IT APPEAL NOS. 65 (KOL.) OF 2010 & 665 (KOL.) OF 2011
[ASSESSMENT YEARS 2006-07 & 2007-08]

JUSTICE DEV DARSHAN SUD, PRESIDENT (AS A THIRD MEMBER) 
C.D. RAO AND M. BALAGANESH, ACCOUNTANT MEMBER 
GEORGE MATHAN AND S.S. VISWANETHRA RAVI, JUDICIAL MEMBER

N.K. Podar, A.K. Tulsiyan, CA, Ld. AR and Amit Kumar, CA for the Appellant. 
Niraj Kumar, CIT (DR) for the Respondent.

ORDER

George Mathan, Judicial Member - The appeal in ITA No.65/Kol/2010 is filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), Central-1, Kolkata in Appeal No. 310/CC- VII/CIT(A)C-I/08-09 dated 30-10-2009 and the appeal in ITA No.665/Kol/2011 is filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), Central-I, Kolkata in Appeal No.221/CC-VII/CIT(A),C-I/09-10 dated 25-02-2011 for the assessment years 2006-07 and 2007-08 respectively.

2. As the issues in both the appeals are identical and common both the appeals are disposed of by this common order for the sake of convenience.

3. Shri Shri A.K Tulsyan, CA, ld. AR represented on behalf of the assessee and Shri A.K. Mohapatra, ld.CIT/DR represented on behalf of the revenue.

ITA No.65/Kol/2010 A.Y 2006-07 (by the assessee)
4. In this assessee's appeal, the assessee has raised following ground of appeal :-

"1. That the CIT(A), Central-I, Kolkata, erred in helding that the power subsidy received as grant for new and expanding industrial unit as utilized for expansion & repayment of term loan, as revenue receipt in place of Capital receipt. The order of A.O & CIT(A) need to be reversed. "

ITA No.665/Kol/2011 A.Y 2007-08 (by the assessee)
5. In this assessee's appeal, the assessee has raised following grounds of appeal:-

"1.	That the CIT(A), Central-I, Kolkata, erred in holding that the power subsidy received as grant for promotion of industrial unit is revenue receipt as against the claim of the assessee that the same is a capital receipt. The orders of A.O & CIT(A) need to be reversed.
2.	That the assessee craves the leave to add, alter, amend or whether any ground or grounds of appeal before or at the time of hearing"

6. It was submitted by the learned AR for the assessee that the assessee is a company, who is doing the business of manufacturing of hot rolled bars, steel ingots/billets and sponge iron at its factory at Angadpur, Durgapur. It was the submission that the issue in the appeal was against the action of the Assessing Officer in not accepting the claim of the assessee that the power subsidy received by the assessee was a capital receipt and also against the order of the learned Commissioner of Income-tax (Appeals) in confirming the assessment order, wherein the power subsidy received had been held to be a revenue receipt. It was held by the AO that the power subsidy was received by the assessee after the assessee had commenced its production and consequently held that subsidy was a operational subsidy and not a capital subsidy. It was submitted that on appeal, the learned Commissioner of Income-tax (Appeals) held that the subsidy in the case of the assessee was not granted in the terms of fixed asset or in any way meant for meeting the capital cost of the project. It was submitted that the learned Commissioner of Income-tax (Appeals) held that, the power subsidy went to reduce the cost of an expenditure incurred by the assessee was in revenue account following the decision of the Hon'ble Supreme Court in the case of CIT v. Rajaram Maize Products[2001] 251 ITR 427/119 Taxman 492, wherein it has been Meld, that, the .power subsidy was of revenue nature. It was the submission that the .learned Commissioner of Income-tax(Appeals) had failed to appreciate that the decision in the case of Rajaram Maize Products (refer to supra) was distinguishable from the facts in respect of the assessee.

