While disposing the writ petitions filed by M/s Sunbeam Auto Private Limited, High Court of Delhi recently held that sales tax subsidy should be treated as capital receipt and not as revenue receipt and it is not taxable as per the provisions of the Income Tax Act 1961.
Assessee in this case is a private limited company duly filed its return of income for the relevant assessment year.
During the assessment proceedings the Assessing Officer (AO) noticed that the assessee has showed that the receipt of sales tax subsidy as capital receipt in the books of accounts of the assessee. The AO was of the opinion that it should be considered as revenue receipt and accordingly he added back the sale tax subsidy received by the assessee and also denied the exemption.
Justice S.Muralidhar and Justice Prathibha M.Singh of Delhi High Court observed that if the object of the subsidy scheme was to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was enable the assessee to set up a new unit or to expand the existing unit the receipt of the subsidy was on capital account.
While perusing the relevant material facts and records it has not found that in the present case the application of the subsidy scheme would not result any increasing changes in the profit of the assessee, therefor it cannot be treated as revenue receipt. The Court held that the sales tax subsidy received by the Petitioner will be treated as a capital receipt and not be added to the income of the Petitioner.
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