2015 (4) TMI 944 - HC - Income Tax

Subsidy received from Government of Gujarat - capital receipts OR revenue receipts (Trade Receipts) - Held that - The learned Tribunal has materially erred in not following and/or distinguishing the decision of the Hon ble Supreme Court in the case of Sahney Steel and Press works Ltd. (1997 (9) TMI 3 - SUPREME Court) wherein held that if payments in nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are, therefore, trade receipts. We are of the opinion that the substantial question of law raised/involved in the present tax appeal is squarely covered against the assessee and in favour of the Revenue in view of the decision of Sahney Steel & Press works Ltd. (supra). Under the circumstances, the learned Tribunal has materially erred in treating the amount of subsidy of ₹ 19,82,600/- as capital in nature and has materially erred in quashing and setting aside the order passed by the Assessing Officer confirmed by the learned CIT(A). - Decided in favour of revenue.

Summary

Issues:
1. Whether the amount of subsidy received from the Government should be treated as capital or revenue receipt for income tax purposes.

Analysis:
- The case involves a dispute regarding the treatment of a subsidy amount of Rs. 19,82,600 received by the assessee from the Government of Gujarat. The Revenue contended that the subsidy should be considered a revenue receipt liable to income tax.
- The Assessing Officer initially treated the subsidy as a revenue receipt and added it to the assessee's income. The CIT(A) upheld this decision, but the Tribunal overturned it, considering the subsidy as capital in nature.
- The Revenue argued that the Tribunal erred in following its earlier decision and not properly appreciating the purpose of the subsidy and its utilization. They contended that the subsidy was meant to assist in carrying on the business and should be treated as revenue.
- The Court examined the purpose of the subsidy and referred to the decision in the case of Sahney Steel and Press works Ltd., where subsidies for business operations were considered as revenue receipts. The Court held that the subsidy in question should be treated as a revenue receipt based on the purpose for which it was given.
- The Court found that the Tribunal erred in not following the Supreme Court's decision and concluded that the subsidy should be considered a revenue receipt. The order treating the subsidy as capital was quashed, and the Revenue's appeal was upheld.

Conclusion:
The Court determined that the subsidy amount of Rs. 19,82,600 received by the assessee should be treated as a revenue receipt and included in the income for tax purposes. The Tribunal's decision to consider the subsidy as capital in nature was overturned, and the Revenue's appeal was successful.