7. It was the submission of the learned AR of the assessee that the assessee was held liable for the subsidy as per. the Notification of Govt. of West Bengal. It was submitted that the assessee was held to be eligible for concession of power tariff vide letter dated 25-02-99 of the Department of Power, Govt. of W.B . The said concession power tariff was for new expanding, sick and closed industrial consumers of M/s. Durgapur Projects Ltd [ M/s. DPL] and West Bengal State Electricity Board. It was the submission that the assessee entered into an agreement with M/s. DPL for the supply of electrical energy vide the Memorandum of Agreement dated 30-07-2003 entered between the assessee and M/s. DPL. On 19-5-2005 the Commerce and Industries Department, Govt, of W.B issued a Notification referring to the letter dated 25-2-1999 (refer to supra), wherein it was decided to provide incentives to power intensive industries being new and expanding industries. As per the said notification, part of the net energy charges was liable to be reimbursed for a specified period. It was the submission that the eligibility period in the case of assessee was from 27-9—03 to 26-9-09. The learned AR drew our attention to the letter of the West Bengal Development Industrial Corporation dated 02-03-2006, which was found at page 73 of the assessee's paper book which showed the eligibility period. It was submitted that the Deptt. of Power, Govt, of W.B vide letter dated 16-7-2004 held that the concession will not be provided to industries as per earlier order by M/s. DPL and West Bengal State Electricity Board w-e-f 1-4-2004. Consequently, the Govt, of W.B, Commerce & Industry Deptt had issued the Notification No. 276-CI/10/Incentive/052/05/I dated 19-05-2005, wherein it was mentioned that as there has been robust growth and resurgence in the industrial scenario/investment in the State and the State Govt is desirous of continuing all efforts to attract entrepreneurs for setting up industries in the State, especially in the back ward areas,, the Govt, through the notification had provided for subsidies. It was submitted that consequently the: assessee was provided the subsidies by no way of assistance to the assessee being a capital subsidy. It was submitted that though the assessee had given a wrong treatment to the receipt of the subsidy by adjusting it against the cost of power in its accounts, the assessee has made the claim of the subsidy received as being capital subsidy. It was the submission that as the subsidy had been granted to the assessee in respect of its new project, the same was liable to be treated as capital subsidy. It was the submission that before the notification the assessee was getting a concession in the power tariff as per the agreement with M/s. DPL. It was also submitted that after the notification the assessee was receiving back a part of electricity charges paid by the assessee as subsidy. The ld. AR drew our attention to page 159 of the assessee's paper book, which is a copy of schedule of accounts as on 31-3-96 & 31-3-95, wherein schedule 14 the electricity charges have been mentioned. The ld. AR also drew our attention to page 4 of the assessee's paper book, which showed the calculation of the subsidy as also the details of consumption. It was the submission that as per para (b) 7.1 of the notification dated 27-05-2005 where the method of quantification of the subsidy was provided. It was the submission that the issue as to whether said subsidy was liable to be treated as capital subsidy or not having been decided by the Calcutta High Court in the case of CIT v. Rosoi Ltd.[2011] 335 ITR 438/11 taxmann.com 220/199 Taxman 235 (Mag.), wherein it had been categorically held that the object of the subsidy is for the expansion of the capacity, modernisation and improving their marketing capabilities, then subsidies are assistance on capital account. It was further submission that the decision of the Hon'ble Supreme Court in the case of Rajaram Maize Products (refer to supra), which has been relied upon by the learned Commissioner of Income-tax (Appeals) was distinguishable in so far as in the case of Rajaram Maize Products (refer to supra), the same was given as incentive to the entrepreneurs as a reduction from the electricity tariff in respect of consumption. It was the submission that in the assessee's case the incentive admittedly was computed on the basis of consumption. but the subsidy was not given to the assessee as a reduction in the electricity bill/tariff. The subsidy was separately granted to the assessee from the funds allocated by the Govt. of W.B and the same was paid to the assessee through a specified agent for the purpose: It was the submission that the Hon'ble Special Bench, ITAT Mumbai in the case of Dy. CIT v. Reliance Industries. Ltd. [2004] 88 ITD 273 (Bom)(SB) had considered the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 and held that the sales tax incentive given by the Govt, of Maharashtra to an assessee for setting up industries in the notified area in the form of exemption of liability from the payment of sales tax, it had been held to be capital receipt. It was further submitted that the Hon'ble Supreme Court in the case of CIT v. Ponni Sugars.& Chemicals Ltd.[2008] 306 ITR 392 /174 Taxman 87 had laid down the test to be applied for determining the nature of the subsidy and such test was a purpose test. It was the submission that in the assessee's case the subsidy was given for expansion and setting up new industry. It was the submission that the subsidy had been given as per the said notification for continuing the efforts to attract the entrepreneurs for setting up the industries specially in the back ward areas. It was, thus, the submission that the subsidy received by the assessee was liable to be treated as capital subsidy. The learned AR further relied upon the decision of the .Hon 'ble Calcutta High Court in the case of CIT v. Balarampur Chini Mills Ltd.[1999] 238 ITR 445/105 Taxman 200 to submit that in this case the incentive has been received for the repayment of loan, which was taken for the expansion of plant and machinery, the same was liable to be treated as capital receipt. It was the submission that in the assessee's case the subsidy received by the assessee had been used for repayment of term loan and the bridge loan taken from West Bengal Industries Development Corporation, who was also the agent appointed by the Govt, of W.B for disbursement of the subsidies. It was the submission that as the subsidy received has been used for repayment of loan taken for expansion in view of the decision of the Hon'ble Jurisdictional Calcutta High Court in the case of Balarampur Chinni Mills Ltd. (refer to supra) the subsidy received by the assessee was liable to be treated as a capital subsidy. The learned AR also drew our attention to the Circular issued by the CBDT in Circular No. 142 dated 1-8-1974 to submit that the subsidy received by the assessee is a contribution towards the capital outlay of the industrial unit and was liable to be treated as a capital subsidy. The learned AR further placed reliance on the decision of the Hon'ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys v. CIT[2011] 333 ITR 335/198 Taxman 122/9 taxmann.com 255 to submit that the incentives are made available only to the bonafide industrial units so that larger public interest of eradicating unemployment is achieved. Therefore, the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee. It was the submission that the subsidy having been received by the assessee is being for setting up a new project, the same was liable to be treated as capital subsidy. It was the further submission that the subsidy amount having been used to repay the loans in respect of the capital outlay on "that ground also the subsidy was liable to be treated as capital subsidy. The claim of the subsidy itself was to attract the entrepreneurs for setting up industries in the state specially in the back ward areas, which showed that the subsidy was on account of capital outlay and the same was liable to be treated as a capital receipt.

8. In reply, learned Sr.DR submitted that in view of the decision of the Hon'ble Supreme Court in the case of Rajaram Maize Products (refer to supra) and the decision of the Hon'ble Supreme Court in the case of Ms. Sahney Steel & Press Works Ltd & Ors (refer to supra) as also, the principle has laid down by the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd, (supra) the subsidy received by the assessee had been rightly held by the Assessing Officer to be revenue receipt and the same has also been upheld by the learned Commissioner of Income-tax (Appeals). He further placed reliance on the decision of the Hon'ble Special Bench, ITAT, Hyderabad to submit that the subsidy received by the assessee for the expansion of assessee's new project was liable to be treated as revenue receipt. The learned DR has also relied upon the decision of the co-ordinate bench of the tribunal in the case of LG Electronics India (P.) Ltd v. Addl. CIT[2010] 39 SOT 275 (Delhi). The learned DR further vehemently reiterated the stand of the Assessing Officer and vehemently supported the order of the learned Commissioner of Income-tax (Appeals). It was the submission that the subsidy received by the assessee was liable to be treated only as revenue receipt and not capital receipt.

