2012 (9) TMI 1156 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 20 lakhs received by the assessee from the Government of Maharashtra as a special incentive is a capital receipt or a revenue receipt.
2. Whether the amount should have been reduced from the cost of assets in terms of Explanation 10 to section 43(1) of the Income Tax Act for the purpose of calculating depreciation.

Summary:

Issue 1: Nature of the Rs. 20 Lakhs Incentive
The Revenue contended that the Rs. 20 lakhs received by the assessee from the Government of Maharashtra as a special incentive was a revenue receipt liable for taxation. The assessee, a registered partnership firm engaged in manufacturing DPEB/HDPE fabrics, received this amount under the Package Scheme of Incentive, 1993, aimed at promoting industries in backward areas. The Commissioner (Appeals) held that the subsidy was a capital receipt, referencing the Supreme Court's judgment in CIT v/s Ponni Sugars and Chemicals Ltd., which emphasized the "purpose test" to determine the nature of the subsidy. The Tribunal upheld this view, stating that the subsidy was for setting up a new unit in a backward area and was computed based on fixed capital investment, thus qualifying as a capital receipt and not taxable.

Issue 2: Reduction from Cost of Assets
The Revenue argued that if the Rs. 20 lakhs was considered a capital receipt, it should be reduced from the cost of assets as per Explanation 10 to section 43(1) of the Act for depreciation calculation. However, this issue was neither addressed in the assessment order nor in the Commissioner (Appeals)'s order. Consequently, the Tribunal dismissed this ground as not maintainable.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the Rs. 20 lakhs received by the assessee was a capital receipt and not taxable. The second ground regarding the reduction from the cost of assets was dismissed as it was not maintainable. The order was pronounced in the open Court on 21st September 2012.