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2021 (4) TMI 675 - AT - Income TaxCharacterization of income - subsidy receipt as capital in nature or revenue - HELD THAT - From the Preamble of Package Scheme Incentive, 2007, it is clear that the object of subsidy is only to encourage the dispersal of industries to the less developed areas of the State, Government has been giving a Package of Incentives to New / Expansion Units set up in the developing region of the State since 1964 under a Scheme popularly known as the Package of Incentives and scheme was amended from time to time, known as 2001 Scheme which is operative from the 1st April, 2001 to 31st March, 2007. It is clear that the object of the subsidy was to encourage setting up of industries in less developed areas. It is settled proposition of law that the test to be applied to determine whether the subsidy is capital or revenue in nature is the purposive test as held by the Apex Court in the case of Ponni Sugars and Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT and the identical issue was decided by the Hyderabad Bench of Tribunal (wherein A.M. is Author of order) in the case of Thermo Cables Limited Vs. ACIT 2018 (8) TMI 2026 - ITAT HYDERABAD Thus it is undisputed fact that the object of the Subsidy Scheme is only to encourage the setting up of industries and not to subsidize the operating expenses of industry. Therefore, we are of the considered opinion that the subsidy received by the assessee is only capital in nature. Accordingly, we reverse the orders of authorities below and allow the appeal filed by the assessee.
Issues Involved:
1. Nature of the subsidy received by the assessee (capital or revenue). Detailed Analysis: 1. Nature of the Subsidy Received by the Assessee (Capital or Revenue): The primary issue in this case is whether the subsidy of ?3,51,550 received by the assessee from the Government of Maharashtra under the Package Scheme of Incentives – 2007 should be classified as capital in nature or revenue. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had determined the subsidy to be revenue in nature and brought it to tax accordingly. The assessee appealed against this decision. Arguments Presented: - The assessee argued that the subsidy was intended to encourage the setting up of industries in less developed areas and should thus be considered capital in nature. The assessee relied on the decision of the Co-ordinate Bench of the Tribunal in their own case for previous assessment years, which had ruled similarly. - The Revenue supported the orders of the lower authorities, maintaining that the subsidy was revenue in nature. Tribunal's Analysis: - The Tribunal examined the Preamble of the Package Scheme of Incentives, 2007, which indicated that the objective of the subsidy was to promote industrial development in less developed areas of the state. The scheme aimed to provide fiscal incentives to achieve higher and sustainable economic growth, with an emphasis on balanced regional development and employment generation. - The Tribunal referred to the purposive test established by the Supreme Court in the case of Ponni Sugars and Chemicals Ltd. (306 ITR 392), which determines the nature of the subsidy based on the purpose for which it is given. If the subsidy is intended to assist in setting up new units or expanding existing units, it is considered capital in nature. - The Tribunal also cited the Hyderabad Bench's decision in Thermo Cables Limited vs. ACIT, which supported the view that subsidies granted as incentives for setting up new industries in eligible areas are capital in nature. - The Tribunal further referenced the Supreme Court's decision in CIT vs. Chaphalkar Brothers (400 ITR 279), which reiterated that the object of the subsidy scheme, rather than the point of time or form of subsidy, determines its nature. Conclusion: - The Tribunal concluded that the subsidy received by the assessee was intended to encourage the setting up of industries and not to subsidize operating expenses. Therefore, the subsidy was capital in nature. - The Tribunal reversed the orders of the lower authorities and allowed the appeal filed by the assessee. Result: - The appeal of the assessee was allowed, and the subsidy was classified as capital in nature. Order Pronounced: - The order was pronounced in the open court on 6th April, 2021.
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