Gauhati High Court
Page No.# 1/2 vs M/S Greenply Industries Ltd on 4 March, 2025
Page No.# 1/21
GAHC010269782022
2025:GAU-AS:2199-DB
THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Case No. : ITA/3/2023
THE PRINCIPAL COMMISSIONER OF INCOME TAX AND ANR.
OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX, AAYAKAR
BHAWAN, M.G. ROAD, SHILLONG- 793001.
2: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE- 1
DIBRUGARH
OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE- 1 DIBRUGARH PUSHKARA HOUSE
NATUN GAON NH-37 P.O.- MOHANGHAT DIBRUGARH- 786008
VERSUS
M/S GREENPLY INDUSTRIES LTD.
MAGGUL LOUNGE, 5TH AND 6TH FLOOR, 23 CHETLA CENTRAL ROAD,
KOLKATA- 700027.
Advocate for the Petitioner : MR. S C KEYAL,
Advocate for the Respondent : B SARMA, DR. ASHOK SARAF,MR P BARUAH,MR. N N
DUTTA,MR S J SAIKIA,MR P K BORA,MR. G. DUTTATRAY
Linked Case : ITA/6/2023
THE PRINCIPAL COMMISSIONER OF INCOME TAX AND ANR.
OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX
AAYAKAR BHAWAN M.G. ROAD SHILLONG- 793001.
2: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1
DIBRUGARH OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE-1 DIBRUGARH G.S. ROAD PUSHKARA HOUSE NATUN GAON
NH- 37 P.O.- 786008.
VERSUS
Page No.# 2/21
M/S GREENPLY INDUSTRIES LIMITED MADGUL LOUNGE
5TH AND 6TH FLOOR 23 CHETLA CENTRAL ROAD KOLKATA- 700027.
------------
Advocate for : MR. S C KEYAL
Advocate for : MR P BARUAH appearing for M/S GREENPLY INDUSTRIES
LIMITED
BEFORE
HONOURABLE THE CHIEF JUSTICE
HONOURABLE MR. JUSTICE N. UNNI KRISHNAN NAIR
Date of hearing : 25.02.2025
Date of Judgment & Order : 04.03.2025
JUDGMENT & ORDER (CAV)
(N. Unni Krishnan Nair, J.)
Heard Mr. Subhash Chandra Keyal, learned Senior Standing counsel,
CBDT & Income Tax, NER, appearing on behalf of the appellants in these
2(two) income tax appeals. Also heard Dr. Ashok Saraf, learned senior
counsel, assisted by Mr. B. Sarma, learned counsel, appearing on behalf of
the sole respondent in both these income tax appeals.
2. The present income tax appeals being ITA No. 03/2023 and ITA No.
06/2023 have been preferred by the Revenue Department under Section
260A of the Income Tax Act, 1961, challenging the order, dated
21.06.2022, passed by the Income Tax Appellate Tribunal, Guwahati Bench
at Kolkata, in ITA No. GAU 232/GAU/2019 and ITA No. 359/GAU/2019.
3. As the above-noted income tax appeals involve identical factual and
legal issues; hence, these appeals were heard together and are disposed of
by this common judgment & order.
Page No.# 3/21
4. The brief facts requisite for adjudication of the issue arising in the
present proceedings, is noticed as under:
4.1. In the above-noted income tax appeals; this Court had admitted the
above-noted appeals, vide order, dated 09.06.2023, on the following
substantial questions of law:
“(1) Whether the Hon’ble ITAT was right in law in upholding the order of learned CIT
(Appeals) in allowing excise duty exemption as capital receipt while the assessee has
treated the same as revenue receipt in its book, return of income as well as during
assessment.
(2) Whether the Hon’ble ITAT was right in law in allowing the excise duty exemption
adjustment in computation of MAT under section 115-JB.”
4.2. The assessee, herein, in the above-noted income tax appeals viz. M/s.
Greenply Industries Ltd., had filed its return of income tax electronically on
29.11.2015, for the assessment year 2014-2015, showing total income of
Rs. 49,12,19,250/-. The case was selected for scrutiny through CASS under
complete scrutiny category. The Assessing Officer, thereafter, passed an
assessment order, under Section 143(3) of the Income Tax Act, 1961, on
29.12.2017, with an assessed income of Rs. 54,42,24,740/-.
4.3. Being aggrieved, the assessee had instituted an appeal before the
Commissioner of Income Tax(Appeals), Dibrugarh. The said appeal was
registered as CIT(A), Dibrugarh/10082/ 2017-18. During the pendency of
the said appeal, the assessee had raised further additional grounds. The
additional grounds so raised by the assessee also included the following
ground:
“1. That on the facts and in the circumstances of the case, Excise Duty Exemption
availed during the year under consideration be treated as capital receipt and hence
be excluded in computing total income under the provisions of the Act.”
