2019 (6) TMI 1210 - AT - Income Tax

Taxability of subsidy received under TUF scheme - revenue or capital receipts - CIT(A) treated it as part of fixed assets - no reduction in value of fixed assets as subsidy is not attached to any specific fixed asset - HELD THAT - We note that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Government in the form of subsidy then so much of the cost as is relatable to such subsidy shall not be included in the actual cost of the asset. When such subsidy cannot be directly relatable to the asset acquired, then such subsidy shall not be included in the actual cost of the asset. That is, to reduce from the cost of asset, the subsidy should be directly or indirectly used for acquiring an asset. In the assessee s case under consideration no asset was being acquired by using TUF subsidy therefore it should not be reduced from fixed assets. However, such TUF subsidy is to be treated capital receipt. Respectfully following the judgment M/S. RASOI LIMITED 2018 (5) TMI 127 - ITAT KOLKATA we note that the subsidy received under TUF scheme is capital receipt and therefore we delete the addition made by the Ld. CIT(A).

Summary

Issues:
1. Treatment of subsidy received under technical upgradation fund scheme (TUF scheme) - whether capital or revenue in nature.

Analysis:
The appeal pertains to the Assessment Year 2012-13 and challenges an order by the Commissioner of Income Tax(Appeals)-4, Kolkata, based on an assessment order under section 143(3) of the Income Tax Act, 1961. The main grievance of the assessee is centered around ground nos. 3 to 5, specifically addressing the treatment of the subsidy received under the TUF scheme. Grounds 1, 2, and 6 were not pressed and dismissed. The issue arose as the Assessing Officer did not discuss the TUF subsidy in the assessment order, but the assessee raised it during the appellate proceedings. The CIT(A) dismissed the appeal, prompting the assessee to argue for the admissibility of additional grounds and the treatment of TUF subsidy as a capital receipt, citing relevant case laws. The jurisdictional High Court's decision was crucial in allowing the ground and determining the subsidy as a capital receipt, not chargeable to tax. However, the AO was directed to reduce the subsidy from the cost of assets acquired by loan, as per the provisions of the Act.

The debate during the proceedings revolved around whether the TUF subsidy should be considered a capital or revenue receipt. The assessee argued that it was capital in nature, related to upgrading overall technology in the textile industry, not attached to specific fixed assets. The CIT(A) treated the subsidy as part of fixed assets, directing its reduction from the asset's cost. The assessee presented a judgment from a Coordinate Bench of ITAT, Kolkata, supporting the claim for depreciation on capital subsidy, emphasizing the subsidy's nature and its relation to asset acquisition. The judgment highlighted the necessity for the subsidy to be directly or indirectly used for acquiring an asset to be reduced from the asset's cost. As no asset was acquired using the TUF subsidy, it was deemed a capital receipt. Following the precedent set by the Coordinate Bench, the TUF subsidy was considered a capital receipt, leading to the deletion of the addition made by the CIT(A).

In conclusion, the tribunal allowed the appeal of the assessee, pronouncing the order in open court on 12.06.2019. The judgment clarified the treatment of the TUF subsidy as a capital receipt, emphasizing the need for direct or indirect usage of the subsidy for asset acquisition to reduce it from the asset's cost. The decision was based on legal precedents and interpretations of relevant provisions of the Income Tax Act, ensuring consistency in the treatment of such subsidies as capital receipts.