Icmat Direct Tax

TOPIC 2. ON DIRECT TAX

Case Study 1

Whether amounts of excise refund and interest subsidy received by industrial units in

pursuance of incentives announced in terms of new industrial policy for accelerated industrial development in State of Jammu and Kashmir for creation of such industrial atmosphere and environment which would provide additional regular sources of employment to unemployed in State, were, in fact, in nature of creation of new assets of industrial atmosphere and environment, having potential of employment generation to achieve a social object and such incentives would be capital receipts in hands of such industrial units.

Solution: In the case of M/s Shree Balaji Alloys, the Tribunal contended that excise duty refund and grant of interest subsidy received by the assessee in pursuance of the New Industrial Policy introduced in Jammu and Kashmir were revenue receipt and not capital receipt on the grounds that:-

(i) The aforesaid incentives were not given to establish industrial units because the

industry was already established.

(ii) The incentives were available only on commencement of commercial production.

(iii) The incentives were recurring in nature.

(iv)The incentives were not given for acquisition of capital assets.

(v) The incentives were given for easy market accessibility and to run the business

more profitably.

The High Court observed that the fact that incentives would become available to industrial units entitled thereto from the date of commencement of commercial production and the fact that these were not granted for creation of new assets were not the sole criteria for determining the nature of subsidy. The fact that such incentives were provided to achieve a public purpose should also be considered to determine the nature of subsidy and hence, such subsidy could not be construed as a production or operational incentive for the benefit of the assessee. Hence, the aforesaid incentives are capital...