2023 (4) TMI 114 - HC - Income Tax

Characterization of receipt/income - Taxability of sales tax subsidy as already offered for taxation by the assessee in its return of income - CIT(A) admitting the grounds of appeal for the first time - HELD THAT - This ground is squarely covered by the decision of this Court in the case of Principal Commissioner of Income Tax vs. Krishi Rasayan Exports P Ltd 2022 (9) TMI 840 - CALCUTTA HIGH COURT as held the incentives would have to be held capital and not revenue - once the object of the subsidy was to industrialize the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference - Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves a delay in filing the appeal, substantial questions of law u/s 260A of the Income Tax Act, 1961, related to taxability of sales tax subsidy, and treatment of employees' contributions to PF and ESI under sections 43B and 36(va) of the Income Tax Act.

Delay in Filing Appeal:
The Court noted a delay of 803 days in filing the appeal u/s 260A of the Income Tax Act, 1961. Despite an explanation provided in the affidavit, the Court found it unsatisfactory. However, due to the requirement to assess if any substantial question of law arises, the Court exercised discretion to condone the delay and allowed the application.

Substantial Question of Law [a] - Sales Tax Subsidy:
The appeal raised the question of whether the Tribunal erred in upholding the decision of admitting grounds of appeal for the first time regarding the taxability of sales tax subsidy. The Court referred to previous decisions and concluded that the issue was covered in favor of the assessee, emphasizing that the subsidy was a capital receipt and not income, hence not liable to tax. The Court dismissed the appeal of the Revenue on this issue.

Substantial Question of Law [b] - Employees' Contributions to PF and ESI:
Regarding the treatment of employees' contributions to PF and ESI, the Court examined the tax effect for all assessment years and found it below the threshold limit set by the CBDT. Consequently, the Revenue was unable to pursue this appeal, leading to the dismissal of the substantial question of law [b] on the ground of low tax effect.

Conclusion:
In conclusion, the Court answered the substantial question of law [a] against the Revenue and left the substantial question of law [b] open due to the low tax effect. The judgment provides clarity on the treatment of subsidies as capital receipts and highlights the importance of assessing tax implications based on specific provisions of the Income Tax Act, 1961.