9. We have considered the rival submissions. For better understanding of the facts in the present case, it would be worthwhile to extract the subsidy scheme as provided in the Notification dated 19-5-2005, which is extracted herein below:—

Government of West Bengal
Commerce and Industries Department
Cell-'I'
Notification

No. ;276-CUO/lncentive/052/05/l Date: 19.05.2005

WHEREAS, the .Department of Power, Government of West Bengal by its letter nos.78-Power/MR- 1/98 dated February 25, 1999 and 79-Power/IIHR-9/98 dated February,25, 1999 addressed to the Managing Director, Durgapur Projects Ltd. and Chairman West-Bengal State Electricity Board respectively granted concessional power tariff for new, expanding and sick & closed industrial consumers of Durgapur Project Limited (DPL) and West Bengal State Electricity Board (WBSEB). ]

AND WHEREAS, the West Bengal Electricity Regulatory Commission (WBERC) ,.vide its ,order dated December 7, 2001 fixed the applicable tariff and related conditions for different categories and consumers of WBSEB for the years 2000-01 and 2001-02. Interalia, this order provided for continuation of concessions for varying periods at varying jates to new industries, expanding industries and sick & closed industries being re-opened having HT & EHT connections on and after January 26, 1999. Accordingly, such concessions were being given by WBSEB to the eligible consumers.

AND WHEREAS, the West Bengal Electricity Regulatory Commission (WBERC) vide its order dated May 24:, 2004 and June 6, 2004 while fixing tariff for DPL consumers for the years 2000-01, 2001-02, 2002-03, 2003-04 & 2004-05 has observed that there shall not be any concessional tariff for the new, expanding and sick & .closed industrial consumers of DPL as was granted by the Department of Power, Government of West Bengal under letter referred above.

AND WHEREAS, the WBERC vide its order dated June 9, 2004 fixed the tariffs for WBSEB for the years 2002-03, 2003-04 and 2004-D5. The tariff for the year 2002-03 was fixed at the same level as that of 2001-02. The tariff for 2003-04 was the applicable tariff for 2001 -02 plus 52 paise per kilowatt hour for interim on certain categories.

However, in the tariff order for 2004-05, the concessional tariff for the new, expanding

and sick & closed industries have not been allowed as was granted by the Department of Power, Government of West Bengal under its letters referred to above. As such, it has been decided by the Department of Power, Government of newest Bengal vide their letter no. 3443/S S/04 dated July 16, 2004 and 3444/SS/04 dated July 16, 2O04 that such concessions will not be provided to the industries as per earlier orders by DPL and WBSEB with effect from April 1,2004.

AND WHEREAS, there has been robust growth and resurgence in the industrial-scenario/investment in the State and the State Government is desirous of continuing -all efforts to attract entrepreneurs for setting up industries in the State, especially, the backward areas.

AND WHEREAS, considering the fact that certain commitments have already been made by the Department of Power, Government of West Bengal to the industries and that certain concessions have already been provided for part periods, it has been -decided that reimbursements equivalent to the same concessions as indicated above would continue to be provided for the balance period to the eligible consumers of DPL and WBSEB and also to those consumers with whom DPL and WBSEB have entered into agreements, as reimbursements equivalent to same concessions as already agreed upon, to the said industries from the State Government. The detailed modalities for this are provided in part — A of the Scheme below.

AND WHEREAS, the State Government has decided to provide incentives to power intensive industries to new and expanding industries in certain designated areas by way of re-imbursement of part of the net energy charges for a certain period by the State Government as per details formulated in Part-B of the Scheme. NOW, THEREFORE, The Governor is pleased hereby to approve and sanction incentive to power intensive industries located in West Bengal as per Scheme detailed below.

1.0 SHORT TITLE
This Scheme may be called The West Bengal incentive to Power intensive Industries Scheme 2005 (hereinafter referred to WBIPS 2005) for large scale industrial units (hereinafter referred to as Units) to be set up in the State.

2.0 COMMENCEMENT AND DURATION
The scheme shall come into effect on and from April 1, 2004 in the whole of West Bengal and shall remain valid for a period of 5 years or 31st March 2009, whichever is earlier.

3. DEFINITIONS
In the WBIPS 2005 unless the context otherwise requires.-

(a)	"State" means the State of West Bengal;
(b)	''State-Government" means the Government of West Bengal in the Department of Commerce & industries Department.
(c)	"WBST" means the West Bengal State Electricity Board and includes all its subordinate offices anywhere in the State.
(d)	"DPL" means the Durgapur Projects Limited and includes all its subordinate offices anywhere in the State. Designated Power utility means the Durgapur Projects Limited, West Bengal State Electricity Board and such other utility as may be notified by the State Government
(e)	Designated Power utility means the Durgapur Projects Limited, West Bengal State Electricity Board and such other utility as may be notified by the State Government.
(f)	"WBIDC" means the West Bengal Industrial Development Corporation Limited.
(g)	"Authorised Agent" means WBIDC an agent specially authorized by the State Government for operation of the WBIPS 2005 in respect of large scale industries.
(h)	" Unit" means industrial project in large scale having approval in the from of letter of intent, industrial license or registration certificate, as the case may be, under the Industries (Development & Regulation) Act, 1951(65 of 1951) or an Acknowledgement in the form of a reference number of the Secretariat for. Industrial Assistance excluding those mentioned in the negative list of industries at Annexure I of West Bengal Incentive Scheme, 2000 and West Bengal Incentive Scheme, 2004;
(i)	"Large scale unit" means a unit as defined by the Government of India from time to time.
(j)	"New Unit" means an industrial unit in the large scale sector having investment in fixed capital assets which is established and commissioned by the entrepreneur for the manufacture of goods in West Bengal for the first time on or after the April 1,2004 and is registered with the Directorate of Industries:
(k)	"Existing Industrial Unit" means an industrial unit in the large scale sector having: investment in 'fixed-capital assets "which exists in West Bengal and manufactured goods in such unit, immediately before it starts commercial production in its expanded portion on or after the April 1, 2004;.
(l)	"Approved Project" means the industrial project of a unit for which registration certificate and eligibility certificate have been issued under WBIS 2004:
(m)	"Eligible Unit'' means a unit in the large scale sector having registration certificate issued by the Directorate of Industries and eligibility certificate by the authorized agent under WBIS 2004;
(n)	"Expansion of existing Unit" means expansion for the same item(s) of production within its existing approved capacity or for expansion for enlarged approved capacity or for manufacture of a new item with an approved capacity as per WBIS 2004 and covered by Eligibility Certificate issued by the Authorised Agent.
(o)	"Year" means, unless otherwise specifically stated and not repugnant to the context, the financial year commencing from the I April and ending on the 31st March following;
(p)	"WBIS 2000/2004" means West Bengal Incentive Scheme 2000/2004;
(q)	'Load Factor(LF)' , is the ratio of average load and maximum load in a month expressed in percentage;
	The same shall be computed as per the following formula :-

