2017 (4) TMI 916 - AT - Income Tax

Revision u/s 263 - assessment order treating the subsidy from the Government of Maharashtra as capital receipt is erroneous and prejudicial to the interest of the Revenue - Held that - Now subsidy given by the Central Government or a State Government or any authority etc. for any purpose, except where it is taken into account for determination of the actual cost of the asset under Explanation 10 section 43(1), has become chargeable to tax. Even if a subsidy is given to attract industrial investment or expansion, which is a otherwise a capital receipt under the preamendment era, shall be treated as income chargeable to tax, except where it has been taken into account for determining the actual cost of assets in terms of Explanation 10 to section 43(1). This amendment is patently prospective. As the assessment year under consideration is 2008-09, section 2(24) (xviii) shall have no operation. In view of the foregoing discussion, we are satisfied that the subsidy received by the assessee from the Government of Maharashtra is a capital receipt and accordingly not chargeable to tax. It is a settled legal position that if two views are possible on a particular point and the Assessing Officer has taken one of such possible views, it is not open to the CIT to treat the assessment order erroneous and prejudicial to the interest of the Revenue and impose the other possible view as against the one canvassed by the Assessing Officer. The discussion made in the preceding paras amply shows that the view taken by the AO in treating subsidy received from the Maharashtra Government as a capital receipt, in any case, being a possible view, cannot be interfered with in the proceedings u/s 263 of the Act. We, therefore, set aside the impugned order. - Decided in favour of assessee.

Summary

Issues:
Taxability of subsidy received from the Government of Maharashtra as a capital or revenue receipt.

Analysis:
The appeal was against the CIT's order under section 263 of the Income-tax Act, 1961, regarding the assessment year 2008-09. The CIT held that the subsidy received by the assessee from the Government of Maharashtra was a revenue receipt and chargeable to tax, contrary to the treatment given by the Assessing Officer. The primary issue was whether the subsidy should be considered a capital or revenue receipt.

The Industrial Policy of Maharashtra aimed at promoting industry and employment growth by providing incentives to new and expanding units. The subsidy received was for accelerating investment in industry and creating employment opportunities. The objective was to encourage industrial growth, which aligned with the capital receipt criteria. The Tribunal referred to relevant judgments like CIT vs. Ponni Sugars and Chemicals Ltd. and Sahney Steel & Press Works Ltd. vs. CIT to establish the purpose test for determining the nature of the subsidy.

The Tribunal found that the subsidy received by the assessee was for expanding the industry and accelerating investment, making it a capital receipt. Previous tribunal decisions supported this view, considering similar subsidies as capital in nature. The Finance Act, 2015, amended the definition of income to include subsidies as taxable, but this was prospective and did not apply to the assessment year in question. Therefore, the subsidy received was deemed a capital receipt and not chargeable to tax.

In revisionary proceedings under section 263 of the Act, it was established that if two possible views existed, and the Assessing Officer had taken one view, the CIT could not impose a different view. Since treating the subsidy as a capital receipt was a possible view, the CIT's order was set aside, and the appeal was allowed. The Tribunal concluded that the subsidy from the Government of Maharashtra was a capital receipt and not taxable for the assessment year in question.