Deputy CIT v. Reliance Industries Ltd.

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The Tax Publishers2004 TaxPub(DT) 1014 (Mum-Trib) : (2004) 088 ITD 0273 : (2004) 082 TTJ 0765 Dy. CIT v. Reliance Industries Ltd. INCOME TAX ACT, 1961 Income- Capital or revenue receipt-Subsidy received from Government-Exepmtion from sales tax liability for specified period Assessee had set up a unit in a notified backward area in an earlier assessment year and became eligible for the incentives announced by the Government of Maharashtra under its Scheme of year 1979. The incentive was in the form of exemption from liability for payment of sales tax for a period of 5 years. The claim of assessee was that quantum of sales tax liability could be claimed as deduction on the basis that it was a capital receipt or on the basis that it should be treated as liability under the sales tax law but since it was exempted from payment of sales tax, the same should be treated as paid within the meaning of section 43B so as to be adjusted against the amount of subsidy, which assessee would have received from the State Government. AO disalloweded the claim of assessee on the grounds that under the scheme announced by the State Government, assessee was not required to charge any sales tax from its customers and to pay any purchase tax on its purchases and no amount of subsidy either in cash or in kind had been given by the Government. CIT(A) confirmed the view taken by AO, while Tribunal was of view that the amount determined as sales tax by the Sales-tax Officer would bear the character of subsidy which was capital in nature. That apart, a perusal of the scheme showed that the incentive was given for bringing about necessary infrastructure in processing/developing the backward area, thus, the incentive would be capital in nature, therefore, could not be treated as revenue receipt. *Held:If a Bench is of the view that an earlier order of a Bench of equal strength in the same assessees case requires reconsideration in the light of a change in the factual or legal position, the Bench shall not of itself take a different view, but the proper course would be to place the matter before the President of the Tribunal with a request to constitute a Special Bench consisting of three or more Members. The scheme framed by the Government of Maharashtra in 1979 had been analysed in detail by Tribunal in its order in the assessees case for the earlier assessment year. Tribunal on that basis had concluded that the thrust of the scheme was that assessee would become entitled for the sales tax incentive even before the commencement of the production, which implied that the object of the incentive was to fund a part of the cost of the setting up of the factory in the notified backward area. It had been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. As per Tribunal, the scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, he held that the subsidy in the form of sales tax incentive was not given to assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area. Thus, the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy is received after the commencement of production or conditional upon it. Therefore, assessee-company was justified in its claim that the Sales Tax incentive allowed to it during the previous year in terms of the relevant Government Order constituted capital receipt and was not to be taken into account in computation of total income. Income Tax Act, 1961* Section 4 Case Law Analysis:Followed:Referred:CIT v. Elys Plastics (P.) Ltd. [1991] 188 ITR 11/[1990] 52 Taxman 229 (Bom.) (para 6), Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) (para 8), CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830/ 76 Taxman 611 (SC) (para 15), Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/ 94 Taxman 368 (SC) (para 15), CIT v. Rajaram Maize Products [2001] 251 ITR 427/ 119 Taxman 492 (SC) (para 15), Seaham Harbour Dock Co. v. Crook (Inspector of Taxes) [1931] 16 TC 333 (HL) (para 16), Ostime v. Poutipridd & Rhondda Joint Water Boat 28 Tax Cases 261 (HL) (para 16), CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 / 33 Taxman 505 (AP) (para 16), CIT v. Menezes Farmaco [1999] 236 ITR 780 / 106 Taxman 61 (Bom.) (para 16), CIT v. Govind Poy Oxygen Ltd. [1999] 239 ITR 543 /[2000] 108 Taxman 580 (Bom.) (para 16), CIT v. Dusad Industries [1986] 162 ITR 784/ 27 Taxman 4 (MP) (para 17), Bajaj Auto Ltd. [IT Appeal Nos. 49 and 1101 (Bom.) of 1991, dated 31-12-2002] (para 18), Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 (SC) (para 18), Godia Wires v. CIT [1989] 178 ITR 596/ 44 Taxman 222 (MP) (para 18), Reliance Industries Ltd. v. Dy. CIT [IT Appeal No. 7554 (Bom.) of 1989, dated 25-7-2002] (para 18), CIT v. Balarampur Chini Mills Ltd. [1999] 238 ITR 445/105 Taxman 200 (Cal.) (para 19), CIT v. Goodlas Nerolac Paints Ltd. [1991] 188 ITR 1 / 55 Taxman 484 (Bom.) (para 20), Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574 (SC) (para 20), Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC) (para 20), Jeetram v. State of Haryana [1980] 3 SCR 689 (para 20), Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 (SC) (para 20), Tamilnadu Sugar Corpn. Ltd. v. CIT [2003] 130 Taxman 348 (Mad.) (para 36), CIT v. S. Kumars Tyre Mfg. Co. [2003] 131 Taxman 207 (MP) (para 36) and CIT v. Ponni Sugars & Chemicals Ltd. [2003] 260 ITR 605/ 127 Taxman 188 (Mad.) (para 37). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2004 TaxPub(DT) 1014 (Mum-Trib) : (2004) 088 ITD 0273 : (2004) 082 TTJ 0765

Dy. CIT v. Reliance Industries Ltd.