LF=

Actual energy (Kwh) consumed during the month

	Maximum demand in KVA recorded during the month × Monthly average power factor × Number of hours during the month
(r)	'Power Factor (PF)': Monthly average power factor shall be calculated from the number of units of Kilowatthours and Reactive kilovoltamperehours as recorded in the meter during the month;
(s)	'Maximum demand in 'KVA': shall be the recorded largest kilovolt amperes delivered the consumer(s) during any consecutive thirty minutes in a month:
(t)	'Demand Charge', is the product of monthly chargeable Demand in KVA and demand charge rate as per prevailing tariff. Chargeable demand in a month shall be fixed, as may be approved by the West Bengal Electricity Regulatory'' Commission in the tariff order from time to time. Presently it is the maximum KVA demand recorded between6 A.M and TO 10 P.M of the day or 75% of the contract demand whichever is higher.
(u)	'Energy Charge',, is the product of actual energy in Kwh drawn during the month and gross energy charge rate as per prevailing tariff, but excluding demand charge.
(v)	'Net Energy Charge', is the energy charge computed after allowing rebate on energy charge as approved by the West Bengal Electricity Regulatory Commission from time to time. At present rate, such admissible rebate is 4% for 33KV & 66KV supply and 8% for 33KV & 66KV supply and 8% for 132 & 220 Kv.
(w)	"Incentive" means reimbursement of part of the net energy charges for a certain period by the State Government.

PART A
A.4.0 APPLICABILITY

A.4.1. Units which were already availing concessions from DPL and WBSEB in terms of letter nos. 78-Power/II/IR- 1/98 dated February 25, 1999 and 79- Power/IIIIR-9/98 dated February 25, 1999 from the Department of Power, Government of West Bengal and whose concessions were discontinued in accordance with the tariff orders dated June 9, 2004 will continue to get incentives equivalent to these concession at the same rate for the balance period for which it was eligible, as re-imbursement from the State Government.

Provided that no reimbursement shall be given from the date of commencement of this Scheme till the date of effect of the revised tariff order (16.07.2004 for WBSEB) in respect of energy bills for which rebate has already been allowed by the WBSEB.

A.4.2 Certain units had not been given connection and had not started drawal of power, but DPL and WBSEB had entered into agreements, committing the concessions/These industries will also be provided with incentives equivalent to the concessions as per better nos:78-Power/li/IR- 1/98 dated February 25, 1999 and 79- Power/II/IR-9/98 dated February 25, 1999 from the Department of Power, Government of West Bengal i.e. at the same rates and for the entire period of eligible years as reimbursement from the State Government. However, the unit should start commercial operation/production within two years from the signing of the agreement or six months from the issue of this scheme, whichever is later.

A.4.3 This, however does not apply to any unit in the State with which WBSEB have entered into an agreement after July 16, 2004. Such units will be covered under Part- B of this Scheme.

A.5.0 IMPLEMENTATION OF THE SCHEME
A.5.1 On application in Format-A in duplicate from any unit desiring to avail incentive in terms of Part-A of this Scheme, the Chief Engineer (Commercial) WBSEB/DPL or any other designated officer of the designated power utility will issue recommendation for issue of Eligibility Certificate in the space provided for in the said Format-A. Upon receipt of the recommendation from the designated officer of the designated utility, the authorized agent would issue the eligibility certificate in Format-B.

A.5.2 To claim incentive periodically, the unit will tile application in Format-C in duplicate to the designated office of the designated power utility. The said officer will thereafter issue Admissibility Certificate in the space provided for in the said Format-C.

A.5.3 The incentive will be disbursed quarterly in April, July, October and January or part thereof through the Authorised Agent from the finds placed by the State Government upon receipt of the Admissibility Certificate from Chief Engineer (Commercial), WBSEB/ DPL or any other officers nominated by the designated utility for this purpose along with a certified copy of Form-C, bill and receipt of the bill payment of the electricity bill.

PART-B
B.6.0 APPLICABILITY .

B.6.1:This shall be applicable to all large scale new units and also for expansion of existing units on or after4he July 16, 2004 drawing power from West Bengal State Electricity Board(WBSEB). The units may be in the private sector, co-operative sector, joint sector, as also companies! undertakings owned or managed by the Government of West Bengal and who draw power from the WBSEB.

B.7.0 ENTITLEMENT FOR INCENTIVE
B. 7.1 The State Government through its Authorised Agent will offer incentive in the: form of reimbursement from the State Government to all new units or expansion of existing units, in the districts falling in Group 'B' and Group 'C' areas as defined in the West Bengal Incentive Scheme , 2004, drawing power through HT ( 33 KV) and EHT(above 33KV) connection having actual monthly maximum demand of 1500 KVA and above, on the Net Energy Charge as stated in monthly electricity bill at the following rates:

Area	Monthly average Load Factor	Admissible Incentive on Net Energy Charges	Period during which incentive will be available
Group 'B'	Less than 40% 40% to 50%	Nil 20%
Group 'C'	Above 50% Less than 40%	25% Nil	3 years
	.40% to 50% Above 50%	20% 25%	5 years

However, all units in Special Economic Zones and 100% Export Oriented Units, having the ' same meaning as in the Export and Import Policy as formulated under section 5 of the Foreign Trade (Development and Regulation) Act. 1992 save in respect of premises used for residential purposes anywhere in the State will be entitled to incentive for 5 years at the rate applicable to Group 'C' areas.

Provided, however, that the incentive shall be available only for those consumption months when the monthly average load factor is at least 40%.

Provided also however, the State Government will have the power to modify the extent of incentive keeping in view all facts including the average cost of power of various utilities in the State.

