2017 (1) TMI 902 - AT - Income Tax

Subsidy received from Government of India under Technology Upgradation Fund Scheme (TUF Scheme) disallowed - Held that - Subsidy received was capital in nature. See Sahney Steel and Press Works Ltd. vs CIT (1997 (9) TMI 3 - SUPREME Court), CIT vs P.J. Chemicals (1994 (9) TMI 1 - SUPREME Court) - Decided in favor of assessee.

Summary

Issues Involved:
Disallowance of subsidy received under Technology Upgradation Fund Scheme (TUF Scheme) by the Ld. First Appellate Authority, Mumbai.

Analysis:
The appellant challenged the disallowance of a subsidy received under the Technology Upgradation Fund Scheme (TUF Scheme) by the Ld. First Appellate Authority, Mumbai. The appellant contended that the issue was covered by previous tribunal decisions and relied on case laws to support their position. The Tribunal analyzed the relevant case laws and factual matrix to determine the nature of the subsidy received. The key contention was whether the subsidy should be treated as a capital receipt or a revenue receipt for taxation purposes.

The Tribunal considered the scheme formulated by the Textile Ministry for the benefit of the textile industry in India, specifically focusing on the Technology Upgradation Fund Scheme (TUFS). The Tribunal examined the objective of the scheme, which included providing a 5% reimbursement on interest charged by financial institutions on sanctioned projects. The Tribunal delved into the legal interpretations of various decisions to determine the character of the subsidy received under the TUF Scheme.

In the case of Sahney Steel and Press Works Ltd., it was held that operational subsidies received after the establishment of industries should be treated as revenue subsidies, aiding in the business operations. On the other hand, decisions in cases like Sham Lal Bansal, M/s SVG Fashions Ltd., and Gloster Jute Mills Ltd. emphasized that subsidies aimed at enhancing technology apparatus or machinery should be considered capital receipts. These cases provided a framework for analyzing whether the subsidy received under the TUF Scheme should be classified as a capital or revenue receipt.

Based on the legal interpretations and factual similarities with previous cases, the Tribunal upheld the decision of the Ld. CIT(A) to treat the subsidy received under the TUF Scheme as a capital receipt for the relevant assessment years. The Tribunal dismissed the appeal filed by the Revenue, concluding that the subsidy in question was capital in nature. The decision was based on a comprehensive analysis of relevant case laws and the specific nature of the subsidy scheme under consideration.

In conclusion, the Tribunal's judgment clarified the treatment of subsidies received under the Technology Upgradation Fund Scheme, emphasizing the distinction between capital and revenue receipts based on the purpose and impact of the subsidy on the business operations. The detailed analysis of legal precedents and scheme objectives guided the Tribunal's decision to dismiss the Revenue's appeal and allow the appellant's claim regarding the nature of the subsidy received.