Subsidy granted by Govt. for encouraging Industries are Capital Receipts: ITAT deletes Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune bench has held that subsidies granted by the government for encouraging industries are capital receipts and deletes addition.

The assessee, M/s. Aurangabad Electricals Limited is engaged in the manufacture of Automobile and Brake System Components and the Generation of power through windmills. During assessment proceedings, the Assessing Officer treated the subsidy received from the Govt. of Maharashtra under the Industrial Promotion Subsidy Package Scheme, 2007 of Rs.5,98,28,000/- as revenue receipt.

Aggrieved by the assessment order the appellant approached CIT(A), which deleted the addition of subsidy by holding it as capital receipt. Aggrieved by the decision of the first appellate authority the revenue filed an appeal before the ITAT.

The Coram of Mr. Inturi Rama Rao, Accountant Member, and Mr. S.S. Viswanethra Ravi, Judicial Member observed that the decisive factor for considering the nature of subsidy as a capital or revenue receipt is the 'purpose' for which the subsidy has been granted and not the manner of its disbursal. Simply because the subsidy has been disbursed in the form of a refund of VAT and CST, it will not alter the purpose of granting the subsidy, which is nothing but the establishment of new industrial units in less developed areas of the State.

The Tribunal by relying on the decision of the Supreme Court in the case of CIT vs. Chaphalkar Brothers has held that “since the subsidy was granted actually as incentives for encouraging the dispersal of industries to the less developed areas of the State of Maharashtra, the subsidy cannot be treated as revenue receipt.

Mr. Sharad Shah and Mr. Arvind Desai appeared on behalf of the assessee and respondent respectively.

To Read the full text of the Order CLICK HERE

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