2013 (8) TMI 970 - AT - Income Tax

Assessability of sales tax subsidy received from the Government of Gujarat - Revenue receipt OR capital receipt - Held that - Sales tax subsidy received by the assessee is revenue in nature. We are in conformity with the submission of the assessee that the subsidy received by the assessee held to be revenue receipt, being linked to the business activity, is taxable in the hands of the assessee as business income. Reversing the order of the CIT (Appeals) we direct the Assessing Officer to include the subsidy received by the assessee as income from business. - Decided in favour of assessee.

Summary

Issues Involved:
1. Assessability of sales tax subsidy received from the Government of Gujarat.
2. Nature of sales tax subsidy - whether it is a capital receipt or revenue receipt.
3. Taxability of the sales tax subsidy under the head 'Income from Other Sources' or 'Business Income'.

Issue-wise Detailed Analysis:

1. Assessability of Sales Tax Subsidy:
The primary issue in the appeal was the assessability of the sales tax subsidy amounting to Rs. 5,47,60,997 received by the assessee from the Government of Gujarat. The assessee treated this subsidy as a capital receipt in its revised return. However, the Assessing Officer (AO) treated it as a revenue receipt, relying on the judgment of the Jurisdictional High Court in CIT Vs. Abhishek Industries. The AO concluded that the nature of the sales tax subsidy was revenue and included it as income under the head 'income from other sources'.

2. Nature of Sales Tax Subsidy - Capital or Revenue Receipt:
The assessee argued that the sales tax subsidy was a capital receipt, intended to encourage the establishment of new industrial units in Gujarat. The assessee cited various judgments, including CIT Vs. Rasoi Ltd., CIT Vs. Birla VXL, and Ponni Sugars & Chemicals Ltd. Vs. CIT, to support their claim that the purpose of the subsidy was to cover capital outlay and thus should be considered a capital receipt. The Tribunal noted that similar subsidies received by the assessee in previous years (2003-04 to 2005-06) were treated as revenue receipts, following the Jurisdictional High Court's ruling in CIT Vs. Abhishek Industries. The Tribunal found no merit in the assessee's reliance on the Gujarat High Court's decision in CIT Vs. Birla VXL, as the scheme under consideration was not similar to the earlier scheme of the State of Gujarat.

3. Taxability Under 'Income from Other Sources' or 'Business Income':
The assessee contended that if the subsidy was considered a revenue receipt, it should be taxed under 'business income' rather than 'income from other sources'. The Tribunal agreed with this contention, noting that the subsidy was linked to the business activity of the assessee. Therefore, the Tribunal reversed the CIT (Appeals)'s order and directed the AO to include the subsidy as 'business income'.

Conclusion:
The Tribunal upheld the CIT (Appeals)'s decision that the sales tax subsidy was a revenue receipt, following the precedent set by the Jurisdictional High Court in CIT Vs. Abhishek Industries. However, the Tribunal agreed with the assessee that the subsidy should be taxed under 'business income' rather than 'income from other sources'. Consequently, the appeal was partly allowed, confirming the revenue nature of the subsidy but directing its inclusion under 'business income'.