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2018 (8) TMI 2026 - AT - Income TaxCharacterization of income - power subsidy receipt as capital in nature or revenue - subsidy received from the Government of Andhra Pradesh as an incentive for setting up of a new industry in the eligible area - HELD THAT - On perusal of the G.O.Ms.No.178 dated 21.06.2005 it is clear that the subsidy is granted as an incentive for setting up of a new industry in the State of Andhra Pradesh in the eligible area. No doubt the subsidy is in the form of reduction / concession in the power tariff which is obviously on revenue account. The Hon ble Supreme Court in the case of Sahney Steel Press Works Ltd 1997 (9) TMI 3 - SUPREME COURT had decided that if the monies are given to the assessee for assisting them in carrying out their business operations after commencement of production such subsidy must be treated as a assistance for the purpose of trading which can be brought to tax as revenue receipt. The said proposition in the case of Sahney Steel Press Works Ltd (supra) was distinguished by the Hon ble Apex Court in the case of Ponni Sugars and Chemicals Ltd 2008 (9) TMI 14 - SUPREME COURT The object behind the grant of subsidy is important to determine the nature of the subsidy. In the present case the scheme specifically provides that the incentives are given to promote industrial investment to all new eligible industrial units. Therefore we have no hesitation to conclude that the object behind the grant of subsidy is only to promote the setting up of new industry and therefore having regard to the ratio laid down by the Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd 2008 (9) TMI 14 - SUPREME COURT and CIT vs. Chaphalkar Brothers 2017 (12) TMI 816 - SUPREME COURT he subsidy amount granted is capital in nature and cannot be brought to tax. The fact that the subsidy is in the form of concession of the power tariff is not relevant to decide the nature of the subsidy in the light of settled proposition of law that it is the quality of payment that is decisive of the character of the payment and not the method of the payment or its measure. Appeal filed by the assessee is allowed.
Issues Involved:
1. Whether the power subsidy received from the Government of Andhra Pradesh constitutes a capital receipt or a revenue receipt. Issue-wise Detailed Analysis: 1. Nature of Power Subsidy: The primary issue in this appeal is the classification of the power subsidy received by the assessee from the Government of Andhra Pradesh. The assessee contends that the subsidy is a capital receipt, whereas the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] classified it as a revenue receipt. Facts of the Case: The assessee, engaged in the manufacture of Instrumentation, Control, LT Power cables & Specialty Cables, filed a return of income for the A.Y. 2013-14. The AO completed the assessment, treating the power subsidy of Rs. 51,61,213/- as a revenue receipt based on the Supreme Court decision in Sahney Steel & Press Works Ltd. (228 ITR 253). The CIT(A) upheld this view, stating that the subsidy was a reimbursement of electricity charges, thus on revenue account. Assessee's Argument: The assessee argued that the subsidy was provided under the Industrial Investment Promotion Policy 2005-2010 by G.O.Ms.No. 178, dated 21.06.2005, to encourage the setting up of new industries in Andhra Pradesh. The counsel for the assessee emphasized that the purpose of the subsidy was to promote industrial investment, making it a capital receipt. The assessee relied on the Supreme Court judgments in Ponni Sugars and Chemicals (306 ITR 392), Senairam Doongarmall vs. CIT (42 ITR 393), and CIT vs. Chaphalkar Brothers (400 ITR 279), which highlight the "purpose test" to determine the nature of the subsidy. Revenue's Argument: The Departmental Representative argued that the subsidy was intended to improve government revenues and was a reimbursement of revenue expenditure, thus a revenue receipt. The revenue cited the Supreme Court decisions in Sahney Steels & Press Works vs. CIT (228 ITR 238), Ponni Sugars and Chemicals Ltd (306 ITR 392), and other relevant cases. Tribunal's Analysis: The tribunal analyzed the facts and the legal precedents. It noted that the subsidy aimed to promote industrial investment and was not merely a reimbursement of operational expenses. The tribunal referred to the Supreme Court's "purpose test" from Ponni Sugars and Chemicals Ltd, which states that the nature of a subsidy is determined by its purpose, not the form or timing of the payment. The tribunal also cited the Supreme Court's reiteration in CIT vs. Chaphalkar Brothers that the object of the subsidy is crucial in determining its nature. Conclusion: The tribunal concluded that the subsidy was granted to promote the setting up of new industries, making it a capital receipt. The fact that the subsidy was in the form of a power tariff concession was deemed irrelevant. The tribunal emphasized that the quality of the payment, not its method or measure, determines its character. Consequently, the tribunal reversed the CIT(A)'s decision and allowed the appeal, classifying the subsidy as a capital receipt. Judgment: The appeal filed by the assessee was allowed, and the power subsidy was classified as a capital receipt. Pronouncement: The judgment was pronounced in the open court on 29th August 2018.
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