In CIT v. M/s Bhushan Steels and Strips Ltd, the Delhi High Court held that sales tax collected as incentive for setting up industries in backward areas by the Assessee-Company amount to revenue receipt and therefore, it is subject to income tax.
Assessee-Company and the Revenue approached the High Court against the order of the Income Tax Appellate Tribunal (ITAT) wherein it was held that amount received by the assessee by way of exemption of sales tax payments was capital receipt, hence, not subject to income tax.
Assessee for the year under consideration had received amount of sales tax as incentive for setting up industries in backward areas under the UP Sales Tax Act. As per the said scheme, the Assessee could retain the amount collected from the customers. Assessing officer brought the amount to tax and held that it constitute revenue receipt.
On appeal, the CIT(A) allowed the assessee’s claim. By noting that the same was an incentive granted to assessee towards establishment of the new unit and to buy machinery.
The bench of Justices Ravindra Bhatt and Najmi Waziri noted that the object of providing subsidy by way of permission to not deposit amounts collected (as sales tax liability)- which meant that the customer or servicer user concerned had to pay sales tax, but at the same time, the collector (i.e. the assessee) could retain the amount so collected, undoubtedly was to achieve the larger goal of industrialization.
Allowing the departmental appeal, it observed that “how a state frames its policy to achieve its objectives and attain larger developmental goals depends upon the experience, vision and genius of its representatives. Therefore, to say that the indication of the limit of subsidy as the capital expended, means that it replenished the capital expenditure and therefore, the subsidy is capital, would not be justified. The specific provision for capital subsidy in the main scheme and the lack of such a subsidy in the supplementary scheme (of 1991) meant that the recipient, i.e. the assessee had the flexibility of using it for any purpose. Unlike in Ponni Sugars (supra), the absence of any condition towards capital utilization meant that the policy makers envisioned greater profitability as an incentive for investors to expand units, for rapid industrialization of the state, ensuring greater employment. Clearly, the subsidy was revenue in nature.”
Read the Full Text of the Judgment Below.
