DCIT, Central Circle 2 v. Bhagyalaxmi Rolling Mills Pvt. Ltd.

Case snapshot

Sections / provisions: 28; 2(24)(xviii)

Questions before the Court / Tribunal

• Subsidy received under PSI 2007 from Government of Maharashtra was to promote industrial growth in the less developed areas of the State and also to provide employment in such area, hence such subsidy has to be a capital receipt not chargeable to tax. The amendment in provision of sec. 2(24) sub-clause (xviii) is applicable from 01/04/2016 i.e. from A.Y.
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

M/s. Bhagyalaxmi Rolling Mill Pvt. Ltd. Gut No. 30, Daregaon, Adjacent to Addl. MIDC, „Jalna – 431 203 PAN; AADCB0390C Respondent Appellant by : Shri Sardar Singh Meena Respondent by : Shri Girish Ladda

These bunch of four appeals preferred by the Revenue emanates from the consolidated order of the ld. Commissioner of Income Tax (A)-12, Pune dated 28-09-2018 as per the grounds of appeal on record. 2. At the very outset, parties agreed that the facts and circumstances of the case and the issues involved in all these appeals are absolutely identical and similar and therefore, after hearing the submissions of the parties herein, al l these appeals were heard together and are being disposed of by this consolidated order. 3. The only issue for adjudication in all these appeals is whether the assessee having received subsidy from Government of Maharashtra under Package Scheme of Incent ives of 2007 (hereinafter referred to as „PSI 2007‟ for short) whether the said subsidy is capital receipt or a revenue receipt. Taking the lead case IT(SS)A No. 7/PUN/2019 for A.Y. 2011012 for the

narration of facts, we find that the assessee being a private limited company is engaged in manufacturing of steel at Jalna. The assessee -company had set up a mega project as defined in Government of Maharashtra‟s PSI 2007 in Jalna. Under the scheme PSI 2007 mega project the assessee has received capital incentive subsidy in different years from A.Y. 2010 -11 to 2015 -16. This incentive being capital receipt was credited to capital reserve in Balance sheet in each of these years. During the A.Y. 2011 -12, the assessee received capital subsidy of Rs. 11,51,75 ,000/- and the same was claimed as capital receipt. The Assessing Officer DCIT Circle 6(1) Mumbai vide regular assessment order u/s 143(3) dated 6 -2-2014 for A.Y.

2011 -12 held that this subsidy is capital receipt but it needs to be reduced from fixed asse ts as provided in sec. 43(1) for calculating depreciation. On appeal, the CIT(A) -12 Mumbai vide order dated 17 -3-2016 held that entire subsidy of Rs. 11,51,75,000/- is revenue receipt chargeable to tax. The assessee carried the matter further before ITAT Mumbai Bench and the co-ordinate Bench in ITA No. 3428/MUM/2016 vide order dated 3 -3-2017 for A.Y. 2011 -12 has held that subsidy of Rs. 11,51,75,000/- is capital receipt not chargeable to tax and further held it is not given to meet cost of any asset and hence it need not be reduced from value of assets for calculating depreciation i.e.

Explanation 10 to sec. 43(1) is not applicable. The Mumbai Bench had, in turn, relied on the decision of Hon‟ble Bombay High Court in the case of Reliance Industries Ltd. 339 ITR 632. 4. The assessee placing reliance on the aforesaid decisions of the Hon‟ble Bombay High Court submitted before us that for deciding the nature of very subsidy whether capital or revenue it is the “purpose test” i.e. purpose for which subsidy is granted is most important. The purpose of the present subsidy scheme i.e. PSI 2007 by Government of Maharashtra is “dispersal of industries to less developed areas of State, ensure sustained industrial growth”. The

Appellant / petitioner / assessee submissions

31,00,000/-. The appellant claimed that the subsidy was rec eived on account of setting up of new industrial unit hence; the same should be treated as capital receipt. The AD noted that the subsidy was rece ived after the commencement of production; therefore, it was to be treated as ass istance for functioning of the business which was in nature of revenue receipt. During the appellate proceedings, t he appellant submitted that for the A.Y. 2011-12, addition was made in the regular assessment order u/s 143(3) dated 06.02.2014 treating the subsidy received as capital receipt, but the AD reduced the amount of subsidy received from fixed assets for calculating the amount of depreciation.

