JUDGMENT :

JAGMOHAN BANSAL, J. 

1. As common issues are involved in the captioned appeals, with the consent of both sides, the same are hereby disposed of by this common order. For the sake of brevity and convenience, facts are borrowed from ITA-517-2008.

2. The appellant through instant appeal under Section 260A of the Income Tax Act, 1961 (for short ‘1961 Act’) is seeking setting aside of order dated 25.01.2008 passed by Income Tax Appellate Tribunal, Chandigarh (for short ‘ITAT’) for the Assessment Year 2000-2001.

3. The appeal was admitted on 05.01.2015 to adjudicate following questions of law:-

i. The nature of sales tax subsidy/exemption granted under the relevant Industrial Policy of the State Government?

ii. Whether the assessee is an 100% export oriented unit entitled to exemption as per Section 10 B of the Income Tax Act?

iii. If answer to question No. 2 is in the affirmative whether the assessee would be entitled to assessment of income under Section 80 HHC of the Income Tax Act?

iv. Whether sale of an import licence falls within the purview of the provisions of Section 80l of the Act?

4. Learned Senior Counsel for the appellant submits that questions No.3 and 4 already stand answered against assessee and she does not press question No.2. The only question which this Court has to consider is question No.1.

5. The appellant is engaged in the business of manufacturing of yarn. The State Government vide notification dated 01.06.1996 introduced Incentive Scheme for new industrial units. The benefit was also available to industrial units which carried out expansion. The appellant set up its unit in backward area and became eligible for sales tax exemption. As per para 6.3 of the policy, the appellant was entitled to sales tax subsidy for 10 years subject to ceiling of 300% of fixed capital investment. Appellant during the period in question collected sales tax from its customers, however, did not deposit with State Government in view of aforesaid exemption scheme. The appellant filed its Income Tax Return on 30.11.2000 disclosing income of Rs.28.04 crore. The return was processed under Section 143(1) of 1961 Act and refund of Rs.2.92 crore was assessed. The appellant filed revised return on 18.07.2001 revising its total income from Rs.28.04 crore to 26.73 crore. The Assessing Officer vide order dated 31.03.2003 assessed appellant’s income to the tune of Rs.42.55 crore and imposed super tax penalty/fine amounting to Rs.7.34 crore. The appellant preferred an appeal which came to be partly allowed vide order dated 31.03.2003 passed by Commissioner of Income Tax (Appeals). The appellant filed appeal before ITAT which vide order dated 25.01.2008 declined its claim qua sales tax subsidy. The Tribunal held that sales tax subsidy was revenue receipt, thus, liable to tax.

6. Learned Sr. counsel for the appellant submits that Division Bench of this Court in “Commissioner of Income Tax-1, Ludhiana Vs. Abhishek Industries Ltd”, [2006] 286 ITR 1 (P&H) held that sales tax subsidy is revenue receipt. The said judgment was passed without considering judgment of Hon’ble Supreme Court in “Commissioner of Income Tax Madras Vs. Ponni Sugars & Chemicals Ltd”, 2008 (9) SCC 337. Supreme Court in Ponni Sugars (supra) has clearly held that time or manner of subsidy is irrelevant. One is supposed to examine purpose test. The purpose of sales tax subsidy in the case in hand was to promote capital investment in the State of Punjab, thus, sales tax incentives received by appellant were in the nature of capital receipt. Supreme Court in “Commissioner of Income Tax-I, Kolhapur Vs. M/s Chaphalkar Brothers Pune”, 2018 (13) SCC 358 has further clarified that if incentives are granted to promote capital investment, these should be treated as capital receipt and income tax cannot be charged. The Supreme Court while adjudicating Chaphalkar Brothers (supra) has approved judgment of J&K High Court in “Shree Balaji Alloys Vs. Commissioner of Income Tax & Anr.”, 2011 SCC