2018 (8) TMI 1474 - HC - Income Tax

Nature of subsidy received under the Technology Upgradation Fund Scheme - revenue or capital receipt - Held that - The avowed purpose of the scheme was to induce the entrepreneur to undertake investment in modernising the plant and machinery and assets and the objectives of the scheme clearly spelt out such purpose. In the context of the scheme, it could never have been understood to imply that the subsidy was for the purpose of the day-to-day business of the assessee or any entrepreneur qualified to receive it. The subsidy was clearly for the purpose of upgrading the machinery and plant and for acquiring capital assets. - Decided against the revenue.

Summary

Issues:
1. Whether money received under a Central Government subsidy should be considered a capital receipt or a revenue receipt.
2. Whether the unabsorbed part of the depreciation of a 100% export-oriented unit can be set off against the depreciation or loss at another unit of the same assessee which is not exempted from tax.

Analysis:
1. The first issue raised by the Revenue in this appeal pertains to the classification of the subsidy received under a Central Government scheme. The Court noted that the purpose of the scheme, named the "Technology Upgradation Fund Scheme," was to enhance the viability and competitiveness of the domestic textile industry through technology upgradation. The Court emphasized that the subsidy was intended to induce investment in modernizing plant, machinery, and assets, clearly aligning with capital expenditure. Referring to precedents like Balarampur Chini Mills Ltd., Sahney Steel & Press Works Ltd., and Ponni Sugars & Chemicals Ltd., the Court highlighted that the character of the subsidy is determined by its purpose, not the timing of receipt. The judgments established that subsidies for capital purposes should be treated as capital receipts. Consequently, the Court concluded that the subsidy in question was a capital receipt, not a revenue receipt.

2. The second issue involved the set-off of unabsorbed depreciation from a 100% export-oriented unit against the depreciation or loss of another non-exempt unit of the same assessee. The Court acknowledged that this question had already been answered in favor of the assessee in a previous ruling. Therefore, the focus of the appeal was primarily on the classification of the subsidy as a capital or revenue receipt. The Appellate Tribunal, relying on Supreme Court judgments, corrected the Commissioner's error in treating the subsidy as a revenue receipt. The Court affirmed the Tribunal's decision, emphasizing that the subsidy received under the scheme was undeniably a capital receipt based on the scheme's objectives and purpose.

In conclusion, the Court disposed of the appeal, affirming that the subsidy received under the Technology Upgradation Fund Scheme was rightfully classified as a capital receipt. The judgment clarified the principles governing the treatment of subsidies based on their intended purpose, aligning with established legal precedents.