Subsidy Received by Nestle India as Incentive to Establish Industrial Unit is Capital receipt, Cannot be Adjusted Against Block of Assets: Delhi HC [Read Order]

In a significant ruling the Delhi High Court observed that the Subsidy received by Nestle India, the assessee as incentive to establish industrial unit is Capital receipt and cannot be adjusted against block of assets.

The appeal concerns the Assessment Year (AY) 2009-10 and the appellant/revenue has assailed the common order passed by the Income Tax Appellate Tribunal (ITAT).

The subsidy that the respondent/assessee had received from the Government of Goa amounting to Rs.25,00,000/- is concerned, CIT(A), while agreeing that it was a capital receipt, directed reduction of the same from the block of assets, albeit, on a proportionate basis. In other words, CIT(A) treated the subsidy as an incentive received for purchasing assets.

The CIT(A), while holding, for the reasons given in the order, held that money received in the form of subsidy was a capital receipt, had directed that it be reduced from the block of assets, albeit, on a proportionate basis. This led to, both, the appellant/revenue, as well as the respondent/assessee being aggrieved by the order passed by CIT(A).

The ITAT, agreed with CIT(A) that the subsidy received by the respondent/assessee was, indeed, a capital receipt and gone on to rule that it cannot be adjusted against the block of assets, for the reason that it was not a sum paid to the respondent/assessee to meet, directly or indirectly, any part of the actual cost of the subject asset(s).

A Division Bench of the Delhi High Court comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “Having regard to the fact that the subsidy received by the respondent/assessee was an incentive given to establish an industrial unit in a backward area and, thus, generate employment for local inhabitants, we cannot but agree with the Tribunal and CIT(A) that the subsidy, indeed, was a capital receipt.”

The Bench added that insofar as the other limb of the issue is concerned, we agree with the Tribunal that the measure for calculating the subsidy, which was 25% of the fixed capital cost, cannot determine the purpose for which the subsidy was given, and, thus, as directed by CIT(A), adjusted proportionately against the cost of the assets.

“Since the subsidy in this case was not intended as a payment to meet, directly or indirectly, a part of the cost of the assets, no adjustment could have been ordered, as was directed by CIT(A). The Tribunal, on this score, in our view, reached the correct conclusion” the Bench concluded.

To Read the full text of the Order CLICK HERE

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