2024 (10) TMI 740 - AT - Income Tax

Nature of receipt - incentive given by the Govt to the assessee for exploring new market - revenue v/s capital receipt - HELD THAT - We refer to the decision of Ponni Sugars Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT which held that the purpose test is determination of whether a benefit under a Government policy is income or otherwise. Hon ble Supreme Court by referring to facts of the Sahney Steels Press Works 1997 (9) TMI 3 - SUPREME COURT observed if the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account and the basic test to be applied in judging the character of a subsidy, that test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. Taking into account the same, held if the object of the assistance under the subsidy scheme was to enable the assessee to set up new unit or to expand the existing unit, then the receipt of the subsidy was on capital account. By applying the same ratio as held in the case of CIT v. Ponni Sugars Chemicals Ltd. ors. (supra) to the facts of the present case, we note that the reward by way of MEIS scrips is given to offset infrastructure inefficiencies, but, not for the purpose of running the business more profitably. As noted further that though the said amounts are brought into profit and loss account claimed as exempt in the return of income, we find the said treatment in the books of accounts by itself cannot be determinative of taxability, we, therefore, hold that the same treatment of amounts received by way of sale of MEIS scrips as credited to the profit and loss account cannot alter the receipt, in our opinion, does not fall in the definition of income even after insertion of sub-clause (xviii) to section 2(24) of the Act. Thus, it is a capital receipt, not chargeable to tax. Therefore, the contention of the ld. DR relying upon the decision in the case of Sahney Steels Works Ltd (supra) is not acceptable. A taxing statute has to be interpreted what is clearly expressed, it cannot employ anything which is not expressed, it cannot import provision to statute so as to supply any deficiency, that before taxing any person, it must be shown that he falls within the ambit of section 2(24)(xviii) of the Act and in the absence of inclusion of words under the said clause, the scope of section cannot be enlarged to include exemption by interpreting with its subsidy. We find the facts of the present case are identical to the facts before ITAT Amritsar Benches in Gravita Metal Inc 2023 (6) TMI 1438 - ITAT AMRITSAR and Dilip Kumar Co 2018 (7) TMI 1826 - SUPREME COURT . In the present case, the word reward is absent in the provisions of section 2(24)(xviii) of the Act, in the absence of said word in section 2(24)(xviii) of the Act, the scope of the section cannot be enlarged to include reward . We hold that as per the Foreign Trade Policy-2015, the benefit given by way of MEIS scrips are rewards, the meaning of which is completely different from the meaning of the term assistance under the provisions of section 2(24)(xviii) of the Act. We hold that the benefit by way of MEIS scrips could not fall within the meaning of the terms subsidy or grant or cash incentive or duty draw back or waiver or concession or reimbursement provided under section 2(24)(xviii) of the Act. We hold the ICDS-VII is not applicable as it deals with Government grants only, but not inclusive of the duty credit scrips under MEIS, which are rewards. We hold that the benefit under Foreign Trade Policy-2015 received being MEIS scrips cannot fall within the meaning of cash assistance under section 28(iiib) of the Act. We hold the sums received as a sale of MEIS scrips credited to the profit and loss account, the said treatment in the books of accounts by itself cannot be determinative of taxability of said receipt. Thus, the benefit derived by way of sale MEIS scrips in the open market is not an income with the meaning of provisions under section 2(24)(xviii) of the Act. Therefore, we find no infirmity in the order of the ld. CIT(A) for the reasons recorded therein and also for discussion made by us in the aforementioned paragraphs, the grounds raised by the Revenue fails and are dismissed. Nature of expenses - Disallowance of expenses on construction of building on leasehold land by treating the expenditure as revenue expenditure - HELD THAT - We find, admittedly, no change in the facts and circumstances in the year under consideration to that of the AYs 2014-15 2015-16 2023 (2) TMI 461 - ITAT CHENNAI since issue is similar basing on same identical facts, we find no infirmity in the order passed by the ld. CIT(A) in allowing the claim of the assessee in treating the cost of construction as revenue expenditure.

Summary

Issues Involved:
1. Classification of Government incentives as capital or revenue receipts.
2. Treatment of construction expenses on leasehold land as capital or revenue expenditure.

Issue-wise Detailed Analysis:

1. Classification of Government Incentives:
The primary issue was whether the incentives received under the Market Linked Focus Products Scheme (MLFPS) should be treated as capital receipts or revenue receipts. The Revenue argued that these incentives are revenue in nature and chargeable to tax under section 28(iiib) of the Income Tax Act, as they are akin to cash assistance for exports. The assessee contended that these incentives are capital receipts, intended to expand market areas and not for running the business profitably.

The tribunal examined the purpose of the incentives, citing the Supreme Court's decision in CIT v. Ponni Sugars & Chemicals Ltd., which emphasizes the "purpose test" to determine the nature of a subsidy. The tribunal concluded that the incentives were for expanding market areas, thus constituting capital receipts, not chargeable to tax under section 2(24) or section 28 of the Act. The tribunal also discussed the amendment to section 2(24) by the Finance Act, 2015, which includes various subsidies and incentives as income but found that the incentives in question did not fall under the definitions provided in section 2(24)(xviii).

2. Treatment of Construction Expenses on Leasehold Land:
The second issue was whether the expenses incurred on constructing a building on leasehold land should be treated as capital or revenue expenditure. The assessee claimed these expenses as revenue expenditure, arguing that the construction did not result in acquiring a capital asset since the land was not owned by them.

The tribunal referred to previous decisions, including the Madras High Court's ruling in TVS Lean Logistics Ltd., which held that construction on leased land for business purposes constitutes revenue expenditure. The tribunal noted that the assessee's situation was similar, as the building was constructed on leased land, and upon lease termination, the land would be returned to the lessor. Therefore, the tribunal upheld the CIT(A)'s decision to treat the construction expenses as revenue expenditure, allowing the assessee's claim.

Conclusion:
The tribunal dismissed the Revenue's appeals, affirming that the incentives under MLFPS are capital receipts and the construction expenses on leasehold land are revenue expenditures. The tribunal's decision was consistent with previous rulings and legal principles regarding the classification of government incentives and treatment of construction expenses.