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2023 (2) TMI 461 - AT - Income TaxNature of receipt - Income from Sale of Scrips (Market Linked Focus Products Scheme (MLFPS) of Foreign Trade Policy 2009 -14 - Nature of Incentive received by the assessee during the year - This scheme is an incentive scheme under the Ministry of Commerce and intended to promote export trade in certain products and markets - assessee sold such scrips during the year and claimed the receipts to be capital receipts not taxable under any provisions of the Act - HELD THAT - The purpose of the scheme was to offset infrastructure inefficiencies. There was no requirement to map the expenditure associated with the subsidy and in fact, the assessee was not required to furnish any utilization certificate. Therefore, the argument of Ld. CIT-DR that the related expenditure was also to be disallowed could not be accepted since there was no requirement to establish oneto- one correlation of the expenditure vis- -vis the quantum of subsidy received by the assessee. The decision of Delhi Tribunal in Narayan Industries 2022 (7) TMI 1134 - ITAT DELHI as referred to by Ld. AR, has also been rendered in the context of Focus Product Scheme. In this decision, the bench held that the receipts would be capital in nature. While concluding so, the bench applied purpose test laid down by Hon ble Supreme Court in various decisions. It was finally held by the bench that receipts would be capital receipt not liable to tax under the provisions of Income Tax Act, 1961. This decision also supports the case of the assessee. Therefore, considering the facts of the case and respectfully following the earlier decisions of Tribunal in assessee s own case 2016 (7) TMI 951 - ITAT CHENNAI we would hold that the receipts so earned by the assessee would be capital in nature and hence, not taxable. Decided in assessee s favour. Expenditure on construction of building on leasehold land - expenditure was capitalized in the books of accounts but claimed as revenue expenditure in the computation of income on the ground that the assessee did not have the ownership of building and it had to leave it as vacant when the lease of the land would be terminated - The amount so expanded would not be eligible for depreciation u/s 32 since the building is not owned by the assessee - HELD THAT - As decided in assessee own case 2016 (9) TMI 1497 - ITAT CHENNAI What constitutes a capital expenditure and what does not, to attract Explanation 1 to section 32(1) of the Act depends upon the construction of any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee. Because the assessee did not acquire a capital asset, viz., the land in the instant case, but has put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible as the revenue expenditure. As decided by Hon ble Apex Court in Mother Hospital Pvt. Ltd 2017 (3) TMI 944 - SUPREME COURT the expenditure so incurred is not in the capital field, would mean that the expenditure is in the revenue field and therefore, the same, in fact, would support the case of the assessee. the assessee-lessee, upon termination of the lease, was to deliver the possession of the demised land to the lessor with or without removing the super structure, electrical and other installation thereon as may be mutually agreed upon by both the parties. The expenses in respect of the same would be borne by the lessee. Thus, the assessee has taken only the land on lease and upon termination of the lease period, the assessee was required to return the land with or without removing the super structure built by the assessee. Therefore, the lessor does not own the building and the assessee cannot own the same as capital asset since the land does not belong to the assessee and at the time of termination of lease agreement, the assessee has to either handover the building along with the land or remove the superstructure and handover the land to the lessor. Therefore, the said expenditure would be allowable as revenue expenditure in the hands of the assessee. - Decided in favour of assessee.
Issues Involved:
1. Nature of Incentive received by the assessee during the year. 2. Nature of expenditure incurred on construction of building. Issue-wise Detailed Analysis: 1. Nature of Incentive Received by the Assessee: - Facts & Arguments: The assessee claimed a deduction of Rs.1569.30 Lacs on the sale of scrips under the Market Linked Focus Product Scheme (MLFPS) of the Foreign Trade Policy 2009-14, asserting that these receipts were capital receipts and thus not taxable. The AO, however, treated these receipts as revenue in nature, akin to DEPB and Duty Drawback, and brought them to tax. The CIT(A) sided with the assessee, referencing previous Tribunal decisions in the assessee's favor for AYs 2011-12 & 2012-13. - Tribunal's Findings: The Tribunal reiterated that the incentive under MLFPS was intended to explore new markets, thereby expanding the market area of the assessee, not merely to run the business more profitably. This aligns with the Supreme Court's decision in M/s Ponni Sugars & Chemicals Ltd. (306 ITR 392) that if the object of the subsidy is to expand the business, it is a capital receipt. The Tribunal noted that the scheme did not require matching expenses, and the objective was to offset infrastructure inefficiencies, thus supporting the capital nature of the receipts. It was also observed that the decision in M/s Hyundai Motor India Ltd. vs. ACIT was distinguishable as it dealt with a different scheme (Focus Market Scheme). - Conclusion: The Tribunal upheld the CIT(A)'s decision, confirming that the receipts under MLFPS were capital in nature and not taxable. This conclusion applied to both AY 2014-15 and AY 2015-16. 2. Nature of Expenditure Incurred on Construction of Building: - Facts & Arguments: The assessee claimed Rs.291.94 Lacs spent on constructing a building on leasehold land as revenue expenditure, arguing that the building was not owned by the assessee and had to be vacated upon lease termination. The AO treated this expenditure as capital, eligible for depreciation under Explanation-1 to Sec.32. The CIT(A) allowed the claim as revenue expenditure, referencing Tribunal decisions and the High Court ruling in TVS Lean Logistics Ltd. (293 ITR 432). - Tribunal's Findings: The Tribunal relied on earlier decisions, including the Supreme Court's judgment in Madras Auto Service (P) Ltd. (233 ITR 468), which held that expenditure on constructing a building on leased land for business advantage is revenue in nature. The Tribunal noted that the assessee did not own the land or the building, and the expenditure was for business advantage, thus qualifying as revenue expenditure. The Tribunal also addressed the CIT-DR's reliance on Mother Hospital Pvt. Ltd. vs. CIT, clarifying that the decision supported the assessee's position since the expenditure was not in the capital field. - Conclusion: The Tribunal confirmed the CIT(A)'s decision that the expenditure on constructing the building on leasehold land was revenue in nature. This conclusion applied to both AY 2014-15 and AY 2015-16. Conclusion: - Both appeals by the Revenue for AY 2014-15 and AY 2015-16 were dismissed. The Tribunal upheld the CIT(A)'s decisions on both issues, confirming that the incentive receipts were capital in nature and the expenditure on constructing the building on leasehold land was revenue in nature.
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