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TMI Blog2013 (10) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on of trade or business - the subsidy given was to meet recurring expenses - The subsidies were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. The character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test - The point of time at which the subsidy is paid is not relevant - The source is immaterial - The form of subsidy is immaterial - The main eligibility condition in the scheme 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 - it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy - The form of the mechanism through which the subsidy is given is irrelevant – there was no error in view of the Tribunal – Decided against Revenue. - Tax Appeal No. 450 of 2012, Tax Appeal No. 451 of 2012, Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Government and therefore, this amount was not required to be deducted from the cost of fixed assets. In view of this reply of the assessee, now it emerges that when the Assessing Officer considered this receipt of subsidy as capital receipt and asked for reduction of the same from the cost of fixed assets for the purpose of calculating deprecation allowable to the assessee, it was the submission of the assessee before the Assessing Officer that this incentive is with reference to sales made after the fixed assets were put to use and therefore, it was not a capital receipt meant for cost of fixed assets. When the Assessing Officer treated the amount of subsidy as revenue receipt, the case of the assessee is that it is a capital receipt. The decision of the Special of the Tribunal rendered in the case of Reliance Industries(supra) has been relied upon by the learned CIT(A) to hold that this receipt as capital receipt, however, there is no finding given by the learned CIT(A) as to whether the subsidy is required to be reduced from the cost of fixed assets for the purpose of calculating depreciation allowable to the assessee. Once it is accepted that the subsidy receipt by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should pass necessary order as per the law on these aspects. The ground no.2 is partly allowed as indicated above. 3. Learned counsel for the Revenue drawing our attention to the various provisions of the said scheme vehemently contended that the subsidy was in the nature of sales tax deferment. An eligible unit would receive such subsidy only once when it goes for production. He therefore, submitted that subsidy was not for the purpose of covering capital outlay of an assessee. Revenue is therefore, justified in contending that subsidy is in nature of revenue receipt. 4. Learned counsel Shri Manish Shah appearing for the respondent assessee opposed the petition contending that provisions contained in the said scheme are sufficiently clear. Subsidy was though computed in terms of sales tax liability, same was for the purpose of covering capital outlay. He relied on decision of Ponni Sugars and Chemicals Ltd.(supra). He also placed reliance on decision of this Court dated 8.1.2013 in Tax Appeal No.167/2012 and connected appeals. 5. To examine the contentions, we may notice the provisions of the said scheme. The scheme made provisions for concession of sales tax. Eligible indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the said scheme, it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver, in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted, such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to percentage of fixed capital investment. 8. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once the commercial production commences. However, this by itself would not be either a sole or concluding factor. In case of Sahney Steel and Press Works Ltd. and others v. Commissioner of Income-tax reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined, having regard to the purpose for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be dete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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