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TMI Blog2014 (6) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... e actually spent is immaterial as such expenses are only part of the overall object and purpose for which grant has been given - even if the amount of Rs. 2.03 given by the State Government is treated as grant/ subsidy, the same is a capital receipt not taxable – thus, the order of the CIT(A) is upheld – Decided against Revenue. Allowability of claim of loss – Held that:- The figures of sale of goods, purchase and figures of opening and closing balances of stocks, the CIT(A) agreed with the plea of the assessee that there was no stoppage of business activity, and the AO mistook the plea of the assessee that the manufacturing activity was stopped as admission of stoppage of business activity - No material to the contrary has been brought on record by the Revenue – thus, there was no infirmity in the conclusion of the CIT(A) – Decided against Revenue. Treatment of lease rental – Business income or property income – Held that:- The assets that yielded the rental income are the business premises, plant and machinery of thee assessee, which were hitherto used by the assessee for its own business activity, and such leasing out was done in view of the stoppage of manufacturing activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically the observation in the Auditor s report on the issue of authorised capital, which, as taken from the impugned order of the CIT(A), read as follows- D) The authorized share capital of the corporation is Rs.4,00,00,000/-. The issued, subscribed and paid up capital of the Corporation as on 31.03.,2009 is Rs.3.90 crores. In addition to this, the government of Andhra Pradesh has released an amount of Rs.3,20,30,000 towards share money received in advance and the Commissioner of Industries have transferred the assets to the extent of Rs.15,05,434/. which is taken as Share Monies received in advance as per G.O.Ms.No.102 of Industries Commerce Department, dated 24.01.1990 for which allotment of shares is pending. The Corporation has received an amount of Rs.11,82,24,882/- from Government of A.P. towards investments for functioning of the Corporation under development Schemes for Leather Industrial Parks from 2003-904, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. As per the suggestions of the Accountant General, the Corporation has included Rs.11,82,24,882/- under equity during the year . The CIT(A) forwarded the reliance placed by the assessee on the audited accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 11,82,24,882/- received from AP Government towards investments for functioning of the corporation under Development Schemes for Leather Industrial Parks from 2003-04 to 2008-09. As per the advice of the Accountant General, the corporation has included Rs. 11,82,24,882/- under equity during the year. Consequently, the issued, subscribed and paid up capital and share application money exceeded the authorised share capital. The Auditor has, therefore, pointed out that the Corporation has not taken necessary steps to enhance the Authorised share Capital and issue shares accordingly. 7. We find that in their letter no Lr. No. LIDCAP/1-49/75 dated 13.10.2011 addressed by the Assessee to the Principle Secretary to government, referred to supra, it has been stated that so far the government had granted Rs. 30.82 crores which has been classified as Investment by the Government but has been accounted as grant by the Company. The auditors of Accountant General, during their review raised an objection that the issued, subscribed and paid up capital exceeded the authorised capital as on 31.3.2010 . Therefore the Assessee had requested the Government to consider the above and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subsidy is given is irrelevant. 9. Similarly, the jurisdictional High Court in the case of CIT V/s. Raasi Cements Ltd. (351 ITR 169)-AP, considered this very issue, and held that it is the nature and purpose of a subsidy rather than the method of quantification or time of sanction which are relevant for determining whether it is a capital receipt or revenue receipt. It is well settled that if the subsidy is given for setting up an industry in backward areas or for repayment of the term loan taken by the assessee for setting up a new industry, it should be treated as a capital receipt. 10. Similarly, the Jammu and Kashmir High Court in the case of Shree Balaji Alloys, Ravenbhel Healthcare (P) Ltd. and Pee EII Alloys vs CIT and Anr. [333 ITR 335] has held that when a subsidy or a grant is given with a view to promoting an economic or social objective which results in establishment of facility or infrastructure, the receipt could be regarded as on capital account and hence not includible as income of the Appellant. In that case the subsidy was in the form of rebate of excises duty. 11. Similarly, the Bombay High Court in the case of CIT V/s. Chaphalkar Brothers 351 ITR 309 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us heads under which the grants were actually spent is immaterial as such expenses are only part of the overall object and purpose for which grant has been given. Thus, even if the amount of Rs. 2.03 given by the State Government is treated as grant/ subsidy, the same is a capital receipt not taxable. 14. In the light of the above discussion, we uphold the order of the CIT(A) and reject the grounds of the Revenue on this issue. 15. The next ground of appeal by the revenue is against the order of the CIT(A) permitting the loss claimed by the Assessee. 16. Facts in brief relating to this issue are that the Assessing Officer observed ongoing through the information furnished by the assessee corporation vide letter dated 8.9.2010 that it had stopped the manufacturing activities since the year 1990. However, he noted that the assessee claimed in the Profit Loss Account, expenses under different heads to the extent of Rs.1,09,30,359 and declared loss of Rs.1,78,34,959. In the absence of any business activity during the year, the Assessing Officer noted that the assessee s claim of loss from business to the extent of Rs.1,78,34,959 cannot be accepted. The Assessing Officer acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer treated this income as from property, and accordingly arrived at an income of Rs.8,63,450 after allowing 30% deduction under S.24 of the Act. In that process, the Assessing Officer did not allow any depreciation claimed by the assessee on the assets leased out. 22. Aggrieved, assessee preferred appeal on this issue before the CIT(A) and it was submitted that the assessee, having stopped manufacturing activity, leased out their premises and plant and machinery and realized rental income. As the assets were acquired and utilized for the business activity of the corporation, the income derived has to be treated as business income only, and not as property income. Accepting this contention of the assessee, the CIT(A) directed the Assessing Officer to assess the income under the head business . Aggrieved, Revenue preferred appeal before us on this aspect. 23. We heard both sides and perused the orders of the lower authorities. It is evident form the material on record that the assets that yielded the rental income are the business premises, plant and machinery of thee assessee, which were hitherto used by the assessee for its own business activity, and such leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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