1982 (4) TMI 162 - AT - Income Tax

Capital Receipt Concessional Rate Contribution Towards Capital Industrial Undertaking Trading Liability

Summary

Issues:
Interpretation of whether the amount received by the assessee is a revenue receipt or capital receipt.

Analysis:
The assessee, a new industrial undertaking, received payments from the State Electricity Board, which were claimed to be a refund of current charges. The assessee contended that the amount received was a subsidy from the Government, capital in nature, and not taxable income. The authorities, however, applied section 41(1) of the Income-tax Act, 1961, to deem the amount as taxable income. The assessee argued that the subsidy was intended to contribute towards capital outlay, citing a Special Bench decision and relevant circulars. The departmental representative relied on precedents stating that subsidies are generally revenue payments.

The Tribunal analyzed the circumstances under which the amounts were received and the nature of the incentives provided by the State Industries Promotion Corporation of Tamil Nadu Ltd. The Tribunal noted that the concessional tariff fell under a package of incentives for the benefit of entrepreneurs, aimed at promoting industrial growth. The Tribunal compared this incentive with the Central Outright Grant of Subsidy Scheme, emphasizing that the subsidies were primarily for aiding industrial growth and capital investment. The Tribunal concluded that the concessional tariff and the subsequent refund were intended as contributions towards capital outlay, not for profit supplementation.

The Tribunal highlighted that the method of concessional tariff was a measure to determine the quantum of subsidy, and the refund was a form of implementing the subsidy. The Tribunal emphasized that the essence of the transaction was the Government's intention to provide a subsidy for capital investment, irrespective of the method of payment. Therefore, the Tribunal held that the amount received by the assessee, including the savings from the concession, was a capital receipt and not taxable income. Consequently, the appeal by the assessee was allowed, and the total amount received was deemed as capital receipt not subject to taxation.