Page No.# 4/21
4.4. The said additional ground as raised by the assessee was considered
by the Commissioner of Income Tax(Appeals), Dibrugarh, and the said
ground was allowed. The additional ground so considered by the
Commissioner of Income Tax (Appeals), Dibrugarh, pertains to the claim of
the assessee for treating the excise duty exemption availed during the year
under consideration, as a capital receipt and hence, to be excluded from
computation of total income under the provisions of the Income Tax Act,
1961. It is to be noted that the assessee in its income tax returns filed for
the year, in question, had treated the said excise duty exemption as a
revenue receipt. However, the Commissioner of Income Tax (Appeals),
Dibrugarh, while holding the excise duty exemption claimed by the
assessee in relation to its 2(two) units viz. Rudrapur Plywood Unit and
Rudrapur MDF Unit, to be a capital receipt; vide order, dated 25.03.2019,
did not proceed to hold that the said income would also not be considered
as a book profit for computing Minimum Alternative Tax as per the
provisions of Section 115-JB of the Income Tax Act, 1961.
4.5. The assessee, thereafter, being aggrieved by the inaction on the part
of the Commissioner of Income Tax (Appeals), Dibrugarh, to not exclude
the excise duty exemption claimed by it, which was treated as a capital
receipt, from computation of book profit as per the provisions of Section
115-JB of the Income Tax Act, 1961; instituted an appeal before the
Income Tax Appellate Tribunal, Guwahati Bench at Kolkata, which was
registered as ITA No. 232/GAU/2019. In the said appeal, the assessee had
raised the following grounds:
“(1) That on the facts and in the circumstances of the case, the Id. CIT(A) was not
justified and grossly erred in not allowing claim of education cess on Income Tax and
Dividend Distribution Tax amounting to Rs.66,87,361/-, in computing total income
under the normal provisions of the Act.
Page No.# 5/21
(2) That on the facts and in the circumstances of the case, the ld. CIT(A) was not
justified and grossly erred in not allowing exclusion of Excise Duty Exemption as
capital receipt amounting to Rs.87,98,09,432/- availed during the year under
consideration in computing book profit as per section 115JB of the Act.”
4.6. However, during the consideration of the appeal i.e. ITA No.
232/GAU/2019, the Ground No. 1 relating to allowing Education Cess was
not pressed and accordingly, the said ground was dismissed by the Income
Tax Appellate Tribunal, Guwahati Bench at Kolkata, as not pressed. On the
other hand, the Ground No. 2 pertaining to allowing exclusion of excise
duty exemption availed by the assessee during the year under
consideration, in computing book profit, as per the provisions of Section
115-JB of the Income Tax Act, 1961, was so considered.
4.7. The Revenue Department, being aggrieved by the order of the
Commissioner of Income Tax(Appeals), Dibrugarh, dated 25.03.2019, also
instituted an appeal being ITA No. 359/GAU/2019, before the Income Tax
Appellate Tribunal, Guwahati Bench at Kolkata. The Tribunal, thereafter,
proceeded to consider both the appeals i.e. ITA No. 232/GAU/2019 and ITA
No. 359/GAU/2019, analogously, and disposed of the same vide an order,
dated 21.06.2022, allowing the appeal of the assessee on Ground No. 2,
noticed above, while the appeal as preferred by the Revenue Department,
came to be dismissed.
4.8. Being aggrieved, the Revenue has instituted the above-noted income
tax appeals being ITA No. 232/GAU/2019, and ITA No. 359/GAU/2019,
before this Court.
Page No.# 6/21
5. Mr. Keyal, learned Senior Standing counsel, CBDT & Income Tax, NER,
has, at the outset, submitted that the assessee, in its return filed for the
assessment year 2014-2015, having considered the excise duty exemption
as availed in relation to its Rudrapur Plywood Unit and Rudrapur MDF Unit,
as a revenue receipt and during the assessment process; there being no
issue raised by the assessee asking for adjustment with regard to the said
excise duty exemption as a capital receipt; the Commissioner of Income
Tax(Appeals), Dibrugarh, in the appeal so instituted by the assessee
against the assessment order of the Assessing Officer, ought not to have
examined the additional Ground No. 1, raised by the assessee claiming
treatment of the excise duty exemption availed during the year under
consideration as a capital receipt and ought to have remanded the matter
back to the Assessing Officer for examining the correctness of the claim
made by the assessee and further, to ascertain as to whether the same
would be in the nature of a capital receipt and/or a revenue receipt.
