2021 (7) TMI 266 - AT - Income Tax

Characterization of income - subsidy received considering of new industrial sales from State Governments - revenue or capital receipt - HELD THAT - On perusal of the respective schemes of the subsidy, it is clear that the subsidy is only granted in order to accelerate the industrial development and promote the employment opportunities. It is settled position of law that to determine the true nature of the subsidy, a purpose test has to be applied as held by the Hon'ble Supreme Court in the case of CIT Vs. Ponni Sugars and Chemicals Ltd 2008 (9) TMI 14 - SUPREME COURT The Co-ordinate Bench of the Tribunal has rightly applied the purpose test and had come to conclusion that the nature of subsidy is only in capital nature and we do not see any reason to differ with the reasoning of the Co-ordinate Bench of the Tribunal in assessee s own case 2020 (11) TMI 418 - ITAT PUNE - Decided against revenue. Directions of ld.CIT(A) to reduce the amount of the subsidy received from the respective block of assessment years in terms of the Explanation 10 to Sec.43(1) - HELD THAT - As decided in own case 2020 (11) TMI 418 - ITAT PUNE on perusal of the respective schemes of the subsidy, it is clear that the subsidy is not granted to meet the cost of any fixed asset and therefore the Explanation 10 to Sec.43(1) have no application to the facts of the present case had rightly applied the decision of M/s. Welspun Steel Ltd., 2019 (3) TMI 397 - BOMBAY HIGH COURT and we do not see any reason to differ with the reasoning of the decision of the Co-ordinate Bench. Accordingly, we reverse the directions of the ld.CIT(A) directing the Assessing Officer to reduce the amount of the subsidy from the cost of the respective block of assets.

Summary

Issues:
Cross appeals by assessee and Revenue against CIT(A) order for AY 2014-15.

Analysis:
1. Nature of Subsidy Received:
- Assessee received subsidies for various units, disputed as revenue or capital receipt.
- AO treated subsidies as revenue income, citing Sahney Steel case.
- CIT(A) held subsidies as capital receipts, directed AO to reduce from block of assets per Explanation 10 of Sec.43(1).
- Tribunal upheld CIT(A) decision, applying "purpose test" from Ponni Sugars case.

2. Revenue's Appeal (ITA No.1118/PUN/2017):
- Revenue contended subsidies were revenue in nature.
- Tribunal referred to Co-ordinate Bench decision in assessee's favor for AY 2013-14.
- Held subsidies aimed at industrial development, not revenue, dismissing Revenue's appeal.

3. Assessee's Appeal (ITA No.1042/PUN/2017):
- Assessee challenged CIT(A) direction to reduce subsidies from block of assets.
- Tribunal found subsidies not meant to meet asset costs, thus Explanation 10 not applicable.
- Upheld Co-ordinate Bench decision, reversing CIT(A) direction.

In conclusion, Tribunal allowed assessee's appeal and dismissed Revenue's appeal, affirming subsidies as capital receipts and rejecting reduction from block of assets.