2016 (8) TMI 645 - AT - Income Tax

Subsidy amount received - revenue or capital receipt - Held that - The assistance was not for setting up new unit but the object of the scheme necessarily was to revive the sick units which could only be done by modernization and putting further infrastructure in the form of investment in plant and machinery. The Hon ble Supreme Court in the case of CIT vs. Ponni Sugar Mills and Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) after considering the case law of Sahney Steels (1997 (9) TMI 3 - SUPREME Court ) has held that while determining the nature of subsidy the purpose test has to be applied. The Hon ble Supreme Court has also held in this case that the amount received as subsidy for making repayment of term loans has also to be treated as a capital receipt. The Hon ble Court has further held that it is the object for which subsidy assistance is given which determines the nature of the subsidy. In the present case receipt of subsidy was capital in nature as the assessee was obliged to utilize the subsidy amount only for making investment in fixed assets and for making repayment of term loans. In a recent decision the Hon ble Supreme Court has also dismissed an appeal of Revenue in the case of Sh. Balaji Alloys & Ors. Vs. CIT (2011 (1) TMI 394 - Jammu and Kashmir High Court ), wherein the Hon ble Court relied on its earlier judgment in the case of CIT vs. Ponni Sugars & Chemicals (supra). Therefore, keeping in view the facts and circumstances of the present case and relying on the judgments of Hon le Supreme Court we hold that the subsidy amount received by assessee was indeed a capital receipt. Grant in aid for making and driving silage pits for cattle - Held that - The silage pits were to be constructed on the land provided by respective societies and the assessee was only a facilitator for the construction of silage pits. The scheme for construction of silage pits in various parts is placed at (PB page 21 to 27). The scheme was formed to ensure availability of green fodder in kandi area of Dist. Hoshiarpur. We further find that it has not been disputed by authorities below that silage pits had not been constructed by the selected societies. We further find that assessee was not having any beneficiary interest in the amount received as it was acting as a facilitator only. The assessee has implemented the scheme of Govt. for the welfare of the small farmers located in the kandi area of Dist. Hoshiarpur and Gurdaspur. At (PB page 30-31) is placed a copy of ledger account of assessee wherein it has declared an amount of ₹ 61.50 lacs as having received from the Govt. for making payments to various societies, who had constructed the silage pits. As per this ledger account the assessee had received ₹ 61.50 lacs and had spent the same amount by making cheque payments to various societies for constitution of silage pits. Therefore, the assessee had not derived any benefit from this grant and therefore, the finding of the authorities below is not correct and is not justified. In view of the above facts and circumstances we delete the addition confirmed by learned CIT(A) on this account. Penalty levied u/s 271(1 )(c) - Held that - Assessee had not furnished inaccurate particulars as it had declared the amount received as subsidy in its balance sheet and it was only the nature of subsidy which was disputed by the Assessing Officer and therefore, he had rightly held the penalty was not imposable. While arriving at the conclusion of deleting the penalty, the learned CIT(A) has relied upon the case law decided by Hon ble Punjab & Haryana High Court in the case of Gurdaspur Cooperative Sugar Mills (2013 (3) TMI 175 - PUNJAB AND HARYANA HIGH COURT) where under similar facts and circumstances, the Hon ble Punjab & Haryana High Court had deleted the penalty. In view of the above facts and circumstances, we did not find any infirmity in the order of learned CIT(A), therefore, the appeal filed by Revenue is dismissed.

Summary

Issues Involved:
1. Classification of subsidy received by the assessee as capital or revenue receipt.
2. Deletion of penalty imposed under Section 271(1)(c) for concealment of income.

Issue-wise Detailed Analysis:

1. Classification of Subsidy:
The primary issue revolves around whether the subsidies received by the assessee should be treated as capital receipts or revenue receipts. The assessee, a Co-operative Society running a Milk Plant, received subsidies from the Punjab Government and Central Government under a rehabilitation scheme. The subsidies were intended for revitalizing sick Dairy Cooperative Unions, purchasing fixed assets, and repaying loans. The Assessing Officer classified these subsidies as revenue receipts, leading to additions in the assessee's income. However, the assessee argued that these were capital receipts, citing the purpose test established in the Supreme Court case of CIT vs. Ponni Sugars & Chem Ltd., where subsidies for investment in fixed assets and loan repayment were deemed capital in nature.

The Tribunal found that the subsidies were indeed used for purchasing plant and machinery and repaying loans, as evidenced by the utilization certificates. Consequently, the Tribunal concluded that the subsidies were capital receipts, as their purpose was to revitalize the cooperative unit, aligning with the principles laid out in the Supreme Court judgments of Sahney Steels and Ponni Sugars. Therefore, the Tribunal allowed the assessee's appeals for the assessment years 2009-10 and 2011-12, treating the subsidies as capital receipts.

2. Deletion of Penalty under Section 271(1)(c):
The second issue pertains to the deletion of the penalty imposed by the Assessing Officer under Section 271(1)(c) for concealment of income. The penalty was levied because the assessee had classified part of the subsidy as capital receipts and part as revenue receipts, which the Assessing Officer and CIT(A) had treated entirely as revenue receipts. The CIT(A) deleted the penalty, reasoning that the issue was purely legal and debatable, and the assessee had not furnished inaccurate particulars, as all facts were disclosed in the return of income.

The Tribunal upheld the CIT(A)'s decision to delete the penalty, noting that the matter was still pending before the ITAT and that the issue of whether the subsidy was a capital or revenue receipt was debatable. The Tribunal referenced the Punjab & Haryana High Court's decision in the case of Gurdaspur Cooperative Sugar Mills, which held that a debatable issue could not lead to a penalty for furnishing inaccurate particulars. Additionally, the Tribunal cited the Supreme Court's ruling in Reliance Petroproducts, which stated that merely making an unsustainable claim does not amount to furnishing inaccurate particulars. Thus, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the penalty.

Conclusion:
The appeals filed by the assessee were allowed, recognizing the subsidies as capital receipts, while the Revenue's appeal regarding the penalty was dismissed. The Tribunal's decision was based on the purpose test for subsidies and the principle that debatable issues do not warrant penalties for inaccurate particulars.