6. Mr. Keyal, learned Senior Standing counsel, CBDT & Income Tax, NER,
has further submitted the Income Tax Appellate Tribunal, Guwahati Bench,
Kolkata, erred in drawing a conclusion to the effect that the Commissioner
of Income Tax(Appeals), Dibrugarh, having treated the excise duty
exemption as a capital receipt in the hands of the assessee which was so
done without there being a claim so made before the Assessing Officer by
the assessee, ought not to have proceeded to further hold that the said
excise duty exemption being a purely capital receipt, would also not be
included as a part of book profit for computing the Minimum Alternative Tax
as per the provisions of Section 115-JB of the Income Tax Act, 1961.
Page No.# 7/21
7. In the above premises, Mr. Keyal, learned Senior Standing counsel,
CBDT & Income Tax, NER, has prayed that the order, dated 21.06.2022,
passed by the Income Tax Appellate Tribunal, Guwahati Bench at Kolkata,
in ITA No. 232/GAU/2019 and ITA No. 359/GAU/2019, would call for an
interference.
8. Per contra, Dr. Saraf, learned senior counsel appearing for the sole
respondent; at the outset, has submitted that excise duty exemption
availed by the assessee for its 2(two) units viz. Rudrapur Plywood Unit and
Rudrapur MDF Unit, set-up in the State of Uttaranchal, was so done in view
of the policy as formulated by the Ministry of Commerce and Industry,
Government of India, vide Office Memorandum, dated 07.01.2003. The
learned senior counsel has further submitted that the policy as contained in
the Office Memorandum, dated 07.01.2003, was so formulated for
providing the required incentives as well as an enabling environment for
industrial development in the State of Uttaranchal and to improve
availability of capital and increase market access to provide a fillip to the
private investment in the State with the view to generate local employment
opportunities and also use of local resources. It was further concluded that
in terms of the provisions of paragraph No. 3.1 of the Office Memorandum,
dated 07.01.2003, the new industrial units and existing industrial units on
their substantial expansion as prescribed were held to be entitled to 100%
outright excise duty exemption for a period of 10 years from the date of
commencement of commercial production and 100% income tax exemption
for an initial period of 5 years and thereafter, 30% for companies and 25%
for other than companies for a further period of 5 years for the entire
States of Uttaranchal and Himachal Pradesh from the date of
commencement of commercial production.
Page No.# 8/21
9. Dr. Saraf, learned senior counsel, has further submitted that although
before the Assessing Officer, the claim for treating the excise duty
exemption availed by the assessee under the policy contained in the Office
Memorandum, dated 07.01.2003, as capital receipt, was not so raised,
however, after the passing of the order by the Assessing Officer and in the
appeal being instituted by the assessee being CIT(A), Dibrugarh/10082/
2017-18, before Commissioner of Income Tax(Appeals), Dibrugarh; an
additional ground to this effect was so taken by the assessee which was
favourably considered in view of the decisions of the Hon’ble Supreme
Court as well as various High Courts of the country, holding the field.
10. Dr. Saraf, learned senior counsel, has further submitted that by
noticing the purpose for which the excise duty exemption was so granted to
the assessee in respect of its Rudrapur Plywood Unit and Rudrapur MDF
Unit; the Commissioner of Income Tax(Appeals), Dibrugarh, proceeded to
treat the same as capital receipt and accordingly, the same was to held
have an effect of reduction in claim of deduction under Section 80-1(A)(10)
of the Income Tax Act, 1961. However, the learned senior counsel has
submitted that the said excise duty exemption availed by the assessee for
the assessment year 2014-2015 although being held as a capital receipt by
the Commissioner of Income Tax(Appeals), Dibrugarh; no further direction
was issued to exclude the said excise duty exemption from the computation
of book profit under Section 115-JB of the Income Tax Act, 1961. Being
aggrieved, the assessee had approached the Income Tax Appellate Tribunal,
Guwahati Bench at Kolkata, by way of instituting an appeal being ITA No.
232/GAU/2019. The Tribunal, on consideration of the various decisions
applicable to the issue, was pleased to allow the claim of the assessee, to
also exclude the excise duty exemption claimed by the assessee in relation
Page No.# 9/21
to its Rudrapur Plywood Unit and Rudrapur MDF Unit, from computation for
payment of Minimum Alternative Tax under the provisions of Section 115-JB
of the Income Tax Act, 1961.
11. Dr. Saraf, learned senior counsel, has submitted that the Revenue
Department, being aggrieved, had also instituted an appeal being ITA No.
359/GAU/2019, before the Income Tax Appellate Tribunal, Guwahati Bench
at Kolkata. The learned senior counsel has submitted that a perusal of the
order, dated 21.06.2022, which had disposed of both the appeals viz. ITA
No. 232/GAU/2019 and ITA No. 359/GAU/2019; no submission has been
recorded, therein, by the Income Tax Appellate Tribunal, Guwahati Bench at
Kolkata, of the Revenue Department that they had, in any manner,
questioned the decision of the Commissioner of Income Tax (Appeals),
Dibrugarh, towards treating the excise duty exemption claimed by the
assessee and involved in the matter, as a capital receipt.
