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TMI Blog2010 (8) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh and debited to the P L. a/c under various heads, according to the AO, was disallowed and added back treating it as capital expenditure. On appeal, the CIT(A) granted relief to the Assessee sustaining its claim. Hence the instant second appeal by the Revenue before us. 3. The learned representative for the Revenue submitted that the CIT(A) erred in holding that the expenditure of Rs. 7,83,13,000 incurred by the Assessee for rectification and improvement of damaged power lines is in the nature of current repairs and allowable as revenue expenditure. He ought to have appreciated that the expenditure in question was incurred out of the capital subsidy received from the Government of Andhra Pradesh and hence the expenditure is in the nature of capital as there is an enduring benefit from the expenditure. In other words, the CIT(A) ought to have considered the State subsidy received as capital expenditure in nature. In the alternative, the CIT(A) ought to have directed the AO to verify the details of expenditure and allow the depreciation. 4. On the other hand, the learned Counsel for the Assessee countered, to say in brief, by defending the order impugned. 5.1 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the finding of the AO cannot be held as correct. He opined that what is required to be seen is as to whether the expenditure is of revenue nature or of capital nature. The CIT(A) has clearly stated that the AO himself speaks of rectification and improvement of power lines damaged due to cyclone for which the expenditure was incurred. Therefore, the CIT(A) held that itself goes to show that the expenditure was in the nature of current repairs which are allowable as revenue expenditure besides observing that it is immaterial to debate from what source and what head the money was drawn for current repairs. Hence the CIT(A) has come to a clear finding that it is a case where the AO has misdirected himself by disallowing it as a capital expenditure simply because the amounts spent on current repairs were out of capital subsidy received from the Government of Andhra Pradesh by the Assessee apart from the fact that he has also not considered the above capital expenditure for grant of depreciation. Hence the CIT(A) has held that the action of the AO is erroneous, consequent to which direction was given to allow the amount of Rs. 7,83,13,000 as revenue expenditure. 5.4 In our view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e overwhelming case laws in favour of the same. 9.1 In view of the above, we have to dispose of the alternative contention raised by the Revenue vide ground No. 4 viz., whether the subsidy granted by the State Government to the Assessee for carrying out such work would be taxable in view of Hon'ble Supreme Court's decision in the case of Sahney Steel v. CIT (supra). The above ground is very much within the subject-matter of appeal in view of the apex Court's decision in the case of CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC). 9.2 It is not in dispute that the subsidy was granted to the Assessee to meet out expenditure relatable to cyclone damage. We have also held that such expenditure is revenue in nature. Thus, the ratio laid down by the Hon'ble Supreme Court in the case of Sahney Steel (supra) is squarely applicable to the facts and circumstances of the present case. In Sahney Steel's case (supra), the apex Court has held that subsidy from public funds granted by the Government after commencement of production to enable the Assessee to run business more profitably and not for setting up of industry is operational subsidy and hence a rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7.83 crores incurred out of capital subsidy of Rs. 850 lakhs sanctioned in favour of the Assessee by the Government of Andhra Pradesh on rectification and improvement of power lines damaged due to cyclone is not allowable as deduction though it is a revenue expenditure because it is spent out of a capital subsidy received from the State Government? 12. However, in view of the learned AM, in addition to the question proposed by the Hon'ble Vice President, the following question does arise as point of difference between him and the Hon'ble Vice President: Whether ground No. 4 taken by the Revenue arises and whether on the basis of the same, Revenue's appeal could be allowed? 13. I have carefully considered the above questions referred to by the learned Vice President and by the learned AM. I have also perused the orders of the learned Vice President and the learned AM. I have heard both the parties. The contentions of the learned CIT-Departmental Representative and the learned Counsel for the Assessee were the same as advanced before the regular Bench and recorded in the proposed orders of the learned Vice President and the learned AM. 14. The learned CIT-De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 142 CTR (SC) 261: (1997) 228 ITR 253 (SC). (v) Any other ground that may be urged at the time of hearing. 