Taxpublishers.in - InterestingDecision/Flash_175.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 210 Views


Tax Publishers Asstt. CIT v. Central Madhya Pradesh Gramin Bank [ITA No. 135/Jab/2018, dt. 10-12-2020] : 2020 TaxPub(DT) 5176 (Jab-Trib) Application of Explanation 10 to section 43(1) on capital support received from Govt. of India to maintain capital adequacy *Facts:* Assessee a Regional Rural Bank (RRB) was in receipt of a capital support of Rs. 20 crores to augment its CRAR ratio (Capital to risk weighted assets ratio). Consequential to the infusion of capital it was found that the assessee had invested in computers etc. substantially. It was the case of the assessing officer that Explanation 10 to section 43(1) be applied on the capital receipt and hence they should go to reduce the investment made in computers as bereft this capital contribution assessee could not have made such a large investment in computers. Explanation 10 uses the word directly and indirectly so no matter even if the money was given for capital augmentation it goes to indirectly subsume the character of a subsidy to fall in the scope of Explanation 10 to section 43(1). On appeal the Commissioner (Appeals) reversed the views of the assessing officer. On higher appeal -- Held in favour of the assessee/against the revenue that the receipt of capital from Government to augment CRAR cannot be read as subsidy to fall in the scope of Explanation 10 to section 43(1). They were eligible for depreciation on computers on the amount defrayed in toto. The ITAT read the following points worth noting -- 1. The word "indirectly" in Explanation 10 to section 43(1) has to be read "ejusdem generis" or on "noscitur a sociis" whereby anything akin to subsidy related to the asset alone can be adjusted. 2. Indirectly is used in Explanation 10 to section 43(1) so to not to expand its meaning but if a subsidy is granted to meet cost of fixed assets without identifying the asset then it would fit in the meaning of indirectly and not remote receipts. 3. The receipt of capital and the defraying of computers are two transactions with no relativity. Just because the entity could have spent the capital received into computers it would not mean that the very same capital contributed as a subsidy to fund the cost of computers. Such a reading was incorrect.

Tax Publishers

Asstt. CIT v. Central Madhya Pradesh Gramin Bank [ITA No. 135/Jab/2018, dt. 10-12-2020] : 2020 TaxPub(DT) 5176 (Jab-Trib)

Application of Explanation 10 to section 43(1) on capital support received from Govt. of India to maintain capital adequacy

Facts:

Assessee a Regional Rural Bank (RRB) was in receipt of a capital support of Rs. 20 crores to augment its CRAR ratio (Capital to risk weighted assets ratio). Consequential to the infusion of capital it was found that the assessee had invested in computers etc. substantially. It was the case of the assessing officer that Explanation 10 to section 43(1) be applied on the capital receipt and hence they should go to reduce the investment made in computers as bereft this capital contribution assessee could not have made such a large investment in computers. Explanation 10 uses the word directly and indirectly so no matter even if the money was given for capital augmentation it goes to indirectly subsume the character of a subsidy to fall in the scope of Explanation 10 to section 43(1). On appeal the Commissioner (Appeals) reversed the views of the assessing officer. On higher appeal --

Held in favour of the assessee/against the revenue that the receipt of capital from Government to augment CRAR cannot be read as subsidy to fall in the scope of Explanation 10 to section 43(1). They were eligible for depreciation on computers on the amount defrayed in toto.

The ITAT read the following points worth noting --

1. The word "indirectly" in Explanation 10 to section 43(1) has to be read "ejusdem generis" or on "noscitur a sociis" whereby anything akin to subsidy related to the asset alone can be adjusted.

2. Indirectly is used in Explanation 10 to section 43(1) so to not to expand its meaning but if a subsidy is granted to meet cost of fixed assets without identifying the asset then it would fit in the meaning of indirectly and not remote receipts.

3. The receipt of capital and the defraying of computers are two transactions with no relativity. Just because the entity could have spent the capital received into computers it would not mean that the very same capital contributed as a subsidy to fund the cost of computers. Such a reading was incorrect.