B. 7.2 The incentive shall he allowed to the eligible unit for its approved project for a period of 5 years for units in Group 'C' aid 3 years for units in Group 'B' area(s) - from the date of commencement of power supply for production commercial operation of the approved project.

B. 7.3 In order to become eligible, the unit will have to commence actual drawal of power within 24 months from the day of incorporation of the benefit in the Eligibility Certificate as per paragraph B.8.1.

B.7.4 For availing of the incentive in the case of expansion of an existing unit separate metering arrangement for the approved expansion project is to be made by the unit at its own cost.

B.8.0 IMPLEMENTATION OF THE SCHEME
B.8.1 The units eligible to receive incentives under the West Bengal incentive Scheme, 2004, are issued Eligibility Certificate by the Authorised Agent. The eligibility of availing subsidy under part-B of this scheme will also be incorporated in the same Eligibility Certificate.

B.8.2 To claim incentive periodically, the unit will file application in Format —D to the designated officer of the designated power utility for recommendation of admitted claim of power incentive.

B. 8.3 The incentive amount will be disbursed quarterly in April, July, October and January or part thereof through the Authorized Agent from the funds placed by the State Government upon receipt of recommendation of admitted claim of power incentive in Format- D from Chief Engineer ( Commercial), WBSEB or any other officers nominated by the designated utility for this purpose with a certified copy of bill and receipt of the bill payment of the electricity bill.

B. 8.4 The incentive will not be available to units which have availed State Capital investment Subsidy on purchase and installation of captive power generation set (s).

B. 8.5 Units; availing of incentive under this Scheme will not get State Capital Investment Subsidy under WBIS 2000/2004 for the investment in Captive Power plant. The unit will also not get benefit of inclusion of investment in Captive Power Plant for the purposes of .calculation of Fixed Capital Investment for Industrial Promotion Assistance under WBIS,2000/2004.

B.9.0 POWER TO AMEND AND/OR RELAX/REPEAL:
Notwithstanding anything contained in any of the provisions of the Scheme, the State Government may at any time —

(a)	make any amendment to this Scheme or repeal it, but the commitments already made for an approved project shall not be affected by any such amendments or repeal.
(b)	make any relaxation in applying the provisions of this Scheme but such relaxation shall be made on the merit of the approved project in each case, as the State Government may consider necessary and appropriate.
(c)	may issue instructions and guidelines to facilitate implementation, to remove anomalies and to clarify the interpretations of the provisions of this Scheme, and such decisions of the State Government shall be final and binding.

This Scheme is issued with the concurrence of Finance Department vide their U.O.

No. Gr. C 551 dated 19.05.2005.
By Order of the Governor
SABYASACHI SEN
Principal Secretary to the
Government of West Bengal

10. The letter of the West Bengal Industrial Development Corporation providing the eligibility certificate dated 2-3-06 would also be upheld in deciding the issue and the same is extracted below:—

11. On perusal of the Notification of the Govt, of West Bengal, Commerce & Industry Department dated 19-05-2005.shows that the incentive granted to the assessee is identical to the concession-granted to the assessee as per the agreement between the assessee and M/s. DPL-and M/s. WBSEB. The concessions, which have been originally granted through the agreement between the assessee and M/s. DPL and M/s. WBSEB by the Notification being modified only to the extent, the reimbursement is equivalent to same concession as already agreed upon. The notification also categorically clarifies that the concessions are for new and expanding industries. Thus, it is evident is that the assessee gets the incentive only after the assessee has gone into production. The incentive is not for meeting the cost of any of the fixed asset or for meeting the cost of plant and machinery. This notification also does not in any manner talk of granting the concession/incentive as a reimbursement of the cost of fixed asset nor does it talk of setting off concession against any of the loans taken for acquisition any of the fixed asset. There is no obligation on the part of the assessee to utilise the incentive/concession/reimbursement of the electricity charges etc. for the repayment of the loans taken for setting up of assessee's business. Interestingly, for the earlier assessment year being the assessment year 2005-06, the assessee has set off the concession received against the actual electricity charges incurred by the assessee. Thus, for the assessment year 2005-06 the assessee did recognise that the concession receipt is not a capital subsidy, but was on the revenue field. Thus, concession received by the assessee for the assessment year 2005-06 is in line with the agreement entered by the assessee with M/s. DPL and M/s. WBSEB. It is because M/s. DPL and M/s. WBSEB decided to withdraw the concession granted by the agreement, the Govt, of W.B had brought it under the scheme called West Bengal Incentives to Power Industries Scheme 2005 by the Notification dated 19-5-2005. The incentive/concession received by the assessee under the said scheme shows that it is for the balance period of the agreement between the assessee and M/s. DPL & M/s. WBSEB. This is evident from the letter of the West Bengal Industrial Development Corporation dated 2-3-06. Even the said letter talks of .only concession energy. Thus, if we see the objects of the scheme, it is clear that the object is to run the business pf the assessee more profitably by giving a concession to the: assessee, in respect, of .power tariffs. The subsidy/concession/incentive under the notification has not been .granted to the assessee to enable the assessee to set up a new unit or to expand the existing unit nor has notification put the condition on the assessee that the concessions are to be used only .for4he repayment of the loans taken for setting up or expanding of new unit. In the circumstances, we are of the view that the principles of the decision of the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals ltd (refer to supra) as also the decision of the Hon'ble Supreme Court in the case of Rajaram Maize Products. (refer to supra) as also the principle laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd (refer to supra) would apply to the facts in the present case and the subsidy received by the assessee is on the revenue field. Here, we may mention also that even though the assessee has repeatedly reiterated that the subsidy amount has been used substantially for the repayment of the loans taken for the addition to the fixed asset, the assessee has been unable to show us as to how the assessee has accounted for the same by reducing the value of said fixed asset while claiming the depreciation. Interestingly, in the schedules forming part of the accounts as on at 31-3-2007 in schedule '16' notes on accounts sub-clause 1(b), it has been specifically noted that the fixed assets are stated at their original cost of acquisition less accumulated depreciation.