In the appellate proceedings against the regular assessment, the CIT(A) -12, Mumbai held that the entire subsidy received was revenue receipt. During the appeal before the Hon'ble ITAT Mu mbai B Bench vide order ITA No. 3428/MUN/2016 dated 03.03.2017 held that the entire subsidy received was in nature of capital receipt not chargeable to ta x. The Hon'ble Tribunal relying on the judgment of Hon'ble Bombay High Court in the case of Reliance Industries ltd. 339 ITR 632 held that the subsidy was not given to meet the cost of any particular asset therefore, it need not be reduced from the value of asset for calculating depreciation. The appellant submitted that identical additions were made by the AD in the order passed u/s 143(3) r.w.s.

153A for A.Y.s 2010-11 to 2012 -13, 2014 -15 & 2015-16 which were fully covered by the decision of the Hon'ble Tribunal Mumbai (supra) Tribunal Mumbai (supra) in the appellant's own case for A.Y. 2011 -12. The appellant further relied on the decision o f Hon'ble Apex Court in the case of CIT vis Chapalkar Brothers 400 ITR 279 dated 07.12.2017, (IT v/s Shri Balajl Alloys & ors (2016) 138 DTR( SC) 36 wherein it was held that the object for subsidy given must be considered for determining whether it should be treated as capital or revenue receipt. The appellant contended that subsidy was given for setting new industrial undertaking and expansion of existing undertaking by the State with a view to accelerate industrial development and generation of employment.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

Therefore, the AO was not legally right in making the same addition again in the 153A proceeding. Since this addition is legally unsustainable" t he appellant gets relief. The AO is directed to delete the addition made of Rs. 31,00,000/-. Grounds raised by the appellant are hereby allowed.”

6 . We find that the co -ordinate Bench of Mumbai Tribunal in ITA No. 3428/MUM/2016 for A.Y. 2011 -12 in assessee‟s own case, order dated 03 -032017 has observed and held as follows: 9.. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that above facts are undisputed. The assessee received subsidy from Mah arashtra Govt. for putting up mega project in backward area amounting to Rs. 11,51,75,000/ - during the year under consideration. The assessee's project was eligible mega project as certified by directorate of industries. The assessee treated the subsidy as capital receipt. The AO while framing assessment disallowed depreciation by reducing the incentive received from Maharashtra State Government from the cost of the building and plant and machinery.

Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 (SC). We find that the CIT(A) while deciding the nature of subsidy granted to the assessee has considered only the form in which the subsidy is granted a nd conditions based on which the subsidy is granted mainly being generation of employment of local persons. We find that this incentive was granted to the assessee under the Package Scheme of Incentive 2007 as notified by Govt. of Maharashtra. The object of this scheme was to encourage the dispersal of industries to the less developed areas of the States and further improving conducive industrial climate in the State for providing global competitive edge to the states Industry.

Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales-tax incentive was not given to the assessee for assisting it in carrying ou t the business operations. The object of the subsidy was to encourage the se tting up of industries in the backward area. " 5. Thus, it can clearly be seen that a finding has been recorded that the object of the subsidy was to encourage the setting up of industries in the backward area by generating employment therein. In our opinion, in answering the issue, the test as laid down by the Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd. & Ors.

On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the obje ct of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existin g unit then the receipt of the subsidy was on capital account. " 6. Therefore, let us apply the purpose t est based on the findings recorded by the Special Bench. The object of th e subsidy was to set up a new un it in a backward area to generate employment.

