2015 (6) TMI 313 - AT - Income Tax

Determination of net taxable income - CIT(A) allowing revenue expenditure to be set off against quantum of subsidy receipts from the Government disclosed at ₹ 5,04,04,286/- - whether the subsidy received is not covered u/s 14A as the same is merely a reimbursement of expenses by the Government and is not in the nature of income of the assessee? - Held that - Since the entire income of the assessee had been held to be non-agriculture income, hence all the expenses incurred on purchase of seeds, transportation to remote areas like Jammu & Kashmir, Srinagar etc. would constitute revenue expenditure and ought to be deducted from the revenue receipts. Therefore, ld. CIT(A) had directed the AO to determine the net taxable income after verifying the revenue expenditure and allowing the same to be set off against the revenue receipts of ₹ 5,04,04,286/- i.e. the quantum of subsidy received. We, therefore, do not find any infirmity in the order of ld. CIT(A) on this count. As we have held that there is no exempt income, therefore, the question of applicability of section 14A, in any case, does not arise. - Decided against revenue.

Summary

Issues involved:
1. Taxability of subsidy received by the assessee.
2. Determination of net taxable income after verifying revenue expenditure.
3. Applicability of section 14A of the Income Tax Act.
4. Nature of subsidy received and its tax treatment.

Analysis:
1. Taxability of Subsidy Received:
- The assessee, a central government undertaking primarily engaged in agricultural activities, received subsidies during the relevant assessment years. The Assessing Officer (AO) held that the subsidy was not eligible for exemption under section 10 of the Income Tax Act, as it was not considered agricultural income. The AO included a portion of the subsidy in the assessee's income.
- The Commissioner of Income Tax (Appeals) (CIT(A)) directed the AO to determine the net taxable income after verifying and allowing revenue expenditure to be set off against the subsidy receipts. The CIT(A) considered the nature of the subsidy and concluded that it was reimbursement in nature and not agricultural income.
- The Tribunal agreed with the CIT(A) that the subsidy received was in the nature of non-agricultural revenue and, therefore, liable to be taxed. It was held that only the net income, after deducting the expenditure incurred in earning the subsidy, should be taxed.

2. Determination of Net Taxable Income:
- The Tribunal upheld the CIT(A)'s direction to the AO to verify the revenue expenditure and set it off against the subsidy receipts. It was noted that all expenses incurred by the assessee, including those for purchasing seeds and transportation, should be considered as revenue expenditure and deducted from the revenue receipts.

3. Applicability of Section 14A:
- Since it was determined that there was no exempt income, the question of the applicability of section 14A did not arise. Therefore, the Tribunal dismissed the ground related to section 14A raised by the department.

4. Nature of Subsidy and Tax Treatment:
- The Tribunal analyzed the nature of the subsidies received by the assessee, which were in the form of reimbursements for various expenses incurred. The Tribunal agreed with the CIT(A) that the subsidies were not agricultural income and should be taxed accordingly.
- The Tribunal emphasized that the purpose for which the subsidy was received determined its nature, and in this case, the subsidies were considered non-agricultural revenue.

Conclusion:
- The Tribunal dismissed the department's appeal regarding the taxability of the subsidy received by the assessee and upheld the CIT(A)'s order to determine the net taxable income after verifying revenue expenditure.
- The cross-objection filed by the assessee was also dismissed as the Tribunal found no merit in challenging the tax treatment of the subsidies.
- In a separate appeal for another assessment year, the Tribunal maintained the decision taken for the earlier year, resulting in the dismissal of both the revenue's appeal and the assessee's cross-objections.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision on each aspect of the case.