2017 (4) TMI 287 - AT - Income Tax

Sales tax incentives receipts - whether a capital receipt and hence not chargeable to tax - Held that - The purpose of granting incentive is clearly only to provide an incentive for establishment of new industries in the undeveloped regions or to expand its existing units of the State of Maharashtra. The variation in methodology of availment of various incentives under the scheme will not alter the character of receipt being capital in nature. The ratio laid down by the various binding judicial pronouncements discussed hereinabove squarely applies to the facts of the case. Respectfully hold that the amount received by the appellant during the year under consideration as promotional subsidy under the PSI of Maharashtra in the capital field and not liable to tax. In view of the above facts, the action of the Ld. AO of treating the said amount of ₹ 91,13,000/- as revenue receipts is erroneous and consequently the addition made by the Ld. AO in this regard is therefore hereby deleted. - Decided in favour of assessee.

Summary

Issues:
1. Taxability of sales tax incentives receipts as capital or revenue receipt.

Analysis:
The appeal by the Revenue challenges the order of the CIT(Appeals) regarding the taxability of sales tax incentives receipts of ?8,91,13,000 as a capital receipt not chargeable to tax. The AO added this amount to the income of the assessee, considering it a revenue receipt. The assessee argued that the subsidy was for setting up an industrial undertaking, making it a capital receipt. The CIT(Appeals) referred to various case laws and held that the purpose of the subsidy determines its nature, applying the purpose test. The Tribunal in the assessee's own case previously held that sales tax incentives are capital receipts and not taxable. The Revenue's appeal was dismissed based on this precedent.

The AO's contention was that the subsidy was not for installation of capital assets but for generating employment, making it a revenue receipt. However, the CIT(Appeals) and the Tribunal emphasized that the purpose of the subsidy, which was to promote industry development and infrastructure, classified it as a capital receipt. The Tribunal relied on previous decisions, including a Special Bench decision, to support the capital nature of the subsidy. The Tribunal reiterated that the purpose test is crucial in determining the taxability of such subsidies.

The assessee's reliance on various case laws, including previous decisions in their own case, supported their argument that the subsidy was a capital receipt. The Tribunal upheld the CIT(Appeals) order, emphasizing that the objective of the subsidy scheme was to promote industrial growth and employment, making the subsidy a capital receipt. The Tribunal's decision was based on the consistent application of the purpose test and the nature of the subsidy scheme in question.

In conclusion, the Tribunal upheld the CIT(Appeals) order, following the precedent set in the assessee's own case and other relevant decisions. The Tribunal's decision was based on the purpose test, emphasizing that the subsidy was intended to facilitate industrial development, classifying it as a capital receipt. The Tribunal's dismissal of the Revenue's appeal reaffirmed the tax treatment of the sales tax incentives receipts as a capital receipt not chargeable to tax.