The Chennai bench of Income Tax Appellate Tribunal (ITAT) has recently held that subsidy received from the Government of India to encourage the development of biomass co-operation system in industries is capital receipt.
Assessee Manali Petrochemical Ltd engaged in the business of manufacturing and trading of Petrochemical products. After filing the return of income for the assessment year 2013-14 assessee’s case was selected for scrutiny.
Thereafter the AO passed an assessment order along with making disallowance of capital subsidy received from Government of India for Rs. 84 lakhs.
The assessee has filed objection against draft assessment order passed by the AO before the DRP and the DRP upheld additions made by the AO towards disallowance of capital subsidy received from Government of India through Tamil Nadu Energy Development Agency.
Further the Assessing Officer, has assessed capital subsidy received from Government of India as income assessable under section 2(24)(xviii) of the Income Tax Act, 1961 on the ground that subsidy received by the assessee is in the nature of revenue receipts.
Aggrieved by the assessment order, the assessee filed an appeal before the tribunal.
R. Vijayaraghavan, counsel for the assessee submitted that, subsidy received by the assessee is neither directly used for acquisition of any asset the same has not been reduced from the cost of asset as required under provisions of section 43 of the Income Tax Act.
Further, subsidy received by the assessee is capital in nature, but not in the nature of revenue receipts because said subsidy has not been given for the purpose of promotion of the cogeneration system alone.
P. Sajit Kumar counsel for revenue submitted that, if a subsidy is given to the taxpayer to run the business more profitably or reimburse the costs incurred in running the business, then subsidy shall qualify as taxable revenue receipt.
It was observed by the tribunal that objectives of the subsidy scheme promoted by the Ministry of New and Renewable Energy, Government of India, are to encourage the deployment of biomass cogeneration systems in industries for meeting their captive thermal and electrical energy requirement with supply of surplus power to the grid.
Assessing Officer has completely erred in treating subsidy received from Government of India as revenue receipts taxable under Section 2(24)(xviii) of the Income Tax Act, the bench observed.
The two member bench of V. Durga Rao, (Judicial Member) and Manjunatha. G (Accountant Member) held that the Subsidy received by the assessee from Government of India through Tamil Nadu Energy Development Agency, is capital subsidy given by the Government to enable the assessee to set up new power plants in line with a program on biomass cogeneration system in industry.
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