2017 (12) TMI 475 - HC - Income Tax

Application under Section 264 - treatment to sales tax subsidy - AO had added back the sales tax subsidy received by the Assessee as a revenue receipt thereby rejecting its plea that it had to be treated as a capital receipt - Held that - The scheme under which the Petitioner received the said subsidy also formed the subject matter of appeal filed by Johnson Matthey India (P) Limited 2014 (8) TMI 800 - ITAT DELHI referring to the decision of the Supreme Court in CIT v. Ponni Sugars and Chemicals Limited 2008 (9) TMI 14 - SUPREME COURT held that the sales tax subsidy received by the Petitioner will be treated as a capital receipt and not be added to the income of the Petitioner. Thus he impugned order of the Pr CIT dismissing the Petitioner s application under Section 264 is hereby set aside

Summary

Issues:
1. Quashing of order under Section 264 of the Income Tax Act for Assessment Years 2007-08 to 2010-11 regarding sales tax subsidy treatment.

Analysis:
The High Court judgment dealt with four writ petitions filed by Sunbeam Auto Private Limited challenging the order passed by the Principal Commissioner of Income Tax-8 under Section 264 of the Income Tax Act. The dispute revolved around the treatment of sales tax subsidy received by the Assessee as either a revenue or capital receipt. The Assessing Officer had added back the subsidy as a revenue receipt in the assessment orders for the years 2007-08 to 2010-11, contrary to the Assessee's claim that it should be treated as a capital receipt.

The Assessee's argument was supported by a previous decision by the Income Tax Appellate Tribunal (ITAT) in a related case involving Johnson Matthey India (P) Limited, where it was held that the sales tax subsidy should be considered a capital receipt. The Revenue had appealed against this decision before the High Court, citing other relevant judgments for their position.

The High Court, after considering the precedents including the decision of the Supreme Court in CIT v. Ponni Sugars and Chemicals Limited, and its own decisions in similar cases, set aside the order of the Principal Commissioner of Income Tax-8. Consequently, the assessment orders adding the sales tax subsidy as a revenue receipt were also set aside. The High Court ruled that the sales tax subsidy received by the Petitioner should be treated as a capital receipt and not be included in the income of the Petitioner. The Court directed the Assessing Officer to pass consequential orders in accordance with this judgment.

In conclusion, the High Court disposed of the writ petitions in favor of the Petitioner, clarifying the treatment of the sales tax subsidy as a capital receipt and directing the Assessing Officer to proceed accordingly in the assessment process for the relevant years.