Sales Tax Subsidy received for expansion of Assessee’s existing industry is Capital in Nature: ITAT [Read Order]

Sales Tax subsidy - industry - Capital in Nature - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), Kolkata Bench ruled that the Sales Tax subsidy received for expansion of Assessee’s existing industry is Capital in Nature.

The respondent assessee, Emami Agrotech Limited has obtained incentive in the form of Sales Tax assistance of Rs.29,40,26,606/- in Assessment Year 2013-14 as Industrial Promotion Assistance (IPA) under “The West Bengal Incentive Scheme (WBIS) 2004” issued vide Notification dated March 24, 2004. The said incentive has been granted to encourage additional investments for setting up and/or expansion and modernization of the industrial undertaking located at the respective place to accelerate the development of the backward area of the State and to create large scale employment opportunities.

The company has received sales tax assistance, being capital receipt, for expansion of existing industrial undertaking involving huge capital outlay. Similarly, the company has also set up a new plant at Krishnapatnam, Andhra Pradesh and is eligible for incentives in the form of sales tax incentive, etc as per the scheme of Andhra Pradesh Gout. known as “Industrial Investment Promotion Policy (1IPP) 2010-2015” of Rs. 13,68,70,416/- for its new unit involving huge capital outlay.

The incentives were set off against sales tax liability payable to the Government and accordingly credited to the profit and loss account in the books of accounts. Since the said incentives have been granted with the objective of setting up of industries in backward areas, the amount equivalent to sales tax exemption, availed during the year, would constitute capital receipts in the hands of the appellant and should not be taxable.

However, while filing original as well as revise return of income, by an inadvertent error, the above amount being capital receipt which was credited to P&L was not excluded from computation of total income under the normal provisions as well as not excluded from Book Profit under section 115JB and has been offered to tax. The same was considered and excluded from Computation both under normal provision and under u/s 115JB through letter of modification in the return of income on August 12, 2015.”

The A.O did not accept the contention of the assessee that the sales tax assistance given by the State govt. as incentive is a Capital Receipt and not taxable, and he held it as a revenue receipt and did not allow the claim of the assessee.

The assessee preferred an appeal before the CIT(A) who deleted the addition by taking note of the orders of his predecessor for A.Y 2011-12 wherein the CIT(A) has held that sales tax incentive enjoyed by the assessee was for setting up industry in the backward areas in the State and hence it is a Capital Receipt not taxable as per the provisions of the Act. Thereafter the CIT(A) followed the view of his predecessor for A.Y 2011-12 and gave relief to the assessee.

The coram of J.Sudhakar Reddy and A. T. Varkey ruled that the subsidy in question received by the assessee in the form of refund of sales tax under the West Bengal Incentive Scheme, 2004 was capital in nature as the purpose of the same was for the expansion of the existing industry of the assessee.

The ITAT further ruled that the amounts which are not taxable in the normal computation cannot be included while computing the book profit because such amounts do not really reflect a receipt in the nature of income and cannot form part of the book profit.

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