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Issues Involved:
1. Whether the subvention receipt of Rs. 11,22,38,874/- should be treated as a capital receipt or a revenue receipt. Summary: Issue 1: Treatment of Subvention Receipt The primary issue for consideration was whether the subvention receipt of Rs. 11,22,38,874/- received by the assessee, a 100% subsidiary of BHW Holding AG Germany, should be treated as a capital receipt or a revenue receipt. The assessee argued that the subvention payment was towards the restoration of its net worth eroded due to losses and was received without any legal or contractual obligation, thus qualifying as a capital receipt. The assessing officer, however, treated it as a revenue receipt, relying on the decision of the Hon'ble Supreme Court in Sahni Steel & Press Work Vs. CIT 228 ITR 253 (SC), which held that grants for the successful running of an established unit should be regarded as revenue receipts. On appeal, the CIT (Appeals) accepted the assessee's contention, noting that the payment was a voluntary grant from the parent company to recoup the losses and restore the net worth, and thus should be treated as a capital receipt. The CIT (Appeals) relied on several judicial precedents, including the decision of the Hon'ble Delhi High Court in Handicrafts & Handloom Export Corporation of India Vs. CIT [1983] 140 ITR 532 (Del), which distinguished between voluntary payments motivated by personal relationships and grants made to assist in carrying on trade. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing that the subvention payment was received by the assessee not as a trader but due to the parent-subsidiary relationship, and was intended to recoup the losses. The Tribunal found that the facts of the case aligned with the principles laid out in the Handicrafts & Handloom Export Corporation of India case and the ITAT decision in Lurgi India Company Ltd. 302 ITR (AT) 67 (Del), where similar subvention payments were treated as capital receipts. Consequently, the appeal filed by the Revenue was dismissed. The order pronounced in the open court on: 14th October, 2011.
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