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2014 (7) TMI 172 - AT - Income TaxInterest subsidy received under the Technology Upgradation Fund Scheme Revenue receipt or not Held that - The decision in Commissioner of Income-tax Versus Sham Lal Bansal 2011 (1) TMI 409 - PUNJAB AND HARYANA HIGH COURT followed - interest subsidy received under TUF Scheme is capital in nature - assessee is engaged in manufacture and sale of woolen garments - It received subsidy for repayment of loan taken for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (TUFS) of Ministry of Textiles, Government of India - the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. The purpose of scheme under which the subsidy is given id to sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry - For determining whether subsidy payment was revenue receipt or capital receipt , character of receipt in the hands of the assessee had to be determined with respect to the purpose for which subsidy is given by applying the purpose test - in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry - the subsidy received in this regard falls into capital field Decided in favour of Assessee. Set off of unabsorbed depreciation - Unabsorbed business from 100% EOU Held that - CIT(A) rightly followed the decision of the Tribunal of the same assessee in the earlier assessment year, the business loss and depreciation loss in respect of the 100% EOU unit shall be set off against the profits of other units Decided against Revenue.
Issues Involved:
1. Classification of interest subsidy under the Technology Upgradation Fund Scheme (TUFS) as revenue or capital receipt. 2. Setoff of unabsorbed depreciation and business loss from a 100% Export Oriented Unit (EOU) against taxable income from other units. Issue 1: Classification of Interest Subsidy under TUFS Facts and Arguments: - The assessee, a Public Limited Company engaged in manufacturing jute products and power generation, received a subsidy of Rs. 77,18,242 under TUFS. - The assessee claimed the subsidy as capital in nature, while the Assessing Officer classified it as revenue receipt. - The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, stating the subsidy was meant to reimburse interest on borrowed funds, which is a revenue expenditure. Tribunal's Analysis: - The assessee argued that the issue was covered by favorable judgments in similar cases, such as CIT vs. Sh. Sham Lal Bansal and CIT vs. Ponni Sugars & Chemicals Ltd., where subsidies aimed at technological upgradation were considered capital in nature. - The Tribunal found substantial merit in the assessee's arguments, referencing the Punjab & Haryana High Court's decision in ITA No. 472 of 2010, which held that subsidies under TUFS are capital in nature due to their purpose of technological enhancement. - It was noted that the subsidy was not meant for recurring expenses but for repaying loans taken for capital assets, aligning with the Supreme Court's decision in Ponni Sugars & Chemicals Ltd. Conclusion: - The Tribunal concluded that the interest subsidy under TUFS should be treated as a capital receipt, setting aside the CIT(A)'s order and ruling in favor of the assessee. Issue 2: Setoff of Unabsorbed Depreciation and Business Loss from 100% EOU Facts and Arguments: - The assessee had three units with varying profits and losses, including a 100% EOU that incurred a loss. - The Assessing Officer disallowed the setoff of unabsorbed depreciation and business loss from the 100% EOU against the profits of other units, citing that profits from the EOU are exempt under section 10B. Tribunal's Analysis: - The CIT(A) allowed the setoff, relying on the Tribunal's decision in the assessee's case for the previous year (AY 2004-05), which was in favor of the assessee. - The Revenue argued that the CIT(A) erred in its decision, as the Department had not accepted the Tribunal's earlier ruling and had filed an appeal. Conclusion: - The Tribunal upheld the CIT(A)'s decision, noting that the Tribunal's earlier ruling had not been overturned by the High Court. - Therefore, the setoff of unabsorbed depreciation and business loss from the 100% EOU against profits from other units was allowed. Final Orders: - The appeal filed by the assessee regarding the classification of the interest subsidy under TUFS was allowed. - The appeal filed by the Revenue concerning the setoff of unabsorbed depreciation and business loss from the 100% EOU was dismissed. Pronouncement: - The order was pronounced in open court on 2nd July 2014.
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