In our opinion, the s ubsidy is clearly on capital account. In that view of the matter, question (D) as framed, would also not arise. "

Operative decision and relief

14, From the above, we are of the view that it is only where subsidy is given specifically to of fset the cost of an asset, such payment would fall within the expression 'met', whereas the subsidy rec eived merely to accelerate the industrial development of the state cannot be considered as payments made specifically to meet a portion of the cost of the asset. Therefore, incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it fal ls outside the ambit of Explanation 10 to Section 43(1) of the Act. In the light of the above discussion, for the purpose of computing depreciation allowable to the assessee, the subsidy amount cannot be reduced from the cost of the capital asset. Accordin gly, on both the issues we are of the view that the subsidy received by the assessee is nature and it cannot be reduced capital in from the cost of the fixed assets for computing depreciation. Accordingly this inter-connected issue of assessee's appeal is allowed.”

23. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to ac hieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus, considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned senior counsel pointed out that by an order dt. 19th April, 2016 [reported as CIT vs. Shree Balaji Alloys & Ors. (2016) 138 DTR (SC) 36 : (2016) 287 CTR (SC 459Ed], this Court stated that the issue raised in those appeals was covered, Inter alia, by the judgment in Ponni Sugars (supra), and the appeals were, therefore, dismissed.

ld. CIT(A) and the reliefs provided to the assessee is sustained. Therefore, the appeal of the Revenue in IT(SS) A No. 07/PUN/2021 for A.Y. 2011 -12 is dismissed. 11 Both the parties have agreed that the facts and circumstances and the issues in IT(SS) A No. 08 to 10/PUN/2019 for A.Y. 2012 -13, 2014 & 2015 -16 are absolutely identical in the case of the assessee in IT(SS) A No. 07/PUN/2019 for A.Y. 2011 -12. Therefore, o n hearing the parties our decision in IT(SS) A No. 07/PUN/2019 for A.Y. 2011 -12 shall apply mutatis mutandis to IT(SS) A No. 8 to 10/PUN/2019 for A.Y. 2012-13, 2014 & 2015-16. 12. In the combined result, all the appeals of the Revenue are dismissed. Order pronounced in the open Court on this 06th day of May 2022.

Ratio and legal principle

The narrow proposition associated with DCIT, Central Circle 2 v. Bhagyalaxmi Rolling Mills Pvt. Ltd. concerns subsidy received under psi 2007 from government of maharashtra was to promote industrial growth in the less developed areas of the state and also to provide employment in such area, hence such subsidy has to be a capital receipt not chargeable to tax. the amendment in provision of sec. 2(24) sub-clause (xviii) is applicable from 01/04/2016 i.e. from a.y. The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in IT(SS) A No. 7 to 10/PUN/2019.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Dismissed” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: Subsidy received under PSI 2007 from Government of Maharashtra was to promote industrial growth in the less developed areas of the State and also to provide employment in such area, hence such subsidy has to be a capital receipt not chargeable to tax. The amendment in provision of sec. 2(24) sub-clause (xviii) is applicable from 01/04/2016 i.e. from A.Y. Its practical value lies in the way the ITAT Pune connected the governing provisions—28; 2(24)(xviii)—to the procedural posture and evidence before it.

The authority level is ITAT / Tribunal. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 28; 2(24)(xviii) and the decision date 2022-05-06; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is DCIT, Central Circle 2 v. Bhagyalaxmi Rolling Mills Pvt. Ltd., the proceeding is IT(SS) A No. 7 to 10/PUN/2019, and the decision is dated 2022-05-06. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Shri R.S. Syal, Vice President; Shri Partha Sarathi Chaudhury, Judicial Member. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 28; 2(24)(xviii). The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Dismissed. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is RECTIFICATION_HIGH_COURT_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 28 — apply the exact version considered in the judgment.
• 2(24)(xviii) — apply the exact version considered in the judgment.

Case network

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• Noel Harper & Ors v. Union of India & Anr — Supreme Court of India · Dismissed

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