2018 (12) TMI 1869 - AT - Income Tax

Characterization of receipt - Industrial Promotion Subsidy by way of refund of Sales Tax paid - Whether subsidy received by way of refund of sales tax paid is capital in nature? - HELD THAT - As decided in own case 2017 (4) TMI 44 - ITAT PUNE the said incentive received by the assessee under PSI, 2007 Scheme in the form of refund of sales tax was capital receipt and not liable to tax. The said ratio laid down by the Tribunal is squarely applicable to the facts and issues raised in the present case also, since the subsidy by way of refund of sales tax has been received by the assessee under the said scheme itself. We are referring to the order of Tribunal in this regard but the same is not being reproduced for the sake of brevity. Following the same parity of reasoning, we hold that the subsidy received by assessee under the PSI, 2007 Scheme by way of refund of sales tax is not taxable being capital receipt, in the hands of assessee. The grounds of appeal raised by assessee are thus, allowed.

Summary

Issues:
1. Taxability of Industrial Promotion Subsidy received as a refund of Sales Tax.

Analysis:

Issue 1: Taxability of Industrial Promotion Subsidy
The appeal pertains to the taxability of an Industrial Promotion Subsidy received as a refund of Sales Tax. The assessee claimed the subsidy as a capital receipt, while the Assessing Officer treated it as taxable revenue. The CIT(A) upheld the Assessing Officer's decision. The main contention was whether the subsidy was in the nature of production incentives or an Industrial Promotion Subsidy for setting up a unit. The Tribunal referred to a previous case where a similar issue was decided in favor of the assessee, stating that the subsidy received under the relevant scheme was a capital receipt and not taxable. The Tribunal held that the subsidy received under the scheme in the form of a sales tax refund was capital in nature and not liable to tax. The Tribunal's decision was based on the scheme's nature and purpose. Consequently, the Tribunal allowed the appeal, ruling that the subsidy received by the assessee was not taxable as it was a capital receipt under the PSI, 2007 Scheme.

In conclusion, the Tribunal held that the Industrial Promotion Subsidy received as a refund of Sales Tax was not taxable as it was a capital receipt under the relevant scheme. The decision was based on the nature and purpose of the subsidy, following a previous ruling in a similar case. The appeal was allowed in favor of the assessee, emphasizing the non-taxability of the subsidy received.