12. Dr. Saraf, learned senior counsel, has further submitted that there is
no material to demonstrate that the Revenue Department had also
questioned the action on the part of the Commissioner of Income
Tax(Appeals), Dibrugarh, in allowing the claim of the assessee for treating
the excise duty exemption involved, as a capital receipt without the same
being so raised before the Assessing Officer.
13. In the above premises, Dr. Saraf, learned senior counsel appearing for
the sole respondent, has submitted that the substantial question of law No.
1 so framed by this Court vide order, dated 09.06.2023, would not mandate
a consideration, in-as-much as, the said issue was not disputed by the
Page No.# 10/21
Revenue authorities before the Income Tax Appellate Tribunal, Guwahati
Bench at Kolkata, in the appeals so considered by it.
14. We have heard the learned counsels appearing for the parties and
also perused the materials available on record.
15. Substantial questions of law having been framed by this Court vide
order, dated 09.06.2023, in the above-noted income tax appeals; we now
proceed to consider the same.
16. At the outset, the substantial question of law No. 1 is being
considered. The substantial question of law No. 1, being so framed by this
Court vide order, dated 09.06.2023, for convenience, is again quoted
hereinbelow:
“Whether the Hon’ble ITAT was right in law in upholding the order of learned CIT
(Appeals) in allowing excise duty exemption as capital receipt while the assessee has
treated the same as revenue receipt in its book, return of income as well as during
assessment.”
17. As noticed hereinabove, the excise duty exemption claimed by the
assessee, is so claimed in terms of the policy decision pertaining to new
industrial policy and other concessions granted by the Ministry of
Commerce and Industry, Government of India, for the States of Uttaranchal
and Himachal Pradesh. The said policy was so framed for local employment
generation and use of local resources. To facilitate the said purpose, the
Office Memorandum, dated 07.01.2003, was so issued to provide the
required initiative as well as enabling environment for industrial
development, improve availability of capital and increase market access to
Page No.# 11/21
provide a fillip to the private investment in the State. In terms of the said
policy, new industrial units and/or existing industrial units fulfilling the
conditions set-out, were entitled to 100% outright excise duty exemption
for a period of 10 years from the date of commencement of commercial
production. The assessee before the Assessing Officer in the proceedings so
instituted by it under the provisions of Section 143 of the Income Tax Act,
1961; the said excise duty exemption was not claimed as a capital receipt.
Accordingly, the Assessing Officer proceeded to pass its order under the
provisions of Section 143(3) of the Income Tax Act, 1961, vide order, dated
29.12.2017, with an assessed income of Rs. 54,42,24,740/-.
18. The assessee, being aggrieved, had assailed the order, dated
29.12.2017, passed by the Assessing Officer under the provisions of
Section 143(3) of the Income Tax Act, 1961, before the Commissioner of
Income Tax(Appeals), Dibrugarh. During the pendency of the said appeal,
as noticed hereinabove, the assessee had raised certain additional grounds.
The additional Ground No. 1 so raised by the assessee, was a claim for
treating the excise duty exemption availed during the assessment year
2014-2015, as a capital receipt and the same be excluded in computing the
total income of the assessee under the relevant provisions of the Income
Tax Act, 1961. The Commissioner of Income Tax (Appeals), Dibrugarh,
upon considering the said issue as well as noticing the decisions applicable
to the issue, was pleased vide its order, dated 25.03.2019, to allow the
claim so made by the assessee. The operative portion of the said order,
dated 25.03.2019, pertaining to additional Ground No. 1, raised by the
assessee, being relevant, is extracted hereinbelow:
Page No.# 12/21
“10.3.1. The point to be decided boils down to whether assessee’s receipt on account of
Central Excise Duty Refund is capital receipt or not From the notes to audited
accounts, it is seen that the assessee was enjoying Central Excise duty exemption
from its Units at Rudrapur (Uttarakhand) and Tizit (Nagaland). This is a matter of
record. In the case of Shree Balaji Alloy (supra), Hon’ble J & K High Court after due
consideration of Hon’ble Apex’s Court order in the case of Sahney Steel (Supra) &
Ponni Sugars & Chemicals Ltd (supra) had taken the view that Central Excise Duty
Refund is a capital receipt. The decision of Hon’ble High Court was confirmed by
Hon’ble Apex Court in the case of CIT Vs. Shree Balaji Alloy Ltd (supra). The matter has
now reached finality. In view of decision of Hon’ble Apex Court on the matter the AO is
directed to treat assessee’s receipt of Excise Duty Refund as capital receipt. This will
have the effect of reduction in claim of deduction u/s 80-IC.
