The Commissioner Of Income Tax v. Siya Ram Garg Huf

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.679 of 2010 Date of decision: 14.12.2010 The Commissioner of Income Tax. Vs. Siya Ram Garg HUF. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Yogesh Putney, Sr.Standing counselfor the Revenue. ---for the Revenue. --- ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order of the Income Tax Appellate Tribunal, NewDelhi dated 16.10.2009 in I.T.A. No.4403/Del/2007 claimingfollowing substantial questions of law:- “i)Whether on the facts, and circumstances of the case,the ITAT was justified in deleting the addition ofRs.12,16,090/- by treating the Agro based subsidyreceived by the assessee as tax free capital receipt,ignoring direct decisions of the Hon’ble Apex Court iinthe case of Sawhni Steel & Press Work Ltd. Vs. CIT228 ITR 253 (SC) and CIT Vs. Raja Ram MaizeProducts (2001) 251 ITR 427 (SC) as also CIT Vs.Abhishek Industries Ltd. 286 ITR 1 (P&H)?the ITAT was justified in deleting the addition ofRs.12,16,090/- by treating the Agro based subsidyreceived by the assessee as tax free capital receipt,ignoring direct decisions of the Hon’ble Apex Court iinthe case of Sawhni Steel & Press Work Ltd. Vs. CIT228 ITR 253 (SC) and CIT Vs. Raja Ram MaizeProducts (2001) 251 ITR 427 (SC) as also CIT Vs.Abhishek Industries Ltd. 286 ITR 1 (P&H)? ii)Whether on the facts, and circumstances of the case,the ITAT was justified in deleting the addition ofRs.7,16,511/- on account of excess payment made tosister concern on account of purchases within themeaning of provisions of sec.40A(2) of the IT Act?”the ITAT was justified in deleting the addition ofRs.7,16,511/- on account of excess payment made tosister concern on account of purchases within themeaning of provisions of sec.40A(2) of the IT Act?” 2. The assessee is engaged in manufacture of yarn. Itreceived subsidy of `12,16,090/- from Haryana Government andclaimed to be exempt from tax on the ground that the same wascapital receipt. The Assessing Officer disallowed the claim of theassessee by holding that subsidy was granted on 27.1.1995 whileoperations of the assessee commenced on 16.11.1994. Reliancehas been placed on judgment of the Hon’ble Supreme Court inSahney Steels & Press Works Ltd. & othersv. CIT228 ITR253 and judgment of this Court in CITv. Abhishek IndustriesLtd.286 ITR 1. The CIT(A) allowed the appeal of the assesseeholding that the subsidy was for setting up of industrial unit inbackward area of Haryana and same has to be treated as capitalreceipt. The Tribunal affirmed the said view as follows:- “7.Having heard the parties and having perusedthe material on record, we find that the subsidy inquestion has indeed been given for setting up an agrobased industrial unit in a backward area in the Stateof Haryana. The subsidy is determined with regard tocapital investment. In “Ponni Sugars & Chemicals”(supra) relied upon by the department, it has beenheld that the test to determine as to whether incentivesubsidy received by the sugar mills was a capitalreceipt of a revenue receipt, is that the character ofthe material on record, we find that the subsidy inquestion has indeed been given for setting up an agrobased industrial unit in a backward area in the Stateof Haryana. The subsidy is determined with regard tocapital investment. In “Ponni Sugars & Chemicals”(supra) relied upon by the department, it has beenheld that the test to determine as to whether incentivesubsidy received by the sugar mills was a capitalreceipt of a revenue receipt, is that the character of the receipt in the hands of the assessee is to bedetermined with respect to the purpose for which thesubsidy is given; that the point of time at which thesubsidy is paid, the source of the subsidy and eventhe form thereof are immaterial; that the maineligibility condition is that the incentive must beutilized; that if the object of the subsidy was to enablethe assessee to set up a new unit, the subsidy wascapital in nature. 8.“Ponni Sugars & Chemicals (supra), therefore,aids the assessee rather than the department.Admittedly, the subsidy granted to the presentassessee has been granted for setting up of agrobased industrial unit in a backward area in the state ofHaryana. This fact situation is squarely covered by“Ponni Sugars & Chemicals” (supra). 9. Apropos “Sahni Steel & Press Work Ltd. Vs.CIT” (supra) and “CIT vs. Raja Ram Maize Products”(supra), these decisions also do not take anythingaway from the case of the assessee, as has beenobserved by the ld CIT(A) in as much as therein, theissue was as to what is a revenue subsidy which istaxable. It was held, inter alia, that subsidy grantedfor setting up of industry is not of revenue nature.That being so, there is no force in the allegation of thedepartment that the ld CIT(A) ignored “Sahni Steel &Press Work Ltd. Vs. CIT” (supra) and “”CIT vs RajaRam Maize Products” (supra).” 3. We have heard learned counsel for the appellant. 4. It is clear from the findings recorded by the CIT(A), asaffirmed by the Tribunal that the subsidy was given for setting up of industrial unit in backward area of Haryana and was to bedetermined with reference to capital investment. In such asituation, the plea of the assessee was supported by the viewtaken by the Hon’ble Supreme Court in CIT v. Ponni Sugarsand Chemicals Ltd.[2008] 306 ITR 392 which has been followedby the Tribunal and the view taken in Sahney Steels & PressWorks Ltd. & others and Abhishek Industries Ltd. wasdistinguishable. 5. As regards question (ii), the assessee made additionunder Section 40A(2) of the Act on the ground that the assesseehad paid higher rate to its sister concern while purchasing cottonand waste. The CIT(A) upheld the plea of the assessee that thepayment was not higher than the normal rate. It was held that thegoods purchased at lesser rate were of inferior quality. TheTribunal affirmed the said finding as under:- “15.On this issue, we find that indeed, the detailsfiled by the assessee showed that its sister concernswere being taxed at the same rate at which theassessee was being taxed, proving that there was noreason for the assessee to show higher ratepurchases made by the assessee from its sisterconcerns. The assessee’s sister concern had offeredtheir income from such sales, which fact has not beendisputed. Therefore, the AO erred in invoking theprovisions of S.40A(2) of the Act and the ld CIT(A)has correctly deleted the disallowance.” filed by the assessee showed that its sister concernswere being taxed at the same rate at which theassessee was being taxed, proving that there was noreason for the assessee to show higher ratepurchases made by the assessee from its sisterconcerns. The assessee’s sister concern had offeredtheir income from such sales, which fact has not beendisputed. Therefore, the AO erred in invoking theprovisions of S.40A(2) of the Act and the ld CIT(A)has correctly deleted the disallowance.” 6. The above finding being a finding of fact and notbeing perverse, we do not find any ground to interfere with thesame. 7. No substantial question of law arises. 8.The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 14, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE