2011 (1) TMI 409 - HC - Income Tax

Subsidy - Technology Up-gradation Fund Scheme - Capital or Revenue nature - subsidy received by the assessee under the Technology Up-gradation Fund Scheme (TUFS) of Ministry of Textiles the Assessing Officer held the receipt of subsidy as revenue in nature - HELD THAT - In the view taken in Sahney Steel Press Works Ltd. s case ( 1997 (9) TMI 3 - SUPREME COURT ) could not be applied in the present case as in said case the subsidy was given for running the business. For determining whether subsidy payment was revenue receipt or capital receipt character of receipt in the hands of the assessee had to be determined with respect to the purpose for which subsidy is given by applying the purpose test as held in Sahney Steel Press Works Ltd. s case (supra) itself and reiterated in later judgment in CIT v. Ponni Sugars Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT referred to in the impugned order of the Tribunal. In view of above since the matter is covered by judgment of the Hon ble Supreme Court in Ponni Sugars Chemicals Ltd. s case (supra) against the revenue no substantial question of law arises.

Summary

Issues:
1. Classification of subsidy received under Technology Upgradation Fund Scheme (TUFS) as capital or revenue receipt.

Analysis:
The primary issue in this case revolves around the classification of the subsidy received by the assessee under the Technology Upgradation Fund Scheme (TUFS) as either a capital or revenue receipt. The appellant, the revenue, challenged the order of the Income-tax Appellate Tribunal, which upheld the assessee's claim that the subsidy should be treated as a capital receipt. The Tribunal based its decision on the objective of the subsidy scheme, which aimed to enhance the technology apparatus of the assessee by assisting in acquiring machinery and utilizing the subsidy for repayment of loans taken to set up a new unit.

The Tribunal found that the nature of the subsidy in question was capital in light of the objective of the scheme and the utilization of the funds received. It distinguished the case at hand from the precedent cited by the revenue, Sawhney Steels & Press Works Ltd., emphasizing that the subsidy was not for recurring expenditure but for acquiring a capital asset, aligning with the judgment of the Supreme Court in Ponni Sugars & Chemicals Ltd. The Tribunal rejected the revenue's reliance on Sawhney Steels & Press Works Ltd., stating that the features of the scheme in question did not support treating the subsidy as a revenue receipt.

The revenue contended that since the subsidy was granted after the commencement of production for loan repayment, it should be considered a revenue receipt, citing the judgment in Sahney Steel & Press Works Ltd. v. CIT. However, the Court disagreed with this argument, emphasizing the purpose of the TUFS scheme, which aimed at technology upgradation of the industry through capital subsidies on investments in machinery. The Court highlighted the agreement terms under which the subsidy was provided, indicating that it was intended to prevent mis-utilization of capital subsidy and incentivize loan repayment, further supporting its classification as a capital receipt.

Ultimately, the Court dismissed the appeal, concluding that the nature of the subsidy as a capital receipt was in line with the judgment of the Supreme Court in Ponni Sugars & Chemicals Ltd., and no substantial question of law arose from the matter. The decision reaffirmed the importance of considering the purpose for which a subsidy is given in determining its classification as a revenue or capital receipt, as established in relevant legal precedents.