12. In the circumstances, on the basis of facts as discussed above, respectfully following the said decision of the Hon'ble Supreme Court in the case of Rajaram Maize Products (refer to supra), we are of the view that the finding of the learned Commissioner of Income-tax (Appeals) on this issue is on a right footing for both the assessment years under appeal. In the circumstances, both the appeals of the assessee are dismissed.

13. In the result, the appeal of the assessee being ITA No. 65/Kol/2010 for the assessment year 2006-07 and appeal of the assessee being ITA No.665/Kol/2011 for the assessment year 2007-08 are dismissed.

C.D. Rao, Accountant Member - At the lime of hearing after hearing the rival submissions the Bench pronounced as under:—

"Alter hearing rival submission the Id. J.M, is of the view that the appeals of the assessee are liable to he dismissed. However, the ld. A.M. has reserved his opinion."

2. After going through the proposed order of the id. JM and after considering the facts and circumstances of the case 1 have no disagreement regarding the facts and the arguments mentioned in paras 1 to 10 but 3 am not in agreement with the conclusion of the Id. JM at paras 11. 12 and 13 as proposed by me at the lime of hearing after discussion with the ld. JM 1 would like to express my opinion on the issue involved in both the appeals.

3. The only issue raised by assessee in both the appeals is relating to whether the power subsidy received as grant for promotion of industrial unit is revenue receipt or a capital receipt. In the proposed order the ld. JM has discussed the arguments of the ld. All at paras 6 and 7 and the arguments of the ld. DR at para no.8. In para no.9 and 10 he has discussed the scheme as provided under notification dated 19.05.2005 and further extracted the letter of West Bengal Industrial Development Corporation dated 02.03.2006 and as regarding the arguments and the scheme including the letter of West Bengal Industrial Development Corporation there is no dispute on these facts. Therefore I need not repeat the same as they are already incorporated in ld. JM's order. I am not in agreement only with the findings given by ld. JM at para nos. 11, 12 and 13 first I would like to discuss why 1 am not in agreement with ld. JM in para no.11 wherein the Id. JM has mentioned that on perusal of notification of the Govt. of West Bengal. Commerce and Industry Department vide notification dated 19.05.2005 shows that the incentive granted to the assessee is identical to the concession granted to the assessee as per die agreement between the assessee and M/s. DPL and M/s. WBSEB which have been originally granted through the agreement between the assessee and M/s.DPL and M/s.WBSEB by the Notification being modified only to the extern, the reimbursement equivalent to same concession as already agreed upon. The notification also categorically clarifies that the concessions are for new-and expanding industries. Based oh this fact he is of the view that it is evident that the assessee gets the incentive only after the-assessee has gone into production. The incentive is not for meeting the cost of any of the fixed asset or for meeting the cost of plant and machinery. This notification also does not in any manner talk of granting the concession/incentive as a reimbursement of the cost of fixed asset nor dies it talk of setting off concessioin against any of the loan taken for acquisition of any of the fixed assets. But however, in my opinion, the fact based on which the ld. JM has come to the above view is a fact narrated by the ld. JM as communicated above is not correct. The fact as observed by me when compared to the agreement between the assessee and the DPL and M/s.WBSEB and Notification of Govt, of West Bengal Commerce and Industry dated 19.05.2005. in my opinion, it is not the same as pointed out by the Id. JM. In the original agreement between the assessee and M/s. DPL and WBSEB there is no clause as mentioned at B.8.4 and B.S.5, which is as under ;—

"B.8.4. The incentive will not be available to units which have availed State Capital investment Subsidy on purchase and installation of captive power generation set(s).

B.8.5 Units availing of incentive under this Scheme will not get State Capital Investment Subsidy under WBIS 2000/2004 for the investment in Captive Power Plant. The unit will also not get benefit of inclusion of investment in Captive Power Plant for the purposes of calculation of Fixed Capital Investment for Industrial Promotion Assistance under WBIS.2000/2004."

4. Keeping in view of the above two clauses since the assessee is not entitled as per the above two clauses either for state capital investment subsidy on purchase and installation of captive power generation sets or under WBIS 2000/2004 for the investment in captive power plant. It is further observed that while framing the notification dated 19.05.2005 West Bengal Commerce and Industry has categorically mentioned that this scheme is applicable for new as well as existing industrial units and the same has been defined at (j) and (k) under definitions in clause (iii). Again since the assessee gets the incentive: only after the assessee has gone into production, in my opinion, this cannot be treated, as revenue. Since the sales tax subsidy which has been given to the. industrial, units is much after the production and after tire effecting sales. The Special Bench of this Tribunal has considered this sales tax subsidy as capital subsidy and the Jurisdictional High Court of Kolkata in the case of Rasoi. Ltd. (supra) has also considered the .sales tax subsidy received by assessee as capital in nature, :copy of which is placed on record by assessee and further relied on the same which was recorded by the ld. JM in the arguments of the AR. I am of the view that the power subsidy received by assessee in the above facts and circumstances is capital in nature.

4.1. The Id. JM further based on the fact that the assessee himself has treated the power subsidy received from M/s DPL by him as revenue receipt in the earlier year i.e. 2005-06. Again since in my view the subsidy received from M/s. DPL, is different from that of the one received from West Bengal Commerce and Industry vide Notification dated, 19.05.2005 wherein it has mentioned.

"B.8.4 The incentive will not be available to units which have availed State Capital investment Subsidy on purchase and installation of captive power generation set(s).

B.8.5 Units availing of incentive under this Scheme will not get State Capital Investment Subsidy under WBIS 2000/2004 for the investment in Captive Power Plant. The unit will also not get benefit of inclusion of investment in Captive Power Plant for the purposes of calculation of Fixed Capital Investment for Industrial Promotion Assistance under WBIS.2000/2004."

Therefore on this issue also I consider that the power subsidy received by West Bengal Commerce and Industry vide notification dated 19.05.2005 is capital in nature.

