2020 (10) TMI 131 - AT - Income Tax

Subsidy received under TUFS - Income chargeable to tax - CIT(A) had adjudicated the non-taxability of the receipt of subsidy after due examination of the relevant scheme which are available in the public domain - HELD THAT - The entire scheme of taxation after determining the total income is governed by the provisions of the Income Tax Act which is to be read with Article 265 of the Constitution of India which stipulates that no tax could be collected except by authority of law . Hence, it is a legal mandate and pre-requisite that a particular receipt need to be taxed within the ambit of the provisions of the Income Tax Act. The receipt does not become taxable, merely because it was erroneously offered to tax by the assessee in the return of income. The department is entitled to collect only legitimate tax that are due from the assessee. Hon‟ble Gujarat High Court in the case of CIT vs. Milton Laminates Ltd. 2013 (3) TMI 192 - GUJARAT HIGH COURT after considering the decision of the Hon‟ble Supreme Court in the case of CIT vs. Shelly Products 2003 (5) TMI 4 - SUPREME COURT had held that assessed income could be below the returned income. We hold that CIT(A) was justified in holding that assessed income could go below the returned income. Our aforesaid observations on merits and on technicalities and in view of the decision of the Hon‟ble Supreme Court in the case of Ponni Sugars 2008 (9) TMI 14 - SUPREME COURT we do not find any infirmity in the entire order of the ld. CIT(A) granting relief to the assessee both on technicalities and on merits. Accordingly, the grounds raised by the revenue are dismissed.

Issues Involved:
1. Whether the subsidy received by the assessee is chargeable to tax.
2. Admissibility of additional grounds raised by the assessee before the CIT(A).
3. Nature of the subsidies received under the Technology Upgradation Fund Scheme (TUFS) and Rajasthan Government Promotion Scheme.
4. Whether assessed income can be below the returned income.

Issue-wise Detailed Analysis:

1. Chargeability of Subsidy to Tax:
The primary issue was whether the subsidies received by the assessee are chargeable to tax. The assessee, engaged in the business of manufacturing and trading in yarns, fabrics, and textiles, received subsidies under various schemes from the Central and State Governments. Initially, these subsidies were offered to tax as revenue receipts. However, during appellate proceedings, the assessee contended that these subsidies should be considered capital receipts and thus not liable for taxation. The CIT(A) admitted this additional ground and adjudicated that the subsidies were indeed capital receipts, not chargeable to tax, as they were granted for the purpose of promoting capacity expansion, globalization of textile trade, and employment generation.

2. Admissibility of Additional Grounds:
The assessee raised an additional ground before the CIT(A) asserting that the subsidies received should not be taxable as they are capital receipts. The CIT(A) admitted this ground, noting that the subsidy schemes were publicly available and did not involve verification of new facts. The CIT(A) emphasized that the additional ground involved a legal issue, which goes to the root of the matter. The CIT(A) relied on the jurisdictional High Court's decision in CIT vs. Pruthvi Brokers and Shareholders, which held that appellate authorities must consider claims for deductions or corrections of errors even if not raised in the original return.

3. Nature of Subsidies under TUFS and Rajasthan Government Promotion Scheme:
The CIT(A) examined the nature of the subsidies received under the Technology Upgradation Fund Scheme (TUFS) and the Rajasthan Government Promotion Scheme. Under TUFS, the Government provided subsidies to modernize the textile industry, which were aimed at capital investment in plant and machinery. The Rajasthan Government Promotion Scheme provided subsidies to promote industrial development and employment in backward areas. The CIT(A) concluded that these subsidies were capital in nature, as they were intended for capacity expansion and modernization, aligning with the Supreme Court's decision in Ponni Sugars & Chemicals Ltd. vs. CIT.

4. Assessed Income Below Returned Income:
The revenue argued that treating the subsidies as non-taxable would result in the assessed income being lower than the returned income. The CIT(A) and the Tribunal rejected this argument, stating that there is no estoppel against the statute. The legal principle is that tax must be collected based on the law, not on erroneous admissions by the assessee. The Tribunal cited the Gujarat High Court's decision in Gujarat Gas Co. Ltd vs. JCIT and CIT vs. Milton Laminates Ltd., which supported the view that assessed income can be below the returned income if it aligns with the legal provisions.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the subsidies received by the assessee were capital receipts and not chargeable to tax. The CIT(A) was justified in admitting the additional ground and examining the nature of the subsidies. The Tribunal dismissed the revenue's appeals, emphasizing that tax must be collected based on the law, and the assessed income can be below the returned income if it reflects the correct legal position. The decision was pronounced on 07/09/2020.

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