Income Tax | Sales Tax Incentive Under Govt Scheme For Industrial Promotion Is Capital Receipt, Not Taxable: Bombay High Court
The Bombay Excessive Court docket has said that gross sales tax incentive underneath a authorities scheme for industrial promotion is a capital receipt, not taxable.
Chief Justice Alok Aradhe and Justice Sandeep V. Marne had been addressing the difficulty of whether or not an incentive acquired in gross sales tax legal responsibility underneath a Scheme formulated by the State Authorities could be on the capital account, exempt from taxation, or on the income account, accountable for taxation.
“If the inducement is obtainable for the aim of organising of latest industrial unit or for enlargement of present unit, the receipt of incentive could be on account of capital. Alternatively, if the inducement is given for enabling the Assessee to run enterprise extra profitably, then the receipt could be on income account,” said the bench.
The Assessee-Bajaj Auto/appellant is engaged within the manufacture and sale of two-wheelers, three-wheelers and likewise within the manufacture and sale of spare elements of autos offered by it.
The Authorities of Maharashtra launched the scheme on 4 Might 1983, underneath which an choice for gross sales tax exemption or deferral of gross sales tax for a interval of 5 years was obtainable. The Assessee obtained an eligibility certificates for sales-tax exemption for a interval of three years commencing from 1 February 1986.
Through the technique of evaluation proceedings, Assessee claimed that the quantity of gross sales tax incentives ought to be thought to be capital receipt not liable to tax for the reason that stated incentive was acquired for the promotion of industries in backwards areas.
Because the Assessing Officer rejected the stated declare of the Assessee and handled the identical as a income receipt liable to tax, it most popular an attraction earlier than the CIT(A) difficult the order of evaluation. CIT(A) partly allowed the attraction however didn’t grant any reduction to the Assessee in respect of its declare in the direction of sales-tax incentive.
The Assessee accordingly filed an attraction earlier than the ITAT difficult the order of CIT(A), which was partly allowed. Nonetheless, as far as the declare of the Assessee in the direction of sales-tax incentive is anxious, the ITAT directed the identical to be handled as income receipt liable to fee of earnings tax and never capital receipt exempt from fee of earnings tax.
The income submitted that the inducement paid underneath the scheme formulated by the State Authorities within the type of exemption in fee of gross sales tax must be handled as income receipt by the Assessee, liable to fee of earnings tax.
The assessee submitted that the inducement underneath the gross sales tax scheme launched by the State Authorities has been acquired by the Assessee for organising of trade within the backwards space. The motivation just isn’t in the direction of manufacturing exercise undertaken by the Assessee.
As an alternative of paying a money quantity in the direction of the subsidy, the scheme envisaged adjustment of the inducement quantity within the gross sales tax payable on the graduation of manufacturing.
The bench additional said that even when precise fee/grant of the inducement is linked to manufacturing or sale exercise after completion of building of the commercial unit, the receipt of the inducement would nonetheless be on the capital account as long as the aim of the grant of the inducement is to advertise industrialisation.
The bench opined that “the incentives/subsidy granted by the State Authorities underneath each the 1979 in addition to 1983 Schemes had been for the aim of organising of latest industrial items. The motivation/subsidy was not granted for the aim of enabling the Assessees to run the enterprise extra profitably. After making use of the “objective check” it’s clear that the inducement supplied to the Assessee underneath each the Schemes was for selling organising of latest industrial items in growing areas of the State. The motivation was geared toward selling industrialization within the State.”
In view of the above, the bench dismissed the attraction filed by the income and allowed the attraction filed by the assessee.
Case Title: Bajaj Auto Restricted v. Dy. Commissioner of Revenue Tax
Case Quantity: INCOME TAX APPEAL NO.505 OF 2003
Counsel for Appellant/ Assessee: P.J. Pardiwalla
Counsel for Respondent/ Division: J.D. Mistri
