2017 (1) TMI 853 - HC - Income Tax

Nature of income - subsidy received as Excise Duty reimbursement - whether is not a revenue receipt? - Held that - The subsidy scheme formulated by the Government of Bihar was for the purpose of attracting capital investment and to encourage setting up/expansion of existing units. Thus the object/purposes of the subsidy was for the purposes of encouraging capital investments in the State of Bihar. Consequently the impugned order holds that subsidy would be on Capital account and could not be considered to be on Revenue account.In fact this issue about the object/purpose of the subsidy deciding its character as revenue or capital is no longer res integra in view of the decision of the Supreme Court in CIT, Madras v/s. Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) Addition made to book profits on account of subsidy received by way of excise duty - Held that - As we have already held that the subsidy received by the respondent-assessee from the State of Bihar was in the nature of capital receipt. Hence the same cannot be added to arrive at book profits of the respondent-assessee under Section 115J of the Act.

Summary

Issues involved:
1. Whether subsidy received as Excise Duty reimbursement is a revenue receipt?
2. Whether the Tribunal correctly upheld the order to delete the addition made to book profits on account of subsidy received by way of excise duty?

Analysis:

Issue 1:
The first issue raised in the appeal concerns the classification of the subsidy received as Excise Duty reimbursement. The Court noted that the subsidy scheme by the Government of Bihar aimed to attract capital investment and encourage the establishment or expansion of units. The Court held that the subsidy was on capital account, not revenue account, as it was intended to promote capital investments in the state. Referring to previous decisions, including CIT v. Ponni Sugars & Chemicals Ltd., the Court concluded that the Tribunal correctly applied the test to determine the nature of the subsidy. Consequently, the Court found that this issue did not present a substantial question of law and thus did not entertain it.

Issue 2:
The second issue in the appeal was related to whether the addition made to book profits on account of the subsidy received should be deleted. The Court reiterated that the subsidy received was of a capital nature, and therefore, it could not be added to the book profits under Section 115J of the Income Tax Act. Additionally, the Court highlighted that the Assessing Officer's power to adjust book profits is limited to verifying compliance with the Companies Act and the audit process. The Court cited the decision in Apollo Tyres Ltd. v. CIT to emphasize that the Assessing Officer cannot alter the book profit unless invoking the Explanation to Section 115J. Since the Revenue did not rely on this explanation in the present case, the Court found that the second issue did not raise a substantial question of law and hence was not entertained.

In conclusion, the Court dismissed the appeal, stating that the questions raised did not give rise to substantial legal issues. No costs were awarded in the matter.