9911796707
TMI Blog2012 (7) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... letters dated 24.09.2004 and 04.02.2005, the Holding Company granted subvention assistance to the assessee to an extent of Euro two million i.e. equivalent to Rs.11,22,38,874/-. This was done on the evaluation of the Holding Company, that the assessee was likely to, on account of its business activity, incur losses which would be substantially if not entirely eroded. The Assessing Officer held that the disbursement of incentive (i.e. subvention receipt in this case) was by way of casual receipt in order to assist the assessee to continue its business operation and therefore rejected the assessee‟s contention. The assessee preferred an appeal to the Commissioner of Income Tax (Appeals) (hereinafter called "CIT (A)‟) who by order dated 20.12.2009 accepted the assessee‟s contention holding that the money received could not be taxed. The CIT (A) was of the opinion that the money received by the assessee company cannot be taxed as it was akin to a gift, and Gift Tax had been abolished. The Assessing Officer treated it as a casual receipt. In this regard the relevant para is extracted herein below: - "6. The money received by the assessee company cannot be taxed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company remitted a sum of Euro 14,99,980 and the balance amount of Euro 5,00,000 was remitted vide letter dated 04.02.2005. In this letter also it has been clearly mentioned that the amount was paid for the purpose of restoration of net worth of the company expected to be partly eroded by the losses suffered by the company for financial year 2004-05. In certificate of inward remittance issue by UTI Bank Ltd. the purpose of remittance has been mentioned as subvention payment towards restoration of net worth of the company eroded by the suffered company. Further the assessee had filed copy of confirmation received through email wherein the holding company has certified that they have not claimed the subvention payment as expenditure in their return of income and no tax benefit has been received by them in respect of subvention payment. BHW Holding AG has capitalized the amount in their books of accounts. From these facts, it is clear that the amount of subvention money was received by the assessee to recoup the losses expected to be suffered by the assessee during financial year 2004-05. 9. In the case of Handicraft & Handloom Corporation (supra), the assessee, a wholly subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered by it. The amount was received by virtue of their relationship of parent and subsidiary company. These are voluntary payments arising out of personal relationship of parent and subsidiary company. These are voluntary payments arising out of personal relationship of parent and subsidiary company and not stemming from any business considerations. Therefore, the assessee's case is squarely covered by the decisions of Hon'ble Delhi High Court in the case of Handicraft & Handloom Export Corporation (supra) and the ITAT in the case of Lurgi India (supra). The decisions relied upon by the Revenue are distinguishable on facts and hence not applicable to the facts of the assessee's case. Accordingly, we do not find any infirmity in the order of the ld. CIT (A) deleting the addition made by the assessing officer". 6. It is urged on behalf of Revenue that the ITAT fell into error in deciding that the subvention receipt received from the Holding Company was not income and relied on Section 2(24) of the Income Tax Act, 1961 (hereinafter called "Act‟). It was urged that the definition of income includes receipts of this kind and would fulfill the character of income, whose definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question formulated was whether such cash assistance amounted to income. The Court noticed previous rulings of the Allahabad and Madras High Court respectively in Ratna Sugar Mills Co. Ltd. (supra) and Meenakshi Achi (supra) the reasoning of which were confirmed by the common judgment by the Supreme Court in Meenakshi Achi (supra). The Court held that the amounts given by the STC to the assessee i.e., Handicrafts & Handloom Export Corporation of India in order to recoup its losses which were incurred year after year were akin to assistance by a father to ensure the business survival of his child. The Court held that the amount given by the father will only be in the nature of gifts/or voluntary payment and not stemming from any business consideration. The position is similar here. 11. The Revenue had urged the decision in Handicrafts & Handloom Export Corporation of India (supra) is not applicable to this case because the nature of funds were public in character. It was urged that the appropriate criteria is the purposive test which determines the character of funds in a given case. The relevant passage in Ponni Sugar and Chemicals Ltd. (supra) is as follows: - "In our view, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt in on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/ assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant." 12. This Court is of the opinion that there is no shift in the nature of the determinative test, to decide whether a receipt is revenue or capital. The Revenue is undoubtedly correct in urging that the income under Section 2(24) makes no difference between the nature and character of receipt. It is however the individual facts of each case which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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