2016 (7) TMI 1571 - AT - Income Tax

Subsidy from Central Government on account of interest refund - Revenue or capital receipt - Whether subsidy was granted towards reducing interest burden of the assessee and received after the commencement of business? - HELD THAT - In order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence the subsidy received in this regard falls into capital field. we find that the assessee received interest as refund from Central Government as per the scheme formulated to encourage additional investments in order to become competitive and cost effective and to provide financial support for capital outlay for expansion and modernisation and by following order of M/S GLOSTER JUTE MILLS LTD 2014 (7) TMI 172 - ITAT KOLKATA held that the subsidy received for modernising assessee s existing infrastructure is capital in nature - we dismiss the ground no-1 raised by the Revenue. Allowance of unabsorbed depreciation and business of 100% EOU Unit (100% exemption u/s10B) against the taxable income of the assessee from other unit - HELD THAT - In the present case the Coordinate Bench observed that the similar issues have been decided in favour of assessee by this Tribunal in earlier years and no order as such brought to our notice that the Hon ble Jurisdictional High Court has reversed the order of the Tribunal. In view of the same we find no merit in the order of CIT(Appeals) and accordingly ground no-2 raised by the Revenue is dismissed.

Summary

Issues:
1. Treatment of interest subsidy as capital or revenue receipt.
2. Allowance of unabsorbed depreciation and business loss pertaining to a unit with 100% exemption under section 10B against taxable income of other units.

Issue 1: Treatment of interest subsidy as capital or revenue receipt:
The appeal concerned the treatment of an interest subsidy received by a Public Limited Company under the Technology Upgradation Fund Scheme. The Assessing Officer considered the subsidy as revenue in nature and added it to the total income, while the assessee claimed it to be capital in nature. The CIT(Appeal) held that the subsidy was for the overall development of the textile industry and deleted the addition made by the AO. The Tribunal, referring to a similar case, concluded that the subsidy received for modernizing existing infrastructure is capital in nature. The Tribunal emphasized that the purpose of the subsidy scheme was to enhance technology apparatus and provide financial support for capital outlay, thus categorizing the subsidy as capital. The Tribunal dismissed the Revenue's appeal, upholding the assessee's position that the subsidy falls under the capital field due to the scheme's objective of technology upgradation.

Issue 2: Allowance of unabsorbed depreciation and business loss against taxable income:
The second issue revolved around the allowance of unabsorbed depreciation and business loss pertaining to a unit with 100% exemption under section 10B against the taxable income of other units. The Assessing Officer disallowed the set-off of losses from the unit with 100% exemption against profits of taxable units. However, the CIT(Appeal) allowed the set-off, stating that losses from the exempt unit can be adjusted with the taxable income of other units. The Tribunal noted that similar issues had been decided in favor of the assessee in previous years and found no infirmity in the CIT(Appeal)'s order. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the allowance of unabsorbed depreciation and business loss against taxable income.

In conclusion, the Tribunal's judgment addressed the issues of the treatment of interest subsidy and the allowance of losses against taxable income in a detailed manner, relying on legal precedents and the purpose of the subsidy scheme. The decision favored the assessee in both issues, emphasizing the capital nature of the subsidy and allowing the set-off of losses against taxable income as per the applicable provisions and past rulings.