Additional ground No.1 is allowed.”
19. The present appeal being instituted by the Revenue Department being
confined to the issue of treatment of the excise duty exemption claimed by
the assessee as a capital receipt, the other issues considered by the
Commissioner of Income Tax(Appeals), Dibrugarh, in the appeal; is not
being examined by us, in the present order.
20. The Revenue Department although had instituted an appeal being ITA
No. 359/GAU/2019 against the order of the Commissioner of Income Tax
(Appeals), Dibrugarh, dated 25.03.2019; a perusal of the same, would
bring to the forefront that no contention with regard to the claim made by
the assessee before the Commissioner of Income Tax (Appeals), Dibrugarh,
for treating the excise duty exemption received by it for the assessment
year 2014-2015, as capital receipt, was taken. However, a question of law
having been framed; we would examine as to whether the excise duty
exemption availed by the assessee, in the facts and circumstances
involved, would be treated as a capital receipt and/or, revenue receipt, in
the hands of the assessee.
21. The Hon’ble Supreme Court in the case of Sahney Steel & Press
Page No.# 13/21
Works Ltd. v. Commissioner of Income Tax, A.P.-I, Hyderabad , reported
in (1997) 7 SCC 764, on discussing and analyzing the entire case law, has
laid down the basic test to be applied in judging the character of a subsidy.
The test is that the character of the receipt in the hands of an assessee,
has to be determined with respect to the purpose for which the subsidy is
given. In other words, in such cases, one has to apply the purpose test.
The Hon’ble Supreme Court in the said decision had further held that the
point of time at which the subsidy is paid is not relevant; the source is
immaterial, the form of subsidy is also immaterial.
22. The Hon’ble Supreme Court, thereafter, in its decision in the case of
Commissioner of Income Tax, Madras v. Ponni Sugars & Chemicals Ltd .,
reported in (2008) 9 SCC 337, considered its decision in the case of
Sahney Steel & Press Works Ltd.(supra), and held, as follows:
“14. The importance of the judgment of this Court in Sahney Steel case lies in the fact
that it has discussed and analysed the entire case law and it has laid down the basic
test to be applied in judging the character of a subsidy. That test is that the character
of the receipt in the hands of the assessee has to be determined with respect to the
purpose for which the subsidy is given. In other words, in such cases, one has to apply
the purpose test. The point of time at which the subsidy is paid is not relevant. The
source is immaterial. The form of subsidy is immaterial. The main eligibility condition
in the Scheme with which we are concerned in this case is that the incentive must be
utilised for repayment of loans taken by the assessee to set up new units or for
substantial expansion of existing units. 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 object of
the assistance under the Subsidy Scheme was to enable the assessee to set up a new
unit or to expand the existing unit then the receipt of the subsidy was on capital
account. Therefore, it is the object for which the subsidy/assistance is given which
determines the nature of the incentive subsidy. The form of the mechanism through
which the subsidy is given is irrelevant.
15. In the decision of the House of Lords in Seaham Harbour Dock Co. v. Crook
Harbour Dock Co. had applied for grants from the Unemployment Grants Committee
from funds appropriated by Parliament. The said grants were paid as the work
progressed; the payments were made several times for some years. Dock Co. had
undertaken the work of extension of its docks. The extended dock was for relieving
the unemployment. The main purpose was relief from unemployment. Therefore, the
House of Lords held that the financial assistance given to the Company for dock
extension cannot be regarded as a trade receipt. It was found by the House of Lords
Page No.# 14/21that the assistance had nothing to do with the trading of the Company because the
work undertaken was dock extension. According to the House of Lords, the assistance
in the form of a grant was made by the Government with the object that by its use men
might be kept in employment and, therefore, its receipt was capital in nature. The
importance of the judgment lies in the fact that the Company had applied for
financial assistance to the Unemployment Grants Committee. The Committee gave
financial assistance from time to time as the work progressed and the payments were
equivalent to half the interest for two years on approved expenditure met out of loans.
Even though the payment was equivalent to half the interest amount payable on the
loan (interest subsidy) still the House of Lords held that money received by the
Company was not in the course of trade but was of capital nature. The judgment of
the House of Lords shows that the source of payment or the form in which the subsidy
is paid or the mechanism through which it is paid is immaterial and that what is
relevant is the purpose for payment of assistance. Ordinarily such payments would
have been on revenue account but since the purpose of the payment was to
curtail/obliterate unemployment and since the purpose was dock extension, the House
of Lords held that the payment made was of capital nature.
