2016 (7) TMI 608 - AT - Income Tax

Capital investment subsidy ,Interest subsidy and Electricity subsidy received from Govt. of West Bengal under Incentive Scheme 2000 - Whether such receipt could be brought to tax as a capital or revenue receipt with corresponding impact on the allowance of depreciation? - Held that - Keeping in view the objects of the West Bengal Incentive Scheme 2000 we hold that the capital subsidy is to be treated as capital receipt. Consequentially the assessee need not reduce the same from the cost of the asset for the purpose of claiming depreciation. We hold accordingly. Similarly, we hold that the interest subsidy and Electricity subsidy should also be treated as capital receipt. We direct the Learned AO to grant the additional depreciation on the actual cost of asset before reducing subsidy in terms of section 32(1)(iia) of the Act.

Issues Involved:
1. Taxability of capital investment subsidy, interest subsidy, and electricity subsidy received from the Government of West Bengal.
2. Eligibility for additional depreciation on plant and machinery.
3. Treatment of revised return filed by the assessee.

Detailed Analysis:

Taxability of Subsidies:
Capital Investment Subsidy:
The primary issue was whether the capital investment subsidy of ?1,09,73,000/- received under the West Bengal Incentive Scheme 2000 should be considered a revenue receipt and thus taxable. The Tribunal held that the subsidy was intended to accelerate industrial development and was not specifically to meet the cost of any asset. Therefore, it should be treated as a capital receipt and not reduced from the cost of the asset for depreciation purposes. This decision was supported by the Hon'ble Apex Court's ruling in CIT vs Ponni Sugars & Chemicals Ltd, which emphasized the purpose test to determine the nature of the subsidy.

Interest and Electricity Subsidy:
Similarly, the interest subsidy of ?10,38,005/- and electricity subsidy of ?11,14,841/- were also considered capital receipts. The Tribunal noted that these subsidies were granted to aid in the establishment and expansion of industrial units, aligning with the objectives of the West Bengal Incentive Scheme 2000. The Tribunal referenced the Hon'ble Calcutta High Court's decision in CIT vs Rasoi Ltd, which held that subsidies aimed at expanding business capacities were capital receipts.

Eligibility for Additional Depreciation:
The assessee claimed additional depreciation on plant and machinery installed during the year. The Tribunal clarified that additional depreciation under Section 32(1)(iia) of the Income Tax Act is an extra deduction available to manufacturers. The Tribunal found that the lower authorities had misunderstood the scheme of the Act, and it was just and fair to extend the mandate of granting depreciation to include additional depreciation as well. The Tribunal directed the AO to grant additional depreciation on the actual cost of the asset before reducing the subsidy.

Treatment of Revised Return:
The assessee filed a revised return beyond the prescribed period under Section 139(5) of the Act. The Tribunal noted that while the AO and CIT(A) did not consider the revised return, the Hon'ble Apex Court in Goetze India Ltd allowed appellate authorities to consider claims made in revised returns. The Tribunal held that the assessee is entitled to make its claim by way of a revised return.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal for statistical purposes. The capital investment subsidy, interest subsidy, and electricity subsidy were all treated as capital receipts. The Tribunal also directed the AO to grant additional depreciation on the actual cost of the asset before reducing the subsidy, thus aligning with the provisions of Section 32(1)(iia) of the Act. The Tribunal allowed the consideration of claims made in the revised return by the assessee.

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