2011 (8) TMI 1189 - HC - Income Tax

Subsidy with respect to Sales Tax payable - Tribunal holding that the subsidy received by the assessee cannot be reduced from written down value for purpose of computing depreciation of wind mills - Tribunal committed no error in deciding the issue in favour of the assessee.

Summary

Issues:
1. Treatment of subsidy received by the assessee for computing depreciation of windmills.
2. Taxability of the subsidy received as a revenue receipt.

Analysis:

Issue 1:
The first issue revolves around the treatment of the subsidy received by the assessee for computing depreciation of windmills under the Income Tax Act. The Tribunal dismissed the revenue's appeal, upholding that the subsidy was not to be reduced from the written down value (W.D.V) of the windmills. The subsidy was viewed as an incentive for promoting alternative energy sources, not for the acquisition of the assets. The Court referred to a previous case where it was held that such subsidies do not qualify as payments intended to meet the "actual cost" of assets. The Court emphasized that the subsidy was not linked to the cost of acquisition of windmills but was aimed at encouraging the development of alternative energy sources. Therefore, the Tribunal's decision was upheld, and the Tax Appeal was dismissed.

Issue 2:
The second issue pertains to the taxability of the subsidy received as a revenue receipt. However, this issue was not raised during any stage of the proceedings. The Assessing Officer did not raise this issue during the assessment proceedings, and it was not before the CIT (A) or the Tribunal. Consequently, the Court concluded that this question did not arise from the Tribunal's order. As a result, the Tax Appeal was dismissed, and the issue of the subsidy's taxability as a revenue receipt was not further addressed in the judgment.

In conclusion, the High Court of Gujarat upheld the Tribunal's decision regarding the treatment of the subsidy for computing depreciation of windmills, emphasizing that the subsidy was an incentive for promoting alternative energy sources. The Court dismissed the Tax Appeal and did not address the issue of the subsidy's taxability as a revenue receipt due to its non-consideration in the previous proceedings.