4.2. In respect of the other issue on which the ld. JM has considered the power subsidy as revenue in nature is based on the fact that in the schedules forming part of the accounts as on 31.03.2007 in schedule '16' notes on accounts sub-clause 1(b), it has been specifically noted mat the fixed assets are stated at their original cost of acquisition less accumulated depreciation. However, in my view the treatment of the subsidy by assessee in the books of accounts is nothing to do while deciding whether the subsidy is revenue or capital in nature. This view of mine will be fortified by the decision of Hon'ble Supreme Court in the case of Delhi Stock Exchange Association Ltd. v CIT[1961] 41 ITR 495 wherein it was held that accounting treatment given by an assessee to a certain transaction cannot he decisive of the nature of transaction. He further relied on the following case laws:

(i)	Sahney Steel & Press Works Ltd. (supra)
(ii)	Rajaram Maize Products (supra)
(iii)	Ponni Sugars and Chemicals Ltd. (supra)

But however, in my view all these case laws have been decided by the Jurisdictional High Court while stating that the sales tax subsidy received by the industrial units from West Bengal Commerce and Industry vide Notification dated 19.05.2005 is capital in nature. The unit based at the state of West Bengal, in my opinion, is covering by the decision of the Jurisdictional High Court.

4.3. Now I want to analyse the Jurisdictional High Court's observations made in the case of CIT v. Rasoi Limitedas relied on by the Id. Counsel and analysed the facts of the present case with that of the one decided by the Jurisdictional High Court. The Jurisdictional High Court has given the following findings which are as under :—

"We find that the principles laid down in the case of Saheney Siecl and Press Works Ltd (supra), relied upon by Mr, Niianniddin has been explained by die Supreme Court in a subsequent decision in the case of CIT v. Ponni Sugars and Chemicals Ltd (supra), relied upon by Mr. Poddar in die following terms;

In our view, the controversy in hand can be resolved if we apply the lest laid down in the Judgment of this Court in Sahney Steel and Press Works Ltd. In that case, on behalf of the assessee, if was contended that the subsidy given was up lo 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that, subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set tip new business or expand his existing business. The contention of the assessee in that case was. dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted far production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only he treated as assistance given for the purpose ,of carrying on the business of the assessee. Consequently, The contentions raised on behalf of the assessed on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue, receipt. Accordingly, the matter was -decided against the assesses. (Emphasis supplied by its)

In the aforesaid case, it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably 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 the receipt of the subsidy was on capital account. Therefore, the Court proceeded, 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,
In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90% of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sale tax paid. As pointed out by the Supreme Court in the ease of Senairam Doougarmall v. Commissioner of income-tax, Assam, reported in AIR 1961 SC 1579, it is the, quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature.

In the case of CIT-1, Ludhhma v. Adarsh Kumar Gael, reported in [2006] 156 Taxman 257 (Punjab), relied upon by Mr. Nizamuddin, a Division Bench of/he Punjab and Haryana High Court was dealing with a case of subsidy granted in the form of sale tax exemption and thus, the Division Bench held that in the absence of any document or policy of the State Government to show the kind of subsidy it had granted it should be treated as a revenue receipt: In the case before us having regard to the objects and reasons behind the grant of the subsidy we find that it is a case of capital receipt and thus, the said decision to help the Revenue in any way.

On consideration of the entire materials on record, we, thus, uphold the view of the Tribunal below and dismiss the appeal by answering the first three questions in the affirmative and against the Revenue and the last question in the negative and against the Revenue.

In (he facts and circumstances, there will be, however, no order as to costs. "

4.4. Now coming to the present facts of this case first of all there is a difference between the agreement originally entered between the assessee and M/s. DPL and ' WBSEB and the Notifications of Govt of West Bengal Commerce and Industry dated19.05.2005. In the preamble of the Notification it has been categorically mentioned that the State Govt, has decided to provide incentives to power to intensive industries to new and expanding industries in certain designated areas by way of reimbursement of a part of the net energy charges for a certain period by the State Govt .as per the detail formulated in part-B of this scheme; Again in Part-B of this scheme under sub-clause B.8.4 and 8.5.it is specifically mentioned as under:—

"B.8.4. The incentive will not be available to units which have availed State Capital investment Subsidy on purchase and installation of captive power generation set(.s).

B.8.5 Units availing of incentive under this Scheme will not get State Capital Investment Subsidy under WBIS 2000/2004 for the investment in Captive Power Plant. The unit will also not gel benefit of inclusion of investment in Captive Power Plant for the purposes of calculation of Fixed Capital Investment for Industrial Promotion Assistance under WBIS.2000/2004"

4.5 Keeping in view of the above facts, I am of the view that the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90% of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sale tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT AIR 1961 SC 1579 it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us the amount paid as subsidy was really capital in nature.

4.6 It is further observed that the subsidy received by the assessee has been utilized for re-payment of the loan which was taken for the capital assets and addition to fixed assets in respect of Durgapur plant which is apparent from the paper book filed by the assessee. The details are as under:—

SHYAM STEEL INDUSTIRES LTD.
STATEMENT OF POWER SUBSIDY

Financial Year	Power Subsidy Receivable	Power Subsidy Accounted for	Addition to Fixed assets in DGP Unit	Repayment of Loan
	(a)	(b)	(c)	(d)
2003-04			130.051.S39
2004-05	22,153,023.	Accounted for F.Yr. 2004-05	148,112,827	25,100,000.0
2005-06	59,628.713	Accounted for F.Yr. 2005-06	162,287,988
	81,781,736
2006-07	65,717,283	Accounted for F/T'r. 2006-07	23,973,342	40,000,000.0
	147,499.019		464.425.996	65.100.000.0

*Power Subsidy recognized for the Period June 04 to Mar 05.

He further submitted year-wise details also in respect of addition of fixed assets in respect of Durgapur Plant, Howrah. Head Office and other brandies, finder these circumstances. I am of the view that these facts are also identical to that of the decision of Pormy Sugars except the one that in Pony Sugars the scheme itself has mentioned that the subsidy should be utilized for repayment of capital loans whereas in the case on band it is not specific in the scheme since the assessee is not entitled for capital subsidy as per clause B.8.4 and 8.5. and keeping in view of the fact that the assessee has incidentally utilized the same subsidy for repayment of term loan. Keeping in view of the above, I am of the view that the observations of the Jurisdictional High Court in the case of Rasoi Ltd (supra) which are incorporated at para 4.3 of this order are fairly applicable to the present facts of the case. Therefore, in my opinion the power subsidy received by the assessee is capital in nature and the Revenue is not justified to treat the same as revenue. Hence I set aside the orders of the revenue authorities on this issue and direct AO to treat the power subsidy as capital in nature.