16. One more aspect needs to be mentioned. In Sahney Steel and Press Works Ltd. this
Court found that the assessee was free to use the money in its business entirely as it
liked. It was not obliged to spend the money for a particular purpose. In Seaham
Harbour Dock Co.² the assessee was obliged to spend the money for extension of its
docks. This aspect is very important. In the present case also, receipt of the subsidy
was capital in nature as the assessee was obliged to utilise the subsidy only for
repayment of term loans undertaken by the assessee for setting up new
units/expansion of existing business.
17. Applying the above tests to the facts of the present case and keeping in mind the
object behind the payment of the incentive subsidy we are satisfied that such payment
received by the assessee under the Scheme was not in the course of a trade but was of
capital nature. Accordingly, the first question is answered in favour of the assessee
and against the Department.”
23. The High Court of Jammu & Kashmir, in the case of Shree Balaji
Alloys v. Commissioner of Income Tax, Jammu & anr ., reported in 2011
SCC Online J&K 269, considering a policy adopted for refund of excise duty
similar to the one involved in the present proceedings; applying the
decisions of the Hon’ble Supreme Court in the case of Sahney Steel &
Press Works Ltd.(supra) and Ponni Sugars & Chemicals Ltd. (supra),
proceeded to hold that considering the policy so involved, it was amply
clear that the same was so formulated for the acceleration of the
development of industry in the State with the objective of generation of
employment and the generation of employment so contemplated therein,
Page No.# 15/21
was not only casual and/or temporary, but, was, on the other hand, of
permanent nature. Thereafter, the High Court of Jammu & Kashmir
proceeded to interfere with the decision of the Income Tax Appellate
Tribunal, Amritsar Bench, Amritsar, holding the excise duty exemption
availed by the assessee, therein, to be a revenue receipt and it was held
that the said incentive so availed by the assessee, therein, to be a capital
receipt in the hands of the assessee.
24. The said decision of the High Court of Jammu & Kashmir in the case
of Shree Balaji Alloys(supra), was assailed by the Revenue Department
before the Hon’ble Supreme Court in the case of reported in Commissioner
of Income Tax, Jammu & Anr. v. Shree Balaji Alloys , reported in (2018)
13 SCC 373. The Hon’ble Supreme Court upheld the decision of the High
Court of Jammu & Kashmir in the case of Shree Balaji Alloys(supra) by
holding that the appeal was covered against the Revenue by the decisions
of the Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals
Ltd.(supra) and in the case of Commissioner of Income Tax v. Meghalaya
Steels Ltd., reported in (2016) 6 SCC 747.
25. The Hon’ble Supreme Court, thereafter, in its decision in the case of
Commissioner of Income Tax-I, Kolhapur v. Chaphalkar Brothers, Pune ,
reported in (2018) 13 SCC 358; had an occasion to again consider its
earlier decision in the case of Sahney Steel & Press Works Ltd. (supra) and
Ponni Sugars & Chemicals Ltd. (supra); and had concluded, as under:
“17. What is important from the ratio of this judgment in Ponini Sugars case is the
fact that Sahney Steer was followed and the test laid down was the “purpose test”. It
was specifically held that the point of time at which the subsidy is paid is not
relevant; the source of the subsidy is immaterial; the form of subsidy is equally
immaterial.
Page No.# 16/21
18. Applying the aforesaid test contained in both Sahney Steef as well as Ponni
Sugars, we are of the view that the object, as stated in the Statement of Objects and
Reasons, of the amendment ordinance was that since the average occupancy in
cinema theatres has fallen considerably and hardly any new theatres have been
started in the recent past, the concept of a complete family entertainment centre,
more popularly known as multiplex theatre complex, has emerged. These complexes
offer various entertainment facilities for the entire family as a whole. It was noticed
that these complexes are highly capital intensive and their gestation period is quite
long and therefore, they need government support in the form of incentives qua
entertainment duty. It was also added that the Government with a view to
commemorate the birth centenary of late Shri V. Shantaram decided to grant
concession in entertainment duty to multiplex theatre complexes to promote
construction of new cinema houses in the State. The aforesaid object is clear and
unequivocal. The object of the grant of the subsidy was in order that persons come
forward to construct multiplex theatre complexes, the idea being that exemption from
entertainment duty for a period of three years and partial remission for a period of
two years should go towards helping the industry to set up such highly capital
intensive entertainment centres. This being the case, it is difficult to accept Mr.
Narasimha’s argument that it is only the immediate object and not the larger object
which must be kept in mind in that the subsidy scheme kicks in only post
construction, that is when cinema tickets are actually sold. We hasten to add that the
object of the scheme is only one-there is no larger or immediate object. That the object
is carried out in a particular manner is irrelevant, as has been held in both Ponni
Sugars and Sahney Steel.”
26. The decision of the Jammu & Kashmir High Court in the case of Shree
Balaji Alloys(supra), was also considered by the Hon’ble Supreme Court in
its decision in the case of Chaphalkar Brothers(supra) and it was upheld.