15. The Tribunal constituted by the Hon'ble Vice President and the Hon'ble AM vide order dt. 21st Aug., 2006 in ITA No. 41/Hyd/2003 held that there seems to be no infirmity in the order of the CIT(A) as the reasoning arrived at by the CIT(A) is convincing as strong and sound unlike the stand of the Revenue that was attempted to be highlighted by its learned representative and dismissed the appeal of the Revenue. However, the learned AM held that though he agrees with the learned Vice President that the amount of Rs. 7.83 crores spent for rectification and improvement of power line should be allowed as revenue expenditure, but held that he was of the view that the ground No. 4 of the appeal of the Revenue regarding the applicability of Hon'ble Supreme Court decision the case of Sahney Steel Press Works Ltd. v. CIT (1997) 142 CTR (SC) 261: (1997) 228 ITR 253 (SC) was required to be considered and the Revenue's appeal is required to be upheld on this ground and held that the amount received by the Assessee as subsidy from the State Government is assessab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore it. She submitted that purpose for which the amount of subsidy was given to the Assessee shall determine the character of the 'receipt' by the Assessee. She submitted that the issue is covered in favour of the Revenue with the decision of the Hon'ble Supreme Court in the cases of Sahney Steel Press Works Ltd. v. CIT (supra) and CIT. v. Abhishek Industries Ltd. (2006) 205 CTR (P H) 304: (2006) 286 ITR (P H) 1. She submitted that this decision of the Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd. v. CIT (supra) was followed in a number of decisions by various Hon'ble Courts. She submitted that the view of the learned AM that the subsidy received from the State Government was assessable as revenue receipt in the hands of the Assessee should be confirmed. 17. The learned Counsel for the Assessee has opposed the submissions of the learned CIT-Departmental Representative. He submitted that the AO has not recorded the facts of the case clearly. He submitted that the AO has conceded that the amount of subsidy received by the Assessee was a capital receipt of the Assessee. He submitted that the IT Act has provided various provisions includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount spent by the Assessee as revenue expenditure. The Revenue filed the appeal before the Tribunal and raised 5 grounds of appeal reproduced by me in preceding para 4 of this order. The Tribunal constituted by the learned Vice President and the learned AM vide their order dt. 21st Aug., 2006 upheld the order of the CIT(A) and the Revenue's appeal was dismissed. However, the learned AM held that though he agrees with the learned Vice President that the amount of Rs. 7.83 crores spent for rectification and improvement of power line should be held as revenue expenditure but held that he was of the view that the ground No. 4 in appeal of the Revenue regarding the applicability of Hon'ble Supreme Court decision in the case of Sahney Steel Press Works Ltd. v. CIT (supra) was required to be considered and the Revenue's appeal is required to be upheld on this ground and held that the amount received by the Assessee as subsidy from the State Government is assessable as revenue receipt, in the hands of the Assessee. The Revenue preferred miscellaneous application before the Tribunal and submitted that the learned Vice President has not adjudicated the ground of appeal No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee on rectification and improvement of power line was revenue in nature and accordingly the source of the fund being quite immaterial, shall not change the nature of the expenditure incurred by the Assessee and is accordingly held as a revenue expenditure in the hands of the Assessee and the first question referred to me is answered accordingly. 22. The other question referred to me as Third Member is reproduced hereunder: Whether ground No. 4 taken by the Revenue arises and whether on the basis of the same, Revenue's appeal could be allowed ? 23. The ground of appeal No. 4 of the Revenue is reproduced in para 4 of this order. I find that in view of the decision of the Tribunal dt. 30th Sept., 2008 in miscellaneous application preferred by the Revenue to the effect that the learned Vice President in his proposed order has held that the subsidy received by the Assessee was capital in nature and the proposed order of the learned AM taking a different view that the subsidy received by the Assessee was revenue receipt in the hands of the Assessee, the 2nd question referred to me as Third Member does arise out of the order of the Tribunal and there is a difference o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar understanding that the amount granted as subsidy to the Assessee shall be utilized by the Assessee for rectification and improvement of power line and accordingly it is quite logical that the amount of subsidy received by the Assessee for spending on items held as revenue in nature, was a revenue receipt in the hands of the Assessee. The decision of the Hon'ble Supreme Court in Sahney Steel Press Works Ltd. v. CIT (supra) applies to the case of the Assessee. I am not impressed with the submission of the learned Counsel for the Assessee that there is no nexus between the nature of expenses incurred by the Assessee and the nature of amount of subsidy received by the Assessee from the State Government. I find that the grant of subsidy to the Assessee had a direct nexus with the business of the Assessee and with the revenue expenditure of Rs. 7.83 crores incurred by the Assessee. In this case the amount of subsidy was made by the Government for the purpose of smooth functioning of the business of the Assessee and has not brought any new asset into existence and has not resulted in any enduring benefit to the Assessee and the receipt of subsidy amount has to be treated as reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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