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2011 (3) TMI 1438 - HC - Income TaxWhether subsidy received by the assessee is to be treated as capital receipt and the same is not taxable - assessee pointed out that by mistake it had treated the power subsidy receipt from the Pondicherry Government as revenue receipt instead of capital receipt - assessee claimed subsidy received as a capital receipt Held that - the subsidy granted was on the power consumption in the manufacturing activities and not for setting up of the industry. - assessee is not entitled to have the receipt treated as a capital receipt order of the Tribunal set aside receipt of subsidy is revenue receipt and not as capital receipt Sahney Steel and Press Works Ltd. (1997 - TMI - 5620 - SUPREME Court)
Issues Involved:
1. Maintainability of the appeal under section 260A of the Income-tax Act, 1961. 2. Characterization of the power subsidy received by the assessee as capital receipt or revenue receipt. Issue-Wise Detailed Analysis: 1. Maintainability of the Appeal: The assessee objected to the maintainability of the appeal, citing the monetary limit for filing an appeal under section 260A of the Income-tax Act, 1961. The prevailing Board's Instruction set the monetary limit at Rs. 2 lakhs, revised to Rs. 4 lakhs in 2008. The assessee argued that the low tax effect made the appeal dismissible. However, the court noted that instructions in the Board's circulars, particularly from 2007, allowed for appeals on substantial questions of law of recurring nature without regard to monetary limits. The court referenced the case CIT v. Nanak Ram Jaisinghania [2009] 317 ITR 302 (Delhi) but found it unhelpful to the assessee. The court held the appeal maintainable due to the recurring nature of the legal question involved. 2. Characterization of the Power Subsidy: The core issue was whether the power subsidy received from the Pondicherry Government should be treated as a capital receipt or a revenue receipt. The facts revealed that the assessee initially treated the subsidy as a revenue receipt but later claimed it as a capital receipt in a revised return. The assessing authority and the Commissioner of Income-tax (Appeals) treated the subsidy as a revenue receipt. However, the Income-tax Appellate Tribunal ruled in favor of the assessee, considering the subsidy as capital in nature, aimed at encouraging new industries in backward areas. The Revenue argued that the subsidy was operational, not for setting up the industry, referencing CIT v. Super Spinning Mills Ltd. [2008] 296 ITR 168 (Mad), CIT v. Rajaram Maize Products [2001] 251 ITR 427 (SC), and CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC). They contended that the subsidy was for day-to-day business operations, aligning with the Supreme Court's decision in Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC). The court examined the subsidy scheme and related government orders, noting that the subsidy was based on actual energy consumption and aimed at reducing the financial burden on industries, promoting employment, and fostering industrial growth. The court emphasized the purpose test from Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC), determining the nature of the subsidy based on its purpose. The subsidy, given for operational expenses and not for setting up the industry, was deemed a revenue receipt. The court also referenced CIT v. Kanyakumari District Co-operative Spinning Mills Ltd. [2003] 264 ITR 684 (Mad), where subsidies for employing Adi Dravida community workers were considered capital receipts due to their welfare nature. However, the present case differed as the subsidy was linked to operational energy consumption. The court concluded that the power subsidy was for production purposes, not for establishing the industry. Thus, it was a revenue receipt, not a capital receipt. The Tribunal's order was set aside, and the appeal was allowed, confirming the subsidy as a revenue receipt. Conclusion: The court allowed the Revenue's appeal, holding that the power subsidy received by the assessee was a revenue receipt, not a capital receipt. The appeal was deemed maintainable due to the substantial question of law involved. The decision emphasized the purpose of the subsidy, aligning with the precedent set by the Supreme Court in similar cases.
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