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2022 (4) TMI 1486 - AT - Income TaxPackage Scheme of Incentives, 2007 - asseessee is granted subsidy towards meeting a cost of asset - direct link to the investment in fixed assets by the eligible unit - Whether there is a link between subsidy given and the cost of investment? - whether the amount of subsidy received from the Government of Maharashtra shall go to reduce the actual costs of assets u/s 43(1) for the purpose of allowing the depreciation u/s 32 ? - HELD THAT - No doubt, the subsidy was granted in terms of the certain percentage of fixed assets to be disbursed in the form of refund of octroi, electricity duty exemption, entry tax refund, VAT etc. over a period of 8 years. Then the next question, that arises for consideration in such circumstances is that, can be it said that subsidy is granted to meet the cost of the actual fixed assets, merely because the amount of subsidy is calculated in term of certain percentage of investment in fixed assets. The Hon ble Supreme Court had an occasion to consider the identical issue in the case of CIT vs. P.J. Chemicals Ltd 1994 (9) TMI 1 - SUPREME COURT . As regards to the applicability of Proviso to Explanation 10 to section 43(1) which was inserted in the Statute w.e.f. 1.4.1999 by the Finance Bill (2) of 1998, the Proviso take cares of situation where such subsidy, grant or reimbursement is such nature that subsidy, grant or reimbursement cannot be directly relatable to the assets acquired by an assessee. In such a situation, the Proviso envisages that so much of amount which bears to the total subsidy, reimbursement or grant, the proportion as such assets bears to all the assets in respect of or with reference to which subsidy or grant is so received shall be deducted in the actual cost of the asset of the assessee. Thus, the proviso envisages adjustment of subsidy in the assets of the assessee. We hold that the amount of subsidy is not to be deducted from the actual cost u/s 43(1) for the purpose of calculation of depreciation and the provisions to Explanation 10 to section 43(1) have no application to the facts of the present case. We are forfeited in taking this view by the decision of Welspun Steel Ltd 2019 (3) TMI 397 - BOMBAY HIGH COURT This decision being that of Jurisdictional High Court is binding on us. Accordingly, ground of appeal no.2 and 3 stands dismissed. Whether amount of capital subsidy received should be held as revenue in nature ? - We find that this ground of appeal no.4 does not arise out of the assessment order neither does arise out of the order of the ld. CIT(A). Further, it is only from the assessment year 2016-17 by enacting the provisions of sub-clause (xviii) to section 2(24) of the Act, the amount of subsidy which is not reduced from the actual cost and is made taxable. The Co-ordinate Bench of this Tribunal in the case of M/s. Alkoplus Producers Pvt. Ltd 2019 (4) TMI 558 - ITAT PUNE if a subsidy is given to attract industrial investment or expansion, which is a otherwise a capital receipt under the pre-amendment era, shall be treated as income chargeable to tax, except where it has been taken into account for determining the actual cost of assets in terms of Explanation 10 to section 43(1). This amendment is patently prospective. As the assessment year under consideration is 2011-12 and the amendment is effective from assessment year 2016-17, new hold that section 2(24) (xviii) will have no application We do not find merit in this ground of appeal no.4 raised by the Revenue and the same stands dismissed.
Issues involved:
- Interpretation of provisions of Explanation 10 to section 43(1) of the Income Tax Act, 1961 regarding reduction of subsidy from the cost of depreciable assets. - Determination of whether the subsidy received is intended to meet the cost of fixed assets for depreciation purposes. - Applicability of Proviso to Explanation 10 to section 43(1) in case of subsidies not directly relatable to specific assets. - Taxability of capital subsidy received as revenue in nature. Analysis: 1. The case involves an appeal by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals) for the assessment year 2014-15. The main issue raised was the reduction of a capital subsidy received by the assessee from the Government of Maharashtra under the Package Scheme of Incentive, 2007 from the cost of depreciable assets as per Explanation 10 to section 43(1) of the Income Tax Act, 1961. 2. The Assessing Officer reduced the subsidy amount from the cost of depreciable assets, arguing that the subsidy was granted to meet the cost of fixed assets. However, the ld. CIT(A) held that the subsidy was not intended to meet the cost of assets and directed not to reduce it from the asset cost for depreciation purposes. 3. The Tribunal analyzed the Package Scheme of Incentives, 2007, and observed that the subsidy was aimed at encouraging industries in underdeveloped areas, not as a payment to meet the actual cost of assets. Citing the decision in CIT vs. P.J. Chemicals Ltd., the Tribunal held that such subsidies are incentives and not meant to reduce the actual cost of assets for depreciation calculation. 4. The Tribunal further referred to decisions by High Courts, including the Gujarat High Court and Bombay High Court, supporting the view that subsidies are incentives and not to be deducted from the actual cost of assets. The Tribunal also discussed the Proviso to Explanation 10, which applies when subsidies are not directly related to specific assets. 5. The Tribunal dismissed the Revenue's argument that the capital subsidy should be treated as revenue in nature, stating that such treatment was not applicable for the assessment year in question. Referring to a previous Tribunal decision, the Tribunal held that the amendment regarding taxability of subsidies was prospective and did not apply to the current assessment year. 6. Ultimately, the Tribunal dismissed the appeal filed by the Revenue, upholding the decision of the ld. CIT(A) that the subsidy should not be reduced from the cost of assets for depreciation purposes. 7. The judgment provides a detailed analysis of the interpretation of Explanation 10 to section 43(1) regarding subsidies, emphasizing that subsidies are incentives and not intended to reduce the actual cost of assets. The Tribunal's decision was based on established legal principles and precedents, leading to the dismissal of the Revenue's appeal.
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