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2022 (11) TMI 531 - AT - Income TaxNature of receipt - claim of subsidy under PSI-2007 - revenue or capital receipt - end-use or utilization of such subsidy - HELD THAT - As relying on Mahindra Two Wheelers Ltd 2019 (7) TMI 1939 - ITAT MUMBAI and KLAUS MULTIPARKING SYSTEM PVT. LTD. 2018 (5) TMI 341 - ITAT PUNE we direct the AO to treat the subsidy received under PSI-2007 as Capital receipt and delete the addition. The grounds raised by the assessee are accordingly allowed.
Issues Involved:
1. Whether the subsidy received under the Package Scheme of Incentive (PSI-2007) should be treated as a capital receipt or revenue receipt. 2. Whether the utilization of the subsidy received determines its nature as a capital receipt or revenue receipt. 3. Deduction under section 80IC on the interest income earned on vendor deposits. Issue-Wise Detailed Analysis: 1. Treatment of Subsidy under PSI-2007: The primary issue was whether the subsidy received under the PSI-2007 should be classified as a capital receipt or a revenue receipt. The assessee argued that the subsidy amounting to Rs. 6.16 crores was a capital subsidy intended to achieve higher economic growth, balanced regional development, and employment generation. The Assessing Officer (AO) treated the subsidy as a revenue receipt, stating that if it were a capital subsidy, it should have been deducted from the written down value (WDV) of the block of assets as per section 43(1) of the Income-tax Act, 1961. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, relying on the Supreme Court decisions in Ponni Sugars & Chemicals Ltd. and Sahney Steel & Press Works Ltd., stating that the purpose of the subsidy was not explicitly mentioned in the PSI-2007 or the Eligibility Certificate. The CIT(A) concluded that the subsidy was a revenue receipt since the assessee was free to use it for any purpose. 2. Utilization of Subsidy: The CIT(A) emphasized that the purpose of the subsidy should be considered, not merely its utilization. The CIT(A) noted that the PSI-2007 scheme or the Eligibility Certificate did not specify the purpose of the subsidy. The CIT(A) argued that the subsidy was linked to fixed capital investment but could be used for any purpose by the assessee, thus classifying it as a revenue receipt. The CIT(A) relied on the Supreme Court's principle that the purpose of the subsidy determines its nature, not the manner of its disbursal or utilization. 3. Deduction under Section 80IC: The assessee did not press Ground No. 3 regarding the deduction under section 80IC on the interest income earned on vendor deposits. Consequently, this ground was dismissed as infructuous. Tribunal's Findings: The Tribunal reviewed the relevant materials and heard submissions from both parties. The Tribunal noted that in similar cases, such as Mahindra Two Wheelers Ltd. and Klaus Multiparking Systems Pvt Ltd., the subsidy received under PSI-2007 was held to be capital in nature. The Tribunal cited the decision in Mahindra Two Wheelers Ltd., where the subsidy was granted to encourage industrial growth in less developed areas, and the quantification was linked to the investment made in setting up eligible units. The Tribunal held that the decisive factor for considering the nature of the subsidy is the purpose for which it was granted, not the manner of its disbursal. The Tribunal also referred to the decision in Klaus Multiparking Systems Pvt Ltd., where the subsidy under PSI-2007 was considered a capital receipt. The Tribunal emphasized that the purpose of the PSI-2007 scheme was to promote industrialization, balanced regional development, and employment generation, aligning with the principles laid down by the Supreme Court in Ponni Sugars & Chemicals Ltd. and Sahney Steel & Press Works Ltd. Conclusion: The Tribunal directed the Assessing Officer to treat the subsidy received under PSI-2007 as a capital receipt and delete the addition. The appeal of the assessee was allowed, and the grounds raised by the assessee were accepted. The order was pronounced on 31st October 2022.
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