2007 (8) TMI 302 - HC - Income Tax

Tribunal hold that the financial assistance received by government, is a revenue receipt chargeable to tax - appellant is not able to produce any material to establish his case that the assistance has been treated by them as a capital receipt and has been used for extension or modernization of the unit - assistance was made to help the trader to carry on his business, hence it should be treated as revenue receipt order of tribunal is justified appeal by assessee is dismissed

Summary

Issues:
1. Whether financial assistance received under the West Bengal Industrial Promotion Scheme is a revenue receipt chargeable to tax?

Analysis:
The judgment pertains to an appeal against an order of the Income Tax Appellate Tribunal regarding the treatment of financial assistance received by the appellant under the West Bengal Industrial Promotion Scheme. The appellant, engaged in the business of drugs and pharmaceutical products, claimed the assistance as a capital receipt, while the assessing officer treated it as a revenue receipt. The key issue was whether the assistance should be considered a revenue receipt chargeable to tax.

The court referred to the Supreme Court judgment in Sahney Steel and Press Works Ltd. v. CIT, emphasizing that the character of the subsidy as revenue or capital depends on the purpose for which it was given. If the purpose was to assist in business operations, it should be treated as a revenue receipt. The court analyzed the scheme under which the assistance was granted, highlighting the entitlement criteria and payment process outlined in the scheme.

The court noted that the assistance was provided to help the trader carry on their business, with no conditions related to investment in fixed assets or establishment of new units. The scheme did not mandate modernization or expansion activities as a prerequisite for receiving assistance. The court dismissed the appellant's argument that the assistance was for capacity extension or modernization, emphasizing that the scheme's provisions did not support such interpretation.

Furthermore, the appellant failed to provide evidence that the assistance was treated as a capital receipt and used for modernization or extension activities. The court upheld the Tribunal's decision, concluding that the assistance received by the appellant should be treated as a revenue receipt. As per the guidelines from the Supreme Court judgment, the court found no merit in the appellant's contentions and dismissed the appeal, affirming the Tribunal's decision.

In summary, the court held that the financial assistance received under the West Bengal Industrial Promotion Scheme should be treated as a revenue receipt chargeable to tax based on the scheme's provisions and the purpose for which the assistance was granted. The court's decision was in line with the principles established in the Sahney Steel case, emphasizing the importance of the purpose of the subsidy in determining its nature as revenue or capital receipt.