The conclusions so drawn by the Hon’ble Supreme Court, in this
connection, being relevant, is extracted hereinbelow:
“19. Mr Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the
Jammu and Kashmir High Court in Shree Balaji Alloys v. CIT. While considering the
scheme of refund of excise duty and interest subsidy in that case, it was held that the
scheme was capital in nature, despite the fact that the incentives were not available
unless and until commercial production had started, and that the incentives in the
form of excise duty or interest subsidy were not given to the assessee expressly for the
purpose of purchasing capital assets or for the purpose of purchasing machine
20. After setting out both the Seme Court judgments referred to hereinabove, the High
Court found that the concessions were issued in order to achieve 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 dated 19-4-201611, this Court stated that the
issue raised in those appeals was covered, inter alia, by the judgment in Ponni
Sugars, and the appeals were, therefore, dismissed.
Page No.# 17/21
21. We have no hesitation in holding that the finding of the Jammu and Kashmir High
Court on the facts of the incentive subsidy contained in that case is absolutely
correct. In that once the object of the subsidy was to industrialise the State and to
generate employment in the State, the fact that the subsidy took a particular form
and the fact that it was granted only after commencement of production would make
no difference.”
27. Applying the decisions of the Hon’ble Supreme Court to the facts
involved in the present income tax appeals, more particularly, the purpose
test as formulated by the Hon’ble Supreme Court in the case of Sahney
Steel & Press Works Ltd.(supra); it is seen that the excise duty exemption
was so granted for the purpose of industrializing the States of Uttaranchal
and Himachal Pradesh and for generation of employment in the States.
Therefore, the said excise duty exemption granted to the assessee for its
Rudrapur Plywood Unit and Rudrapur MDF Unit, would necessarily be a
capital receipt in the hands of the assessee. Having concluded as above;
the substantial question of law No. 1 is answered in negative against the
Revenue authorities and in affirmative, in favour of the assessee, herein.
28. Having concluded as above with regard to the substantial question of
law No. 1; the substantial question of law No. 2, so framed by this Court,
vide order, dated 09.06.2023, is now being considered.
29. The substantial question of law No. 2, for convenience, is again
quoted hereinbelow:
“Whether the Hon’ble ITAT was right in law in allowing the excise duty exemption
adjustment in computation of MAT under section 115-JB.”
30. The Income Tax Appellate Tribunal, Guwahati Bench at Kolkata, on
considering the said issue, had, in paragraph No. 10, after noticing the
Page No.# 18/21
facts involved, formulated the question arising for its consideration in the
appeal preferred by the assessee being ITA No. 232/GAU/2019, as under:
“10. We have heard the rival contentions and perused the relevant material available
on record. We note that the assessee runs two manufacturing units in the name of
Rudrapur Plywood Unit and Rudrapur MDF Unit and both are covered by the Excise
Notification No.50/2003 dated 10.06.2003. Both the units are located in backward
areas and are eligible for 100% excise duty exemption in respect of goods
manufactured and cleared from such units for a period of 10 years from the date of
commencement of commercial production. The assessee has claimed the excise duty
exemption from these two units at Rs.87,98,09,432/- which is in the nature of capital
receipt not liable to be taxed. We also find that though the said amount is reflected in
the Profit & Loss Account of the assessee and the amount being capital receipt has
not been objected by the ld. CIT(Appeals) also, who has allowed deduction of the said
amount vide his order dated 25.03.2019 under normal provisions of the Act, however,
the order is silent on the exclusion of the said amount while computing the book
profit under section 115JB of the Act, therefore, the issue is for our examination that
“whether the excise duty exemption which is a capital receipt and not chargeable to
tax under the normal provisions of the Act, is to be considered as a part of book profit
for computing the book profit under section 115JB of the Act”.
31. The Income Tax Appellate Tribunal, Guwahati Bench at Kolkata, after
considering the decisions applicable to the matter, relied upon by the
assessee, as well as noticing the order passed by the Commissioner of
Income Tax (Appeals), Dibrugarh, and the provisions of the Office
Memorandum, dated 07.01.2003, issued by the Ministry of Commerce and
Industry, Government of India, concluded as follows:
“21. After going through the above referred judgments and decisions and on
examining the facts of the instant case, we find that the excise duty exemption has
been admittedly the capital receipt and the finding of the Id. CIT(Appeals) that the
excise duty exemption is not liable to be taxed under the normal provisions of the
Income Tax Act being not in dispute for us, the alleged capital receipt cannot be
categorised as part of the book profit. In the case of assessee being covered by the
excise duty notification, such sum collected on the goods manufactured and sold is in
the nature of incentive subsidy given for establishing the units in backward areas and
to generate employment opportunities. The said fact is evident from the office
memorandum dated 07.01.2003 of Ministry of Commerce and Industry, which reads
as under:-
3.4 On perusal of the above, it can be seen that incentive in the form of Excise
Duty Exemption has been given with an objective to achieve industrialization in
the backward areas of Himachal Pradesh and Uttaranchal and to generate
employment opportunities. The object of the assistance was not to enable the
businessman to run the business more profitably but encourage a businessman
to set up a new unit or expand the existing unit for overall economic
development of the state. Hence, the incentives granted by the Government of
India vide Office Memorandum No. 1(10)/2001-NER issued by DIPP, Ministry of
Page No.# 19/21Commerce and Industry, GOI dated 07-01-2003 read with Notification No.
