2021 (1) TMI 395 - AT - Income Tax

Characterization of income - sales tax subsidy - revenue or capital receipt - as per AO it is revenue s receipt and hence taxable - HELD THAT - As decided in own case 2012 (7) TMI 406 - ITAT, DELHI 2012 (7) TMI 406 - ITAT, DELHI such subsidy has been treated as capital receipt - purpose of granting sales tax incentive is clearly only to provide an incentive for establishment of new industries in the underdeveloped regions or to expand its existing units of the State of Maharashta. That the intention is not to increase the viability of the eligible units but to promote development of further industry and infrastructure in the region - Appeal by the revenue is accordingly dismissed.

Summary

Issues:
1. Classification of sales tax subsidy as a capital receipt.

Analysis:
The appeal before the Appellate Tribunal ITAT Delhi involved a dispute regarding the treatment of sales tax subsidy amounting to ?61.20 crores as a capital receipt for the assessment year 2013-14. The revenue contended that the subsidy should be considered a revenue receipt and hence taxable. However, the CIT(A) held in favor of the assessee, following earlier Tribunal decisions treating such subsidies as capital receipts in different assessment years.

During the assessment proceedings, the Assessing Officer (AO) observed the claim of the sales tax subsidy by the assessee and deemed it as a revenue receipt subject to taxation. The AO's stance was that the subsidy received was revenue in nature. Consequently, the AO treated the subsidy as part of the assessee's income.

The assessee, in response, brought the matter before the CIT(A) and cited Tribunal decisions from previous assessment years where similar subsidies were treated as capital receipts. Relying on these precedents, the CIT(A) ruled in favor of the assessee and deleted the addition made by the AO.

Upon review, the Appellate Tribunal found merit in the CIT(A)'s decision, noting that the issue had been settled in favor of the assessee in earlier Tribunal orders concerning similar subsidies. The Tribunal referenced specific cases, such as Reliance Industries Ltd. and Everest Industries Ltd., where the treatment of subsidies under different schemes was deemed consistent. Consequently, the Tribunal upheld the CIT(A)'s decision and dismissed the revenue's appeal.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s decision, emphasizing the consistency in treating sales tax subsidies as capital receipts based on earlier Tribunal rulings. The revenue's appeal was consequently dismissed, affirming the treatment of the subsidy as a capital receipt for the assessment year in question.