2022 (5) TMI 1096 - AT - Income Tax

Nature of receipt - subsidy received in the form of octroi refund as revenue receipts invoking the provisions of section 28(iv) - Revenue or capital receipt - subsidy was received from the Government of Maharashtra under the Package Scheme of Incentives, 2007 - HELD THAT - The purpose test has been reiterated by the Hon'ble Supreme Court in CIT v. Ponni Sugars Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT by holding that the relevant consideration should be the purpose of subsidy and not its source or mode or payment. When we apply such a test on the facts and circumstances of the case, it demonstrably emerges that the purpose of subsidy is industrial growth; it is linked with the setting up of industrial units; and the amount of subsidy is linked with the amount of investment made in the eligible unit. Simply because the subsidy has been disbursed in the form of refund of VAT and CST, it will not alter the purpose of granting the subsidy, which is nothing but establishment of new industrial units in less developed areas of the State. The authorities below have been swayed by the fact that the subsidy was granted post commencement and is in the nature of refund of VAT and CST and overlooked the purpose of its granting, which is nothing but momentum in industrial pace in less developed parts of the State. Testing the factual panorama on the touchstone of the ratio laid down by the Hon'ble Supreme Court in the above referred cases, we are of the considered opinion that the subsidy is a capital receipt and not chargeable to tax. At this stage, it is relevant to mention that we are concerned with the A.Y. 2014-15. The Finance Act, 2015 has inserted clause (xviii) to section 2(24) w.e.f. 1-04-2016 providing that the assistance in the form of subsidy or grant of cash incentives etc., other than the subsidy which has been taken into consideration in determining the actual cost of the asset in terms of Explanation 10 to section 43(1), shall be considered as an item of income chargeable to tax. Since the amended provision of section 2(24)(xviii) is not applicable to the year under consideration, the sequitur is that the subsidy received by the assessee would not form part of its total income. Since the subsidy was granted actually as incentives for encouraging the dispersal of industries to the less developed areas of the State of Maharashtra, the subsidy cannot be treated as revenue receipt. As regards to the applicability of provisions of section 28(iv) of the Act, this envisages the value of entire benefit, whether convertible to money or not, which means the benefits have to be in the kind, the monetary benefits are not covered by the said provisions of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of deleting the addition of Rs.4,58,41,000/- made under Section 28(iv) of the Income Tax Act on account of Octroi refund.
2. Determination of whether the subsidy received is capital or revenue in nature.
3. Applicability of Section 28(iv) to monetary benefits.

Detailed Analysis:

Issue 1: Justification of Deleting the Addition of Rs.4,58,41,000/-
The Revenue challenged the deletion of the addition of Rs.4,58,41,000/- made by the Assessing Officer under Section 28(iv) of the Income Tax Act, treating the octroi refund as revenue in nature. The ld. CIT(A) had deleted this addition, holding that the subsidy in the form of octroi refund received under the Package Scheme of Incentives, 2007 announced by the Government of Maharashtra is capital in nature. The CIT(A) relied on the Supreme Court's decision in CIT vs. Ponni Sugars & Chemicals Ltd., which emphasized the purpose of the subsidy. The CIT(A) also noted that Section 28(iv) does not apply to monetary benefits, referencing several High Court decisions.

Issue 2: Determination of Whether the Subsidy Received is Capital or Revenue in Nature
The Tribunal examined the nature of the subsidy under the Package Scheme of Incentives, 2007. The scheme aimed to promote industrial growth in less developed areas of Maharashtra by linking the subsidy amount to the fixed capital investment. The Tribunal emphasized the 'purpose test' established by the Supreme Court in Sahney Steel & Press Works Ltd. and Ponni Sugars & Chemicals Ltd., which focuses on the purpose of the subsidy rather than its form or timing. The Tribunal concluded that the subsidy was intended to encourage industrial development and was therefore capital in nature, not revenue.

Issue 3: Applicability of Section 28(iv) to Monetary Benefits
The Tribunal held that Section 28(iv) of the Income Tax Act, which pertains to the value of any benefit or perquisite arising from business or profession, does not apply to monetary benefits. This interpretation was supported by multiple judicial precedents, including decisions from the Bombay High Court, Gujarat High Court, Delhi High Court, and the Supreme Court. Therefore, the octroi refund received by the assessee did not fall under the purview of Section 28(iv).

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order that the subsidy in the form of octroi refund was capital in nature and not taxable as revenue receipts. The Tribunal also confirmed that Section 28(iv) does not apply to monetary benefits, reinforcing the CIT(A)'s decision. The appeal by the Revenue was thus dismissed, and the order was pronounced on May 19, 2022.