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2021 (2) TMI 862 - AT - Income TaxCharacterization of receipt - Sales tax subsidy under Industrial Investment Promotion scheme - Revenue or capital subsidy - HELD THAT - The Purpose of subsidy received by the assessee during the year is towards meeting out the capital investment made to set up the Unit-II project in a backward area and the subsidy so received during the year is capital subsidy. Thus, no interference is called for in the finding of the Ld. CIT(A). See VINDHYA TELELINKS LTD. AND VICE-VERSA 2015 (2) TMI 1345 - ITAT JABALPUR , UNIVERSAL CABLES LTD. AND OTHERS VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND OTHERS 2015 (5) TMI 650 - ITAT KOLKATA - All grounds raised by the Revenue are dismissed.
Issues Involved:
1. Deletion of addition on account of revenue subsidy claimed as capital subsidy. 2. Nature of the subsidy under the Industrial Promotion Policy of Madhya Pradesh. 3. Justification of the Ld. CIT(A) in treating the VAT and ST assistance as capital subsidy. Detailed Analysis: 1. Deletion of Addition on Account of Revenue Subsidy Claimed as Capital Subsidy: The revenue challenged the deletion of an addition of ?2,57,07,188/- by the Ld. CIT(A), which was initially treated as a revenue subsidy by the Assessing Officer (AO) but claimed as a capital subsidy by the assessee. The AO argued that the subsidy was not given for acquiring capital assets, meeting part of the cost, or bringing into existence any new asset. The AO further noted that the subsidy was granted after the commencement of production and was unconditional, thus treating it as revenue in nature. 2. Nature of the Subsidy under the Industrial Promotion Policy of Madhya Pradesh: The assessee argued that the subsidy received under the Industrial Promotion Policy 2004 and 2010 of Madhya Pradesh Government should be treated as a capital receipt. The Ld. Counsel for the assessee cited various judicial precedents where similar subsidies were treated as capital receipts, emphasizing that the purpose of the subsidy is crucial in determining its nature. The subsidy aimed to promote industrial development and employment in backward areas, thus qualifying as capital in nature. 3. Justification of the Ld. CIT(A) in Treating the VAT and ST Assistance as Capital Subsidy: The Ld. CIT(A) observed that the purpose of the subsidy was to accelerate industrial development and generate employment, not to supplement the profits of the industries. The subsidy was linked to the capital investment made by the assessee in a backward area, thus qualifying as a capital receipt. The Ld. CIT(A) relied on various judicial precedents, including the Special Bench of Mumbai Tribunal in DCIT vs. Reliance Industries Limited, which held that subsidies for setting up industries in backward areas are capital receipts. The Tribunal reviewed the facts and judicial precedents, including the decisions of ITAT Kolkata in Universal Cables Ltd. and ITAT Jabalpur in Vindhya Telelinks Ltd., which supported the view that subsidies under similar schemes are capital in nature. The Tribunal emphasized the purpose of the subsidy, noting that it was granted to support capital investment in backward areas. Conclusion: The Tribunal concluded that the subsidy received by the assessee was capital in nature, as it was linked to the capital investment made in a backward area. The Tribunal upheld the decision of the Ld. CIT(A) and dismissed the revenue's appeal, affirming that the addition of ?2,57,07,188/- was correctly deleted. The order was pronounced on 09.02.2021.
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