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TMI Blog2016 (2) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... wer project and that the wind power plant must be successfully operated with a minimum 12% plant load factor for at least one year. Admittedly, the assessee had installed the project in the financial year i.e. 2001-02. The assessee after successfully operating the plant with a minimum 12% plant load factor for one year had applied for capital subsidy vide letter dated 31.03.03, which subject to fulfillment of certain conditions were ultimately released to the applicant during the financial year i.e. 2007-08 at ₹ 20 lakhs. However, out of the said amount of ₹ 20 lakh, ₹ 10 lakh had to be returned back by the assessee to the government. So the mere acquisition of the asset was not sufficient to claim subsidy. The subsidy was not given for the purpose of acquisition of the asset but on the production of power generation as an incentive to promote through non conventional sources. Hence, the grant of subsidy in this case is of such a nature that it cannot be directly relatable to the asset acquire. So far as the contention of the AO that the subsidy is liable to be taxed under section 50 of the Act is concerned, we find that in this case neither there was a transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus of small scale industries and the state government gives the capital subsidy up to 30% of the fixed capital investment to the promoters subject to a condition that wind power plant has successfully operated with a minimum 12% plant load factor for at least one year. The assessee accordingly applied for the said capital subsidy which was granted to the assessee during the relevant financial year 2007-08 at ₹ 20 lakh. During the subsequent year i.e. F.Y. 2008-09, assessee had to refund back subsidy to the extent of ₹ 10 lakhs. 4. The Assessing Officer (hereinafter referred to as the AO) observed that the assessee had already claimed 100% depreciation on the windmill, and as such the subsidy was required to be reduced from the cost of asset and hence the assessee had received a benefit of ₹ 10 lakh. He accordingly added the said sum into the income of the assessee. The AO further observed that even otherwise the written Down Value (WDV) of the asset was nil, hence subsidy was to be taxed as short term capital gains under section 50 of the Act. 5. In appeal, the Ld. CIT(A) held that as 100% depreciation was allowed to the assessee on the asset itself, henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, out of the said amount of ₹ 20 lakh, ₹ 10 lakh had to be returned back by the assessee to the government. So the mere acquisition of the asset was not sufficient to claim subsidy. The subsidy was not given for the purpose of acquisition of the asset but on the production of power generation as an incentive to promote through non conventional sources. Hence, the grant of subsidy in this case is of such a nature that it cannot be directly relatable to the asset acquired. The activity i.e. production of energy by operating the plant in accordance with the specified standards is the pre-requisite condition. The subsidy was not granted to the assessee on the acquisition of asset which was acquired in the financial year i.e. 2001-02 but only in the financial year i.e. 2007-08 on achieving more than 12% plant load factor. It is also pertinent to mention here that the assessee had to pay back half of the amount of subsidy because of non fulfillment of certain conditions. Under such circumstances the proviso to explanation 10 to section 43(1), is applicable to the case in hand. The co-ordinate Kolkata bench of the Tribunal in the case of DCIT vs. Rasoi Ltd. (2014) 46 tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partake the character of payment intended either directly or indirectly to meet the actual cost . By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. 7. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43( 1). The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly, or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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