2016 (5) TMI 251 - AT - Income Tax

Treatment of income from trial run receipts - revenue receipt OR capital receipt - Held that - The source need not be continuously productive and it is sufficient if the income is flowing from some exercise or operation by the appellant and in ordinary parlance which can be considered as income. To constitute income, the receipt need not necessarily have their origin in business activity or investment or under an enforceable obligation. The conclusion in construing the word income one has to ask whether having regard to all the circumstances surrounding the particular payment and receipt in question, what is relevant is of the character of income according to the ordinary meaning of that word in the common language or whether it is merely a casual receipt. The word income is of elastic import and it is extended meaning are not controlled or limited by the use of the words profit and gains . The diverse forms which income may assume cannot exhaustively be enumerated and so in each case the decision of the question as to whether any number of receipt is income or not must depend upon the nature of the receipt and the scope of relevant taxing provision. In the present case, the income earned by the assessee by operation of plant and machinery for treating the effluent water and collected the income from the customer on commercial basis and it cannot be considered as a capital receipt as the assessee operated the plant and machinery without the requisite permission and it is to be revenue receipt to be considered for levying the tax after giving necessary deduction for earning that income. - Decided against revenue Treatment of subsidy received from Government of India as a deduction from cost of fixed asset - Held that - The subsidy was sanctioned by the Government of India for setting up of common effluent treatment water at Tripur and thus, it amounts to bearing the part of the cost of plant and machinery by Government of India through subsidy and it is not for carrying on the business of the assessee rather than setting up of the industry. Hence, in our opinion the cost of fixed asset to be reduced to that extent of subsidy received bythe assessee.Since the subsidy received for setting up of industries by installing plant and machinery would definitely reduce the cost of the plant and machinery from the side of the assessee and it is to be reduced from the cost of plant and machinery in terms of above Explanation to Sec.43(1) of the Act. Being so, we do not find any infirmity in the order of the lower authorities. The same is confirmed. - Decided against revenue Levy of penalty u/s.271(1)(c) - Held that - We find force in the argument of the ld.A.R, though the assessee treated the trial run receipt and subsidy received as a capital receipt, the AO treated the Trial run receipt as revenue receipt, thereby increasing the income of assessee and also deduct the subsidy receipt from the cost of fixed asset. Thereafter, he recomputed the depreciation, finally resulted increase in loss, then returned loss by the assessee. There is no any revenue loss to the Department and this is only a technical breach, which cannot be reason to levy penalty. Accordingly, placing reliance in the judgment of Apex Court in the case of M/s.Reliance Petro Products Pvt Ltd in 2010 (3) TMI 80 - SUPREME COURT (SC), we are inclined to delete the penalty - Decided in favour of assessee

Issues Involved:
1. Treatment of income from trial run receipts as revenue receipt instead of capital receipt.
2. Treatment of subsidy received from the Government of India as a deduction from the cost of fixed assets.
3. Levy of penalty under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Treatment of Income from Trial Run Receipts:
- Facts: The assessee, a company formed to ensure zero liquid discharge of effluent water, conducted trial runs of its new plant and machinery from October 2008 to March 2010. The income generated during this period was capitalized and shown under 'Reserves and Surplus'.
- Assessing Officer's (AO) View: The AO treated the surplus generated during the trial run as revenue receipt, arguing that the income from treating effluent water was revenue in nature since the services were rendered and paid for by the users, who also claimed these expenses as revenue expenses.
- CIT(A)'s View: The CIT(A) upheld the AO's decision, stating that the business of the assessee had commenced once the minimum standards for effluent treatment were met, and the receipts should be treated as revenue receipts.
- Tribunal's Decision: The Tribunal agreed with the AO and CIT(A), holding that the income earned during the trial run was indeed revenue receipt. The Tribunal emphasized that the definition of 'income' under section 2(24) of the Income Tax Act is broad and includes any monetary return. The assessee's claim that the income was capital in nature was rejected.

2. Treatment of Subsidy Received from the Government:
- Facts: The assessee received a capital subsidy of ?19.19 crores from the Government of India for setting up plant and machinery.
- Assessing Officer's (AO) View: The AO reduced the cost of the plant and machinery by the amount of the subsidy received, in accordance with Explanation 10 to section 43(1) of the Income Tax Act, which mandates that the cost of an asset should be reduced by the amount of any subsidy received.
- CIT(A)'s View: The CIT(A) upheld the AO's decision, stating that the subsidy was granted to meet the cost of machinery and not for any other purpose. Therefore, the cost of the plant and machinery should be reduced by the amount of the subsidy for the purpose of claiming depreciation.
- Tribunal's Decision: The Tribunal confirmed the lower authorities' decisions, stating that the subsidy received for setting up the plant and machinery should reduce the cost of the fixed assets, as per Explanation 10 to section 43(1) of the Income Tax Act.

3. Levy of Penalty under Section 271(1)(c):
- Facts: The AO levied penalties on the assessee for treating trial run receipts as capital receipts and for not reducing the subsidy from the cost of fixed assets.
- Assessee's Argument: The assessee argued that there was no concealment of income or furnishing of inaccurate particulars, and relied on the Supreme Court judgment in the case of M/s. Reliance Petro Products Pvt Ltd, which held that merely making a claim that is not sustainable does not attract penalty.
- Revenue's Argument: The Revenue argued that penalty could be levied even if the assessed income and returned income both show a loss, citing the Supreme Court judgment in the case of CIT Vs. Gold Coin Health Food Pvt Ltd.
- Tribunal's Decision: The Tribunal deleted the penalties, noting that there was no revenue loss to the Department as the assessed loss was more than the returned loss. The Tribunal found that the issue was a technical breach and did not warrant the imposition of penalties.

Conclusion:
- The Tribunal dismissed the appeals regarding the treatment of trial run receipts and subsidy received, upholding the decisions of the lower authorities.
- The Tribunal allowed the appeals related to the levy of penalties, finding that there was no concealment of income or furnishing of inaccurate particulars by the assessee.

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