2021 (3) TMI 504 - AT - Income Tax

Nature of receipt - revenue or capital receipt - subsidies given in the form of sales tax subsidy and refund of interest on term loan - HELD THAT - Package Scheme of Incentives (PSI) introduced by the Government of Maharashtra was for the purpose of encouraging entrepreneurs set up/expansion units in the developing region of the State. Further PSI was revised for intensifying and accelerating the process of dispersal of industries to the less developed areas of the State coupled with the objects of generating mass employment opportunities. Since the object of the subsidy was setting up of Industrial units in backward areas the same has been held to be capital in the earlier year by the ld. CIT (A) as well as by the Tribunal by following the principle laid down by the Hon ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., 2008 (9) TMI 14 - SUPREME COURT Similarly, the relevant finding on the issue of interest subsidy on term loan for technical upgradation fund scheme by the Central Government. As relying on INDOCOUNT INDUSTRIES LTD. 2018 (2) TMI 2024 - ITAT DELHI subsidy received by the assessee is capital in nature. Appeal of the revenue is dismissed.

Summary

Issues:
1. Treatment of subsidies as capital asset for tax purposes.

Analysis:
The appeal was filed by the Revenue against an order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2013-14. The main issue raised was whether the subsidies received by the assessee should be treated as capital assets. The assessee, engaged in manufacturing and exporting cotton yarn, received Industrial Promotion Subsidy from the Government of Maharashtra and another subsidy from the Central Government. The Assessing Officer considered these subsidies as revenue receipts, but the CIT (A) and Tribunal in earlier years held them to be capital receipts not chargeable to tax.

The Package Scheme of Incentives introduced by the Government of Maharashtra aimed to encourage setting up/expansion of units in developing regions, generating employment opportunities. The subsidies were granted for reducing regional imbalance in industrial growth. The Tribunal referred to relevant documents and the purpose of the subsidies to determine their nature. The subsidies were linked to capital investments made by the assessee in mega projects, qualifying them as capital in nature. The Tribunal also cited Circular No.142 of the CBDT, stating that incentives for industrial growth, not for profit supplementation, are capital in nature.

The Tribunal noted that the subsidies were granted for specific purposes like setting up industrial units in backward areas and technological upgradation, aligning with the principle laid down by the Supreme Court in previous cases. The Tribunal referred to the purpose test and decisions in similar cases to support the capital nature of the subsidies. Citing precedents and High Court rulings, the Tribunal concluded that the subsidies were on the capital field and not liable to tax.

The Tribunal relied on its previous decision and dismissed the Revenue's appeal, affirming that the subsidies should be treated as capital receipts. The decision was announced after a Virtual Hearing in January 2021, with both parties present. The judgment provides a detailed analysis of the purpose and nature of the subsidies, applying legal principles and precedents to determine their tax treatment.