INCOME TAX ACT, 1961

Section 4

Income - Capital or revenue receipt - Sales-tax incentive/subsidy -

State of West Bengal allowed incentive to develop and promote industrial projects in backward areas and on the basis of sales tax payable by assessee, it was allowed remission as incentive/subsidy. The assessee in its revised return shown the incentive as capital receipt. AO, however, held that it was a remission of trading liability hence, provision of section 41(1)(a) was applicable. AO also noted that the benefit by way of remission of sales tax arising from business in consequence of sale proceeds was covered by the term and conditions aid down in section 28(iv) and to be taxed accordingly. In this way the claim of the assessee was rejected and added back in the return of income of the assessee. CIT(A) deleted the addition. Held: The subsidy/incentive was not given to the assessee for the purpose of assisting in carrying on business or trade by way of refund of sales tax nor was there any cessation of liability on account of payment of sales tax attracting the provisions of section 41(1). The method of calculation of incentive/subsidy was collection of sales tax but the purpose of giving the incentive was expansion of industries in the backward areas of the State of West Bengal. Since the assessee was not given the incentive for facilitating its business or trade, the amount received by the assessee on account of sales tax remission, was held to be capital in nature.

Relied:CIT v. Rasoi Limited (2011TIOL 320 HC KOL IT) (Cal-HC), Balaji Alloys Limited v. CIT (2011) 333 ITR 335 (J&K) : 2011 TaxPub(DT) 882 (J&K-HC) (J&K HC), CIT v. Siya Ram Garg (HUF) (2011) 237 CTR 321 (P&H) : 2011 TaxPub(DT) 724 (P&H-HC) (P&H HC) and CIT v. Reliance Industries Ltd. (2004) 88 ITD 273 (Mum) : 2004 TaxPub(DT) 1014 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 37(1)

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