No.50/2003- CE dated 10-06-2003, will be treated as capital receipt and not
liable to tax. In this regard, statement showing computation of excise duty
exemption received during the year aggregating to Rs. 87,98,09,432/-
alongwith copy of Excise Returns (in case of Rudrapur Unit 1) and copy of Form
A (in case of Rudrapur Unit 2) has been enclosed (Refer Page No. 599-683 of
Paper Book).
22. In the light of above decision as well as the Memorandum issued by the Ministry of
Commerce & Industry, we find that the excise duty exemption is purely capital receipt
and is neither chargeable to tax under the normal provisions of the Income Tax Act
nor is to be included as part of the book profit for computing the minimum alternative
tax as per the provisions of section 115JB of the Act. Thus Ground No. 2 raised by the
assessee is allowed.”
32. Dr. Saraf, learned senior counsel for the sole respondent, in this
connection, has relied upon the decision of the High Court of Judicature of
Bombay in the case of Commissioner of Income Tax-IV v. Harinagar
Sugar Mills Ltd.[order, dated 04.01.2017, in Income Tax Appeal No.
1132/2014]. The High Court of Bombay, in the said decision, on
consideration of a similar issue, proceeded to draw the following
conclusions:
“(a) The issue raised in this question is consequential to question no.(i). We have
already held that the subsidy received by the respondent-assessee from the State of
Bihar was in the nature of capital receipt. Hence the same cannot be added to arrive
at book profits of the respondent-assessee under Section 115J of the Act.
(b) However, it is pertinent to note that the question as proposed also seeks addition to
book profits on account of excess depreciation along with subsidy received by the
respondent-assessee. It is settled position in law as held by the Apex Court in Apollo
Tyres Ltd. v/s. CIT 255 ITR 273 that the Assessing Officer while computing the book
profit under Section 115J of the Act has only a power to examine whether the books of
account have been maintained in accordance with the provisions of the Companies Act
and have been duly audited. The book profits as reflected in the duly audited account
have to be accepted by the Assessing Officer and the only limited power he has to
increase/ decrease the book profit as arrived at by the assessee is only in terms of the
Explanation to Section 115J of the Act.In addition to the criteria listed in ITB 35.2 (a)
(d), the following criteria shall apply.
In the present case, the Revenue is not invoking the explanation to Section
115J of the Act to vary the book profit declared in the audited accounts of the
respondent-assessee. Thus, the question as proposed herein does not give rise to any
substantial question of law as it also stands concluded against the Revenue by the
decision of the Apex Court in Apollo Tyres Ltd. (supra).”
Page No.# 20/21
33. It is to be noted that the present issue is also consequential to the
substantial question of law No. 1, framed by this Court, vide order, dated
09.06.2023.
34. We having already concluded that the excise duty exemption availed
by the assessee being in the nature of a capital receipt in the hands of the
assessee; we are also in respectful agreement with the decision of the High
Court of Bombay that the same also cannot be added to arrive at the book
profit of the assessee under the provisions of Section 115-JB of the Income
Tax Act, 1961.
35. In view of the conclusions reached by us with regard to the
substantial question of law No. 1, we are of the considered view that the
substantial question of law No. 2 being a consequential one; the excise
duty exemption being purely a capital receipt, not chargeable to tax under
the normal provisions of the Income Tax Act, 1961, it would also not be
permissible to reckon the same for computation of book profit under the
provisions of Section 115-JB of the Act of 1961.
36. Accordingly, the decision of the Income Tax Appellate Tribunal,
Guwahati Bench at Kolkata, with regard to the Ground No. 2 raised before
it by the assessee, would not call for any interference.
37. In view of the above; the substantial question of law No. 2 is
answered in negative against the Revenue Department and in affirmative,
in favour of the assessee, herein.
Page No.# 21/21
38. In view of the discussions and conclusions reached by us,
hereinabove; we do not find any merit in these 2(two) income tax appeals
and consequently, the same stand dismissed. However, there shall be no
order as to costs
JUDGE CHIEF JUSTICE
Comparing Assistant
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