2009 (12) TMI 1037 - AT - Income Tax

Summary

Issues Involved:
1. Characterization of grant received from NDDB as capital or revenue receipt.
2. Allowability of depreciation on assets transferred from NDDB.
3. Treatment of lease rent expenses as capital or revenue expenditure.
4. Levy of interest under sections 234B and 234D of the IT Act.

Detailed Analysis:

1. Characterization of Grant Received from NDDB:
The primary issue was whether the grant of Rs. 24,44,38,406 received by the assessee from NDDB should be treated as a capital receipt or a revenue receipt. The assessee argued that the grant was capital in nature, intended for research and development, and should be treated as an earmarked corpus. The Assessing Officer (AO) treated the grant as a revenue receipt, arguing that it was given for research activities integral to the assessee's business. The CIT(A) upheld the AO's decision, stating that the grant was for normal business activities and hence revenue in nature. The Tribunal, however, concluded that the grant was capital in nature, emphasizing the specific conditions attached to its use, such as investing the principal amount in long-term financial instruments and using only the interest for research and development. The Tribunal referenced the Supreme Court's decision in CIT vs. Ponni Sugars & Chemicals Ltd., which emphasized the purpose of the subsidy over the timing of its receipt.

2. Allowability of Depreciation on Assets Transferred from NDDB:
The assessee claimed depreciation on assets worth Rs. 5,55,61,594 transferred from NDDB. The AO and CIT(A) denied the depreciation, stating that the cost of the assets was entirely borne by NDDB, making the actual cost nil. The Tribunal noted that the issue was not approved by the Committee on Disputes (COD) and hence declined to adjudicate this ground.

3. Treatment of Lease Rent Expenses:
The assessee paid lease rent expenses of Rs. 7,84,704 for leasehold land at Narela, which the AO and CIT(A) treated as capital expenditure. The assessee argued that the lease rent should be considered a revenue expenditure. The Tribunal agreed with the assessee, referencing the Gujarat High Court's decision in CIT vs. Sun Pharmaceuticals Ltd., which distinguished between lease rent paid for using land (revenue expenditure) and acquiring land (capital expenditure). The Tribunal concluded that the lease rent paid was for using the land and thus should be treated as revenue expenditure.

4. Levy of Interest under Sections 234B and 234D:
The assessee contested the levy of interest under sections 234B (Rs. 3,88,48,074) and 234D (Rs. 2,74,440) of the IT Act. The Tribunal did not adjudicate these grounds due to the absence of COD approval.

Conclusion:
The Tribunal allowed the appeal partly. It held that the grant received from NDDB was a capital receipt and should not be taxed as revenue. It also ruled that the lease rent expenses were revenue in nature and hence allowable. The issues related to depreciation and interest under sections 234B and 234D were not adjudicated due to the lack of COD approval.