2012 (7) TMI 1113 - AT - Income Tax

Summary

Issues Involved:

1. Whether transport subsidy received by the assessees is to be considered as capital receipt or revenue receipt.
2. Whether power subsidy received by the assessee is of capital or revenue nature.
3. Whether pioneer state subsidy received by the assessee is of capital or revenue nature.
4. Disallowance of depreciation claimed due to the application of section 115JA of the IT Act.
5. Charging of interest u/s 234B and 234C before adjustment of MAT credit available u/s 115JA.

Summary:

1. Transport Subsidy:
The primary issue was whether the transport subsidy received by the assessees should be considered as a capital receipt or a revenue receipt. The learned DR argued that the transport subsidy, given under the Transport Subsidy Scheme, 1971, should be considered as a revenue receipt based on the precedents set by the Supreme Court in cases such as Sahney Steel & Press Works Ltd. v. CIT and CIT v. Rajaram Maize Products Ltd. The subsidy was given to assist the assessee in carrying out business operations after commencement of production, making it a revenue receipt. The learned CIT(A), however, considered the subsidy as a capital receipt, emphasizing the purpose of promoting industrial development in backward areas. The Tribunal, after considering various precedents and the purpose of the subsidy, concluded that the transport subsidy should be treated as a revenue receipt and taxable in the hands of the assessee.

2. Power Subsidy:
The power subsidy received by the assessee was also considered in a similar light to the transport subsidy. It was given to reduce the power cost after the commencement of business and was not for establishing a new business or substantially increasing production capacity. Thus, the power subsidy was deemed a revenue receipt and taxable accordingly.

3. Pioneer State Subsidy:
The pioneer state subsidy was provided for establishing new industries or for expansion, modernization, and diversification of existing industries. Since this subsidy was aimed at fresh investment and establishing new industries, it was considered a capital receipt and not taxable as revenue.

4. Disallowance of Depreciation:
The assessee's cross-objection regarding the disallowance of depreciation due to the application of section 115JA of the IT Act was not pressed and thus dismissed for non-prosecution.

5. Charging of Interest u/s 234B and 234C:
The Tribunal, relying on the Supreme Court's decision in CIT v. Kwality Biscuits Ltd., held that interest under sections 234B and 234C cannot be levied while determining income under section 115JB. Thus, the cross-objection of the assessee on this ground was allowed.

Conclusion:
The Tribunal concluded that the transport and power subsidies are revenue receipts and taxable, while the pioneer state subsidy is a capital receipt and not taxable. The appeals were disposed of accordingly, with the revenue's appeals partly allowed and the assessee's cross-objections partly allowed.