Relief to Jindal India: ITAT treats Incentives under West Bengal Incentives Scheme as 'Capital Receipts', not Taxable [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), New Delhi Bench granted relief to M/s. Jindal (India) Ltd, the appellant by holding that incentives paid under West Bengal Incentives Scheme are to be treated as 'capital receipts' and hence not taxable.

The state of West Bengal decided to introduce the West Bengal Incentive Scheme 2000 which also covered the district of Howrah and, therefore, the units of the assessee are eligible for the incentive scheme. It is provided that the industrial unit to get State capital investment subsidy on the investment made in the fixed capital depending on location with direct employment generation of 200 or more.

The 2000 scheme was generally be applicable to all large, medium, cottage and small scale projects to which / medium sector tourism units to be set up and also to expansion projects of existing units on or after 1.01.2000

A search and seizure operation was conducted on the assessee and the assessment for A.Y.2009-10 was initiated by the AO by serving notice u/s. 143 (2) of the Income Tax Act, therefore, pursuant to the search operation the impugned assessment was abated and proceedings u/s. 153 A were initiated.

The original return filed at the Nil income was repeated by the assessee by filing the same return of income in response to the notice under Section 153A of the Income Tax Act. During the assessment proceedings assessee filed revised computation of income wherein it claimed deduction being the amount of incentive of sales tax paid and also of the amount of power incentive granted by the Government of West Bengal.

In so far as A.Y.2012-13 is concerned the original return declaring income of Rs.46 crores was revised by claiming deduction of Rs.31 crores on account of incentive of sales tax paid claiming the same as capital receipt. The claim for A.Y.2009-10 was rejected by the AO by drawing support from the decision of the Supreme Court in the case of Goetze India and for A.Y.2012-13 the claim was rejected as not tenable in law and merits of the claim were not looked into by the AO.

The CIT(A) concluded by holding “just because the scheme of West Bengal Government talks about generation of employment or development of the area does not make any incentive / subsidy as capital receipts in the hands of the assessee”.

A Bench comprising N K Billaiya, Accountant Member and Kul Bharat, Judicial Member relying on the judgment in Ankit Metal and Power Limited observed that “Incentive subsidies are 'capital receipts' and is not an 'income' liable to be taxed in relevant assessment year 2010-11taking into consideration the definition of Income under Section 2(24) of the Income Tax Act, 1961, where sub-clause (xviii) has been inserted including 'subsidy'.”

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