Subsidy received by Assessee under Package Scheme of Incentives is a Capital Receipt and Not Chargeable to Tax: ITAT [Read Order]

The Pune Bench of Income Tax Appellate Tribunal has held that subsidy received by assessee under Package Scheme of Incentives is a capital receipt and not chargeable to tax.

The assessee, Haldex India Pvt. Ltd., is engaged in the business of manufacturing and sale of connecting rods assembling and other engineering goods. During the course of assessment proceedings the Assessing Officer brought to tax the subsidy received in the form of octroi refund of Rs.4,58,41,000/- as revenue receipts invoking the provisions of section 28(iv) of the Act and assessed a total Income of Rs.19,00,04,860/-.

The assessee approached the first appellate authority alleging that the subsidy was received from the Government of Maharashtra under the Package Scheme of Incentives, 2007. The CIT (A) holds that the subsidy in the form of octroi refund received under the Package Scheme of Incentives, 2007 announced by the Government of Maharashtra is capital in nature as the subsidy was granted as incentives to encourage the dispersal of Industries to the less developed area of the State. Against the order of CIT (A) revenue filed appeal before ITAT.

The counsel for the assessee submitted that the subsidy was granted as incentives to achieve higher and sustainable economic growth with emphasis on balanced Region Development. The object of subsidy is only to encourage the dispersal of industries to the less developed areas of the State of Maharashtra and it should be treated as capital receipts and the provisions of section 28(iv) have no application to the monetary benefits received by the respondent-assessee.

The Coram of Mr. Inturi Rama Rao, Accountant Member and Mr. S. S. Viswanethra Ravi, Judicial Member by relying the Supreme Court decision in CIT v. Ponni Sugars & Chemicals Ltd. has observed that the relevant consideration should be the purpose of subsidy and not its source or mode or payment. When apply purpose test on the facts and circumstances of the case, it demonstrably emerges that the purpose of subsidy is industrial growth; it is linked with the setting up of industrial units; and the amount of subsidy is linked with the amount of investment made in the eligible unit. The purpose is nothing but establishment of new industrial units in less developed areas of the State.

The Tribunal has held that “testing the factual panorama on the touchstone of the ratio laid down by the Supreme Court in the above referred cases, we are of the considered opinion that the subsidy of Rs.4,58,41,000/- is a capital receipt and not chargeable to tax”.

Mr. S. P. Walimbe appeared for revenue and Mr. R. D. Onkar and Mr. Viksit Bhargava appeared for the appellate.

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