By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
1.
Spectrum Coal & Power Ltd.
vs. ACIT (Mumbai)
Members: P. K. Bansal (V. P.) and Pawan
Singh (J. M.)
ITA Nos.: 1295 and 1296 / Mum / 2012.
A.Ys.: 2000-01 and 2001-02, Date of Order: 3rd August,
2017
Counsel for Assessee / Revenue: Salil Kapoor
/ Ram Tiwari
FACTS
The assessee
had received a sum of Rs. 9.97 crore from US Aid through ICICI under the
Program for Acceleration of Commercial Energy Research in the years 1996-97 and
1997-98, which was credited to the capital reserve in the balance sheet of the
Company’s accounts. In the F.Y. 1999-2000, the assessee company had adjusted
this amount against the investment in plant and machinery. However, the cost of
plant & machinery was not reduced to this extent while calculating the
written down value (WDV) for the purpose of determining the depreciation as per
the provisions of the Income-tax Act. The Assessing Officer treated the grant
received by the assessee from US Aid through ICICI as cost met directly or
indirectly by any other person or authority as per the provisions of Section
43(1) and in computation of WDV of the plant and machinery for the purpose of
calculation of depreciation the amount of grant received was reduced from the
cost of plant and machinery. On appeal, the CIT(A) confirmed the order of the Assessing
Officer.
Before the
Tribunal, the assessee submitted that the grant was not given to meet the cost
of any specific asset but to create an institutional environment for the
technology innovation in the energy sector. Further, it was pointed out that
this grant was repayable by the assessee. The repayment had to be made @2% of
the gross annual sales. The Revenue on the other hand, supported the decision
of the lower authorities and argued that the true nature of the amount received
by the assessee was not loan, but it was a grant. The ICICI had merely turned
this assistance into a conditional grant while extending this amount to the
assessee, repayable amount being twice the amount of conditional grant given as
royalty linked to the sales. It was contended that the assessee had merely
returned a sum of Rs 20 lakh. Thereafter, neither the ICICI Ltd. has recovered
the amount from assessee company nor the assessee has provided for any royalty
payable to ICICI Ltd. in its books of account. The conduct of the assessee
shows that it has treated this amount given by ICICI Ltd. as aid / assistance /
grant / subsidy and not as a loan.
HELD
The Tribunal
went through the agreement entered into between the assessee and ICICI Ltd.
under which the assessee was given the said amount. Based thereon, it noted
that the assessee was required to repay the said grant subject to the condition
that the maximum repayment amount will not exceed 200% of the grant received
and till then the assessee was to pay 2% of the gross annual sales of the coal
beneficiated under the proposed commercial project.
According to
the Tribunal, the grant from this agreement was conditional. It was a financial
arrangement and cannot be regarded to be a subsidy / grant. The Tribunal also
observed that the grant was to create an institutional environment for
technological innovations in the energy sector. Therefore, even if the grant is
not treated as the financial arrangement and was treated as a subsidy, as
contended by the revenue, it was not for a specific plant & machinery.
The Tribunal
further relied on the decision of the Visakhapatnam Tribunal in the case of Sasisri
Extractions Limited vs. ACIT (122 ITD 428) and noted that even after
insertion of Explanation 10 to section 43(1), the Tribunal has categorically
held that the basic principle underlying the decision of the Apex Court in the
case of CIT vs. P. J. Chemicals (210 ITR 830), still holds good.
Accordingly, it was held that financial grant received by the assessee could
not be reduced from the actual cost of fixed assets for computing the
depreciation under the Income-tax Act.
