The Chandigarh bench of Income Tax appellate Tribunal recently clarified that the sales tax subsidy received by the assessee is capital in nature. Therefore, such receipts are not taxable under the provisions of the Income Tax act, 1961.
In the instant case, the revenue approached the Appellate Tribunal challenging the order of the CIT(A) finding that the sales tax subsidy received by the assessee is capital in nature, and therefore, the same cannot be added to the taxable income. The Revenue contended that the same constitutes revenue receipt. They further relied upon the decision of the Apex Court in Sahney Steel & Press Works Limited & Others Vs. CIT and contended that the first appellate authority erred in relying upon the ITAT decisionby ignoring the Supreme Court decision.
The ITAT found that the issue has been already decided the same issue in favour of the assessee by relying upon the Apex Curt decision in CIT Vs. Ponni Sugars & Chemicals Ltd. & Others. While rejecting the submissions of the Revenue, it was held that “The argument of the learned D.R. that the CIT (Appeals) should have considered the decision of the Hon’ble Supreme Court rendered in the case of Sahney Steel & Press Works Limited & Others (supra) while deciding this issue and not the decision of the Tribunal in the assessee’s own case, we find has no merit , since the decision of the Tribunal was based on the criteria outlined by the Apex Court in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. & Others, 306 ITR 392 for determining the nature of subsidy in the hands of the recipient to be based on the purpose test . Further, the Apex Court , while delivering its judgment in the case of Ponni Sugars & Chemicals Ltd. & Others (supra) has relied heavily on its earlier decision in the case of Sahney Steel & Press Works Limited & Others (supra) and stated that the importance of the judgment in the case of Sahney Steel & Press Works Limited & Others (supra) lay in the fact that i t laid down the basic test to be applied in judging the character of the subsidy, which was the purpose for which it was given. Thus we find that the decision of the Tribunal in the case of the assessee in earlier and later years fol lowing the rat io laid down by the Apex Court in Ponni Sugars & Chemicals Ltd. & Others(supra) cannot be said to be at variance or without considering the decision of the Apex Court in the case of Sahney Steel & Press Works Limited & Others.”
Read the full text of the order below.
