2004 (1) TMI 299 - AT - Income Tax

Summary

Issues:
- Whether the subsidy received by the assessee after setting up the industry is to be treated as revenue or capital receipt.
- Whether the ruling of the Supreme Court in Sahney Steel case is applicable in the present case.

Analysis:
1. The appeal pertains to the addition of Rs. 30 lakhs to the income of the assessee for the assessment year 1997-98. The dispute revolves around the nature of the subsidy received by the assessee after establishing a cold storage in a backward area, as to whether it should be considered as revenue or capital receipt.

2. The Revenue contended that the subsidy was operational in nature as it was received after the business was set up, therefore, it should be treated as a revenue receipt. The AO relied on the decision of the Supreme Court in Sahney Steel case to support this argument.

3. On the other hand, the assessee argued that the subsidy received was a special capital incentive under the 1998 Scheme for Dispersal of Industries and was intended for the growth of the industry in public interest. The assessee pointed out that as per the Scheme, the subsidy was capital in nature and could only be drawn after completing all necessary steps for setting up the unit.

4. The Tribunal examined the Scheme and noted that as per para 7.3, the subsidy was indeed a capital incentive and not a supplementary receipt. The Tribunal agreed with the CIT(A) that the subsidy was given for the growth of the industry and not to supplement trade receipts or recoup revenue expenditure. The Tribunal also cited the decision of the Bombay High Court in Sadichha Chitra case, which was approved by the Supreme Court in Sahney Steel case, to support the view that the subsidy was capital in nature.

5. In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision of the CIT(A) that the subsidy received by the assessee was capital in nature and therefore could not be taxed as a revenue receipt. The Tribunal found no merit in the Revenue's arguments and ruled in favor of the assessee.