CIT v. Rasoi Ltd. - Taxpublishers.in

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The Tax PublishersITA No. 258 of 2001 2012 TaxPub(DT) 0715 (Cal-HC) : (2011) 335 ITR 0438 : (2011) 245 CTR 0667 : (2011) 199 TAXMAN 0235 : (2011) 059 DTR 0369 INCOME TAX ACT, 1961 Income- Capital or revenue receipt-Subsidy-Subsidy given for industrial promotion Assessee received subsidy from the Government of West Bengal under a scheme of industrial promotion. It claimed impugned amount to be in nature of capital receipt, in its return of income. AO was a view that the subsidy had been utilized for meeting revenue disbursements of the assessee, therefore, the impugned amount of subsidy received from the Government was nothing but supplementary trade receipts and should be considered as revenue receipts. CIT (A) accepted the order of AO. But, Tribunal was set aside the order of CIT (A) and was a view that the impugned subsidy was in the nature of capital receipt, hence, same was not taxable. Held: The scheme was given effect to from 1-4-1994 and initially, was in force only for one year from that date and, thus, the benefit was then available to assessee only for that year which was the relevant assessment year. It was clear that the Government had decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which had the manufacturing units in West Bengal and which were in need of financial assistance for expansion of their capacities, modernization and improving their marketing capabilities and such subsidy for the relevant financial year was only for that year and was equivalent to 90 per cent of the amount of sales tax paid by the industry concerned for any quarter under the Sales Tax Act in respect of sales of such goods. (Paras 14 and 14A) In CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 / 174 Taxman 87 (SC), it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably, the receipt was on revenue account and if the object of assistance under the Subsidy Scheme was to enable assessee to set up a new unit or to expand the existing unit, the receipt of the subsidy was on capital account. Therefore, the Court was of view that it was the object for which the subsidy/assistance was given, which determined the nature of the incentive subsidy. The form of the mechanism through which the subsidy given was irrelevant. (Para 15) In this case, the object of the subsidy was for expansion of their capacities, modernization, and improving their marketing capabilities and, thus, those were for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary, it did not imply that the same was in the form of refund of sale tax paid. It was the quality of the payment that was decisive of the character of the payment and not the method of the payment or its measure, that made it fall within capital or revenue. Thus, in the present case, the amount paid as subsidy was really capital in nature. (Para 16) Hence, view of Tribunal was to be upheld. (Para 18) Income Tax Act, 1961 Section 4 Case Law Analysis: CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC): 2008 TaxPub(DT) 2302 (SC) followed. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 258 of 2001
2012 TaxPub(DT) 0715 (Cal-HC) : (2011) 335 ITR 0438 : (2011) 245 CTR 0667 : (2011) 199 TAXMAN 0235 : (2011) 059 DTR 0369

INCOME TAX ACT, 1961

Income- Capital or revenue receipt-Subsidy-Subsidy given for industrial promotion

Assessee received subsidy from the Government of West Bengal under a scheme of industrial promotion. It claimed impugned amount to be in nature of capital receipt, in its return of income. AO was a view that the subsidy had been utilized for meeting revenue disbursements of the assessee, therefore, the impugned amount of subsidy received from the Government was nothing but supplementary trade receipts and should be considered as revenue receipts. CIT (A) accepted the order of AO. But, Tribunal was set aside the order of CIT (A) and was a view that the impugned subsidy was in the nature of capital receipt, hence, same was not taxable. Held: The scheme was given effect to from 1-4-1994 and initially, was in force only for one year from that date and, thus, the benefit was then available to assessee only for that year which was the relevant assessment year. It was clear that the Government had decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which had the manufacturing units in West Bengal and which were in need of financial assistance for expansion of their capacities, modernization and improving their marketing capabilities and such subsidy for the relevant financial year was only for that year and was equivalent to 90 per cent of the amount of sales tax paid by the industry concerned for any quarter under the Sales Tax Act in respect of sales of such goods. (Paras 14 and 14A)

In CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 / 174 Taxman 87 (SC), it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably, the receipt was on revenue account and if the object of assistance under the Subsidy Scheme was to enable assessee to set up a new unit or to expand the existing unit, the receipt of the subsidy was on capital account. Therefore, the Court was of view that it was the object for which the subsidy/assistance was given, which determined the nature of the incentive subsidy. The form of the mechanism through which the subsidy given was irrelevant. (Para 15)

In this case, the object of the subsidy was for expansion of their capacities, modernization, and improving their marketing capabilities and, thus, those were for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary, it did not imply that the same was in the form of refund of sale tax paid. It was the quality of the payment that was decisive of the character of the payment and not the method of the payment or its measure, that made it fall within capital or revenue. Thus, in the present case, the amount paid as subsidy was really capital in nature. (Para 16)

Hence, view of Tribunal was to be upheld. (Para 18)

Income Tax Act, 1961 Section 4

Case Law Analysis: CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC): 2008 TaxPub(DT) 2302 (SC) followed.