REFERENCE UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961

In Appeal Nos.65/Kol/2010 and 665/Kol./2011 for assessment years 2006-07 and 2007- 08 in the case of M/s. Shyam Steel Industries Ltd.

While adjudicating these appeals, both the members have expressed their independent views. We, therefore, make a reference to the Hon'ble President of the Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961, for an appointment of a Third Member or to pass necessary order to adjudicate the following question of law on a point of difference :—

"Whether in the facts and circumstances of the case the power subsidy received by the assessee is capital in nature or revenue in nature ?"
The Registry is accordingly directed to place this reference before the Hon'ble President for his kind perusal and necessary orders.

THIRD MEMBER ORDER

Justice Dev Darshan Sud, President (As a Third Member):- This reference u/s. 255(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act) has been received to adjudicate on the question as to whether the power subsidy received by the assessee is capital or revenue in nature. The difference arose in the opinion of the two Hon'ble Members. The Judicial Member on the facts and the submissions made before him, held that the power subsidy received by the assessee was revenue in nature; while the Accountant Member holds that the power subsidy received is capital in nature.
2. It is undisputed before me that the power subsidy was grante the assessee by the West Bengal Government. The only point difference is as to whether it is capital receipt or to be treated as revenue receipt.

3. In. Ponni Sugars and Chemicals Ltd. (supra ) this question has been discussed in extenso. The co formulated two questions of which the first one is significant viz:

"(i) Whether the incentive subsidy received by the assessee is a capital receipt not includible in the total income?"
While determining this question, the court holds

"In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this court in the case of Sahney Steel and Press Works Ltd. In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10 per cent Of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods was also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this court by way of a special leave petition. It was held by this court on the facts of that case and on the basis of the analyses of the , scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was field that the subsidy received by Sahney Steel could not be regarded as anything but revenue receipt. Accordingly, the matter was decided against the assessee. 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 in 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 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 utilized 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 or the mechanism through which the subsidy is given are irrelevant. "[PP399- 400] (Emphasis supplied)

3.1 The second decision is of High Court of Calcutta in Rasoi Ltd. (supra). On the totality of the facts, the High Court holds

"19. In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for assistance on capital account. Similar, merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sales tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. CIT reported in [1961] 42 ITR 392 (SC); AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature.

20. In the case of CIT v. Abhishek Industries Ltd. [2006 ] 286 ITR 1 (P&H); [2008] 156 Taxman 257, relied upon by Mr. Nizamuddin, a Division Bench of the Punjab and Haryana High Court was dealing with a case of subsidy granted in the form of sales tax exemption and, thus, the Division Bench held that in the absence of any document or policy of the State Government to show the kind of subsidy it had granted it should be treated as a revenue receipt. In the case before us, having regard to the objects and reasons behind the grant of the subsidy we find that it is a case of capital receipt and, thus, the said decision does not held the Revenue in any way.

21. On consideration of the entire materials on y record, we, thus, uphold the view of the Tribunal below and dismiss the appeal by answering the first three questions in the affirmative and against the Revenue and the last question in the negative and against the Revenue. [P.445]"

4. The High Court of Andhra Pradesh in CIT v. Rassi Cements Ltd. [2013] 351 ITR 169/33 taxmann.com 470/215 Taxman 144 (Mag.) applying the decision of the Supreme Court in Sahney Steel and Press Works Ltd. (supra) Ponni Sugars & Chemicals Ltd. (supra) & Mepco Industries Ltd. v. CIT[2009] 319 ITR 208/185 Taxman 409 (SC) holds that the power" subsidy if given for setting up industries in the backward areas or for repayments of term Joan taken up by the assessee for setting up new industries, it should be treated as capital asset and if the power subsidy is granted as a part of the incentive scheme after commencement of production, it should be treated as subsidy linked to production and it should be treated as revenue receipt because such assistance in this context is for carrying on the business. The court further holds that production incentive scheme is always different from the scheme giving subsidy for setting up industries in backward areas. The Saw is thus well settled. It is undisputed before me that the subsidy was granted to the assessee pursuant to the West Bengal Incentive to Power Intensive Industries Scheme, 2005. The scheme envisages that the subsidy is granted for the purpose to attract entrepreneurs for setting up industries especially in the backward areas. In the certificate, dated 2nd March, 2006 issued by Executive Director, West Bengal Industrial Development Corporation Ltd., it is clearly mentioned that the assessee is setting up a new project at Angadpur, Durgapur for manufacturing not-roiled steel bars, steel ingots/billets-and sponge iron and is entitled for power subsidy till 26.09.2009. In this view of the matter there can be no doubt that the subsidy granted is for setting up a new unit in a backward area as it is not disputed before me that Angadpur is not a backward area. The question is answered accordingly.

5. In these circumstances, on the ratio of the judgment of the Supreme Court in Ponni Sugars and Chemicals case, it is held that the subsidy so granted is a capital receipt and cannot be treated as a revenue receipt. The submissions to the contrary by the learned DR that it is revenue in nature cannot be accepted.

6. The case be put up before Division Bench for further proceedings.

ORDER

S.S. Viswanethra Ravi, Judicial Member - When these cases came up before the Division Bench, there was a difference of opinion between the Members then constituting the Division Bench. Accordingly the following question was referred for the esteemed views of Hon'ble Third Member:—

"Whether in the facts and circumstances of the case the power subsidy received by the assessee is capital in nature or revenue in nature?"

2. Hon'ble President, ITAT, in his capacity as Third Member, has concurred with the conclusions arrived at by the learned Accountant Member. In accordance with the majority view, therefore, the appeals filed by the assessee are allowed.

3. In the result, both the appeals filed by the Assessee are allowed.