and purpose. Counsel for the revenue relies upon the judgment inAbhishek Industries Limited's case (supra),but is not in a position toeither distinguish the judgment in Ponni Sugars and ChemicalsLimited's case (supra) or deny the fact that a similar controversy hasalready been restored to the Tribunal in Industrial Organics &Pharmaceuticals Limited's case (supra). We have heard counsel for the parties, appraised theimpugned order and the substantial question of law. The assessee is, admittedly, in receipt of a sales taxsubsidy. The question that requires an answer is, whether thesubsidy is a revenue or a capital receipt? The Tribunal has affirmedorders passed by the CIT (Appeals) and the Assessing Officerholding that the sales tax subsidy received by the assessee is arevenue receipt by primarily relying upon a judgment of this Court inAbhishek Industries Limited's case (supra). We have heard counsel for the parties, appraised theimpugned order and the substantial question of law. The assessee is, admittedly, in receipt of a sales taxsubsidy. The question that requires an answer is, whether thesubsidy is a revenue or a capital receipt? The Tribunal has affirmedorders passed by the CIT (Appeals) and the Assessing Officerholding that the sales tax subsidy received by the assessee is arevenue receipt by primarily relying upon a judgment of this Court inAbhishek Industries Limited's case (supra). It is true that in Abhishek Industries Limited's case (supra) aDivision Bench of this Court has held that sales tax subsidy is arevenue receipt but a perusal of the judgment in Ponni Sugars andChemicals Limited's case (supra), reveals that the Supreme Courthas held that whether a subsidy is a revenue or a capital receiptwould depend upon the nature and purpose of a subsidy. A relevantextract from the judgment in Ponni Sugars and Chemicals Limited'scase (supra) reads as follows:- “ Shri Ganesh, learned senior counsel appearing on Income Tax Appeal No.146 of 2014 4 behalf of the assessee, submitted that the benefits wereconferred on the assessee under the 1980 and 1987schemes, namely, additional price by reason ofenhancement of free sale sugar quota, which resulted inthe benefit of additional price, which price had to beutilized only for repayment of loans taken by the assesseeto establish a new unit or for expanding the existing unit.The said schemes were not meant for a running unit. Thesecond benefit, according to learned counsel, lay in therebate of excise duty under which the assessee wasrequired to pay excise duty on the manufacture ofadditional quota of free sale sugar. According to learnedcounsel, in judging the character of the incentive, the“purpose test” is applicable. In other words, according tolearned counsel, the character of the receipt in the handsof the assessee had to be determined with respect to thepurpose for which the subsidy was given and that thepoint of time at which it is paid or its source or its form wasirrelevant. In this connection, learned counsel also placesreliance on the same judgment of this court in the case ofSahney Steel and Press Works Ltd.” Income Tax Appeal No.146 of 2014 5 judgments in Abhishek Industries Limited's case (supra) and PonniSugars and Chemicals Limited's case(supra), the order passed bythe Income Tax Appellate Tribunal was set aside and the matter wasrestored to the Tribunal for re-determining the question whether salestax subsidy is a revenue or a capital receipt by reference to thenature and purpose of the subsidy. Consequently, we allow this appeal, set aside orderpassed by the Income Tax Appellate Tribunal and restore theappeals to the Tribunal to adjudicate the nature and purpose of thesales tax subsidy and thereafter record an opinion whether it is acapital or revenue expenditure after taking into consideration thejudgment of the Hon'ble Supreme Court in Ponni Sugars andChemicals Limited's case (supra). Parties are directed to appear before the Income TaxAppellate Tribunal, Chandigarh Bench, Chandigarh, on 20.1.2015. ( RAJIVE BHALLA ) JUDGE 18.12.2014VK ( B.S.WALIA ) JUDGE