The division bench of the Bombay High Court in Commissioner of Income Tax 4 v. M/s. Harinagar Sugar Mills Ltd, held that the subsidy received from the Bihar Government in the form of excise duty reimbursement is capital receipt under the provisions of the Income Tax Act and therefore, is not taxable from the hands of the assessee.
The bench comprising of Justice M.S sanklecha and Justice A.K Menon, while dismissing the appeal filed by the Revenue clarified that the same cannot be added to arrive at book profits of the respondent-assessee under Section 115J of the Act.
Before the Court, the Revenue contended that the subsidy received as Excise Duty reimbursement is a revenue receipt. It was further submitted that the Tribunal has erroneously upheld the order of Commissioner of Income Tax (Appeals) in directing the Assessing Officer to delete the addition made to book profits on account of subsidy received by way of excise duty.
The bench noted that the subsidy scheme formulated by the Government of Bihar was for the purpose of attracting capital investment and to encourage setting up/expansion of existing unit, which will ultimately resulted in encouraging capital investments in the State of Bihar.
It was further noticed that the issue about the object/purpose of the subsidy deciding its character as revenue or capital has been settled in the decision of the Supreme Court in CIT, Madras v/s. Ponni Sugars &Chemicals Ltd. Accordingly, the subsidy received by the respondent-assessee from the State of Bihar was in the nature of capital receipt.
With regard to the second contention, i.e, addition in the books profit, the bench observed that the subsidy, being a capital receipt cannot be added to arrive at book profits of the respondent-assessee under Section 115J of the Act.
Before concluding, the bench said, “however, it is pertinent to note that the question as proposed also seeks addition to book profits on account of excess depreciation along with subsidy received by the respondent-assessee. It is settled position in law as held by the Apex Court in Apollo Tyres Ltd. v/s. CIT 255 ITR 273 that the Assessing Officer while computing the book profit under Section 115J of the Income Tax Act has only a power to examine whether the books of account have been maintained in accordance with the provisions of the Companies Act and have been duly audited. The book profits as reflected in the duly audited account have to be accepted by the Assessing Officer and the only limited power he has to increase/ decrease the book profit as arrived at by the assessee is only in terms of the Explanation to Section 115J of the Income Tax Act. In the present case, the Revenue is not invoking the explanation to Section 115J of the Income Tax Act to vary the book profit declared in the audited accounts of the respondent-assessee. Thus, the question as proposed herein does not give rise to any substantial question of law as it also stands concluded against the Revenue by the decision of the Apex court in Apollo Tyres Ltd.”
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