2022 (6) TMI 459 - HC - Income Tax

Interest subsidy - deemed as income u/s. 41(1) - mercantile system of accounting - Tribunal held that the interest subsidy should be deemed as income u/s. 41(1) and though accrued in the Assessment year 2001-02 will be charged in the Assessment Year 2002-03, inspite of the respondent following the mercantile system of accounting - HELD THAT - As per tribunal as per agreement between the assessee and IDBI, the loan was sanctioned on an interest rate of 21% per annum. From time to time, IDBI debited the assessee s account with the interest calculated @21%. The assessee also debited the same in its books of account and claimed the expenditure thereof. When the subsidy is granted to IDBI by IWAI, it credited to the account of the assessee on 18/4/2001. When the amount is credited to the account of the assessee, it was the remission of the liability of the interest which was already claimed as a deduction in the earlier years and, therefore, the C.I.T. (A) rightly held that the provision of Sec.41(1) would be applicable when there is actual remission or cessation of liability and which was during the accounting year relevant to assessment year 2002-03 and not in the year under consideration. The matter is entirely factual and the tribunal while approving the factual finding recorded by the CIT(A) has also taken note of the facts and re-appreciated the same and dismissed the appeal filed by the revenue. Thus, we find that there is no question of law much less substantial question of law arising for consideration in this appeal.

Summary

Issues:
- Interpretation of Section 41(1) of the Income Tax Act, 1961 regarding interest subsidy treatment under the mercantile system of accounting.

Analysis:
The High Court of Calcutta heard an appeal filed by the revenue challenging the order of the Income Tax Appellate Tribunal related to the assessment year 2001-02. The primary issue revolved around whether the interest subsidy of Rs.212.08 lacs should be considered as income under Section 41(1) of the Income Tax Act, even though it accrued in 2001-02 but was charged in 2002-03, despite the respondent following the mercantile system of accounting. The court considered submissions from both parties' counsels and addressed a delay in filing the appeal, ultimately condoning the delay and proceeding with the case.

Upon reviewing the tribunal's order, the High Court noted that the tribunal had upheld the factual findings of the Commissioner of Income Tax (Appeals) regarding the subsidy issue. The tribunal analyzed the correspondence between entities involved and concluded that the subsidy was granted to IDBI, not directly to the assessee. It was found that the interest subsidy credited to the assessee's account in 2001 was a remission of liability previously claimed as a deduction, leading to the application of Section 41(1) in the subsequent assessment year 2002-03. The court agreed with the tribunal's decision, emphasizing that the matter was factual, and no substantial question of law arose for consideration.

In light of the factual nature of the case and the tribunal's detailed analysis, the High Court dismissed the appeal, stating that there was no question of law, let alone a substantial one, to be addressed. Consequently, the appeal and the connected application for stay were both dismissed, bringing the matter to a close.