INCOME TAX ACT, 1961

Income- Capital or revenue receipt-Subsidy received from Government-Exepmtion from sales tax liability for specified period

Assessee had set up a unit in a notified backward area in an earlier assessment year and became eligible for the incentives announced by the Government of Maharashtra under its Scheme of year 1979. The incentive was in the form of exemption from liability for payment of sales tax for a period of 5 years. The claim of assessee was that quantum of sales tax liability could be claimed as deduction on the basis that it was a capital receipt or on the basis that it should be treated as liability under the sales tax law but since it was exempted from payment of sales tax, the same should be treated as paid within the meaning of section 43B so as to be adjusted against the amount of subsidy, which assessee would have received from the State Government. AO disalloweded the claim of assessee on the grounds that under the scheme announced by the State Government, assessee was not required to charge any sales tax from its customers and to pay any purchase tax on its purchases and no amount of subsidy either in cash or in kind had been given by the Government. CIT(A) confirmed the view taken by AO, while Tribunal was of view that the amount determined as sales tax by the Sales-tax Officer would bear the character of subsidy which was capital in nature. That apart, a perusal of the scheme showed that the incentive was given for bringing about necessary infrastructure in processing/developing the backward area, thus, the incentive would be capital in nature, therefore, could not be treated as revenue receipt. Held:If a Bench is of the view that an earlier order of a Bench of equal strength in the same assessees case requires reconsideration in the light of a change in the factual or legal position, the Bench shall not of itself take a different view, but the proper course would be to place the matter before the President of the Tribunal with a request to constitute a Special Bench consisting of three or more Members.

The scheme framed by the Government of Maharashtra in 1979 had been analysed in detail by Tribunal in its order in the assessees case for the earlier assessment year. Tribunal on that basis had concluded that the thrust of the scheme was that assessee would become entitled for the sales tax incentive even before the commencement of the production, which implied that the object of the incentive was to fund a part of the cost of the setting up of the factory in the notified backward area. It had been found that the entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. As per Tribunal, the scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, he held that the subsidy in the form of sales tax incentive was not given to assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area. Thus, the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy is received after the commencement of production or conditional upon it. Therefore, assessee-company was justified in its claim that the Sales Tax incentive allowed to it during the previous year in terms of the relevant Government Order constituted capital receipt and was not to be taken into account in computation of total income.

Income Tax Act, 1961 Section 4

Case Law Analysis:Followed:Referred:CIT v. Elys Plastics (P.) Ltd. [1991] 188 ITR 11/[1990] 52 Taxman 229 (Bom.) (para 6), Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) (para 8), CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830/ 76 Taxman 611 (SC) (para 15), Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/ 94 Taxman 368 (SC) (para 15), CIT v. Rajaram Maize Products [2001] 251 ITR 427/ 119 Taxman 492 (SC) (para 15), Seaham Harbour Dock Co. v. Crook (Inspector of Taxes) [1931] 16 TC 333 (HL) (para 16), Ostime v. Poutipridd & Rhondda Joint Water Boat 28 Tax Cases 261 (HL) (para 16), CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 / 33 Taxman 505 (AP) (para 16), CIT v. Menezes Farmaco [1999] 236 ITR 780 / 106 Taxman 61 (Bom.) (para 16), CIT v. Govind Poy Oxygen Ltd. [1999] 239 ITR 543 /[2000] 108 Taxman 580 (Bom.) (para 16), CIT v. Dusad Industries [1986] 162 ITR 784/ 27 Taxman 4 (MP) (para 17), Bajaj Auto Ltd. [IT Appeal Nos. 49 and 1101 (Bom.) of 1991, dated 31-12-2002] (para 18), Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 (SC) (para 18), Godia Wires v. CIT [1989] 178 ITR 596/ 44 Taxman 222 (MP) (para 18), Reliance Industries Ltd. v. Dy. CIT [IT Appeal No. 7554 (Bom.) of 1989, dated 25-7-2002] (para 18), CIT v. Balarampur Chini Mills Ltd. [1999] 238 ITR 445/105 Taxman 200 (Cal.) (para 19), CIT v. Goodlas Nerolac Paints Ltd. [1991] 188 ITR 1 / 55 Taxman 484 (Bom.) (para 20), Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574 (SC) (para 20), Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC) (para 20), Jeetram v. State of Haryana [1980] 3 SCR 689 (para 20), Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 (SC) (para 20), Tamilnadu Sugar Corpn. Ltd. v. CIT [2003] 130 Taxman 348 (Mad.) (para 36), CIT v. S. Kumars Tyre Mfg. Co. [2003] 131 Taxman 207 (MP) (para 36) and CIT v. Ponni Sugars & Chemicals Ltd. [2003] 260 ITR 605/ 127 Taxman 188 (Mad.) (para 37).