2014 (5) TMI 1087 - AT - Income Tax

Sales Tax Subsidy received from Government of Gujarat - revenue receipt OR capital receipt - Held that - The issue raised before us is identical to the issue before the Tribunal in assessee s own case and following the same parity of reasoning, we hold that the sales tax subsidy received by the assessee is assessable in the hands of the assessee as revenue receipt. - Decided against assessee

Summary

Issues Involved
1. Whether the sales tax subsidy received from the Government of Gujarat should be treated as a capital receipt or a revenue receipt.

Detailed Analysis

Issue 1: Treatment of Sales Tax Subsidy
The primary issue in this appeal is the treatment of the sales tax subsidy amounting to Rs. 12,58,32,691/- received by the assessee from the Government of Gujarat. The assessee declared this subsidy as capital receipts in its income computation, whereas the Assessing Officer (AO) treated it as revenue receipts, taxable in the hands of the assessee.

Arguments and Findings:
- The AO relied on the judgment of the Punjab & Haryana High Court in CIT Vs. Abhishek Industries Ltd. 286 ITR 1 (P&H), which held that such subsidies should be treated as revenue receipts.
- The assessee argued that the sales tax subsidy was capital in nature, meant for establishing new units in Gujarat, and thus should not be taxable as revenue receipts.
- The Tribunal noted that this issue had arisen in the assessee's own case in earlier years, specifically in ITA No. 773/Chd/2012 for A.Y. 2006-07, where it was held that the sales tax subsidy should be treated as revenue receipts.
- The Tribunal also considered the decision in CIT Vs. Birla VXL reported in Tax Appeal Nos. 316 to 318 of 2012 by the Gujarat High Court, which held that the purpose of the subsidy determines its nature, and if it is for capital outlay, it should be treated as capital receipts.

Precedents and Legal Principles:
- The Tribunal referred to the Supreme Court's decision in Ponni Sugars & Chemicals Ltd. Vs. CIT [306 ITR 392 (SC)], which emphasized that the purpose of the subsidy is the determining factor for its taxability.
- The Tribunal also reviewed the ratio laid down in CIT Vs. Rasoi Ltd. [335 ITR 438 (Cal)], CIT Vs. Sham Lal Bansal [200 Taxman 14 (P&H)], and CIT Vs. Siya Ram Garg (HUF) [237 CTR (P&H) 321], which supported the view that subsidies aimed at capital investment are capital receipts.
- Despite these references, the Tribunal adhered to the jurisdictional precedent set by the Punjab & Haryana High Court in CIT Vs. Abhishek Industries Ltd. (supra), which treated such subsidies as revenue receipts.

Conclusion:
- The Tribunal concluded that the issue of the sales tax subsidy being revenue in nature was already settled in the assessee's earlier cases and upheld by the jurisdictional High Court.
- Consequently, the Tribunal dismissed the appeal, confirming the order of the CIT (Appeals) and holding that the sales tax subsidy received by the assessee is assessable as revenue receipt.

Final Judgment
The appeal filed by the assessee was dismissed, and the sales tax subsidy received from the Government of Gujarat was held to be taxable as revenue receipt. The order was pronounced in the open Court on 29th May, 2014.