Subsidy received as Octroi Duty Refund is Capital Receipt and not Taxable: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai has held that, Subsidy received as an octroi duty refund is a capital receipt and not chargeable as tax.

Assessee Company, Sudal Industries Limited is engaged in the business of manufacturing and selling aluminum extrusion and alloys. It filed its return of income on 30th November 2013 at a loss of ₹42,03,160/-. The return of income was picked up for scrutiny and assessment order under Section 143(3) of the income tax Act, 1961 (the Act) was passed on 17th March 2016 at ₹5,76,15,590/-. The assessee also disclosed the book profit under Section 115JB of the Act, at a loss of ₹1,42,11,185/- which was adjusted to derive a book profit of ₹4,86,81,823/-.

The assessee received a State Government subsidy for the expansion of capacity in the form of an Octroi duty refund of ₹ 2,10,50,620/-. The above sum has been directly added to the capital reserve and not routed through the profit and loss account. The Assessing Officer held that during the year, the assessee has paid octroi of ₹1,75,63,594/- and got an incentive of ₹1,32,07,000/-. Accordingly, the Assessing Officer made the addition of the Government grant of ₹1,32,07,000/- as business income and did not accept that same as capital receipt.

Aggrieved the assessee filed an appeal before the Commissioner of Income Tax (CIT). CIT confirmed addition with respect to the Government grant of ₹1,32,07,000/-, he held that the Government grant is given for payment of Octroi duty, originally paid by the assessee which is refunded by the Government. Therefore, it cannot be termed a capital receipt. Accordingly, the CIT upheld the action of the learned Assessing Officer.

The bench consisting of Prashant Maharishi, Accountant Member, and Pavan Kumar Gadale, Judicial Member held that “ the subsidy received by the assessee in the form of octroi duty refund of ₹ 132,07,000/– is a capital receipt not chargeable to tax.”

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.