Subsidy received in form of VAT reimbursement from State Governments towards Industrialization shall be termed Capital Receipt: ITAT grants relief to Britannia Industries [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) while granting relief to Britannia Industries held that the subsidy received in the form of Value Added Tax (VAT) reimbursement from the state governments towards the industrialization of the state shall be termed as capital receipt.

The assessee is a public limited company and is engaged in the business of manufacturing and trading of bakery and dairy products. Income of Rs. 481,71,62,790/- declared in the return for Assessment Year 2013-14 filed on 29/11/2014.

The Assessing Officer denied the claim of capital receipt of VAT subsidy at Rs.23,88,62,511/- observing that the assessee had himself stated it to be a revenue receipt and thereafter has claimed the same as a capital receipt during the course of assessment proceedings, the same is to be treated as the revenue receipts as there is a direct nexus of the VAT subsidy with the revenue generated and, thus made the addition. But the Commissioner of Income Tax (Appeal) [CIT(A)] deleted the said addition holding it to be a capital receipt.

The Departmental Representative vehemently argued supporting the order of the Assessing Officer. On the other hand, the Counsel for the assessee heavily relied on the finding of the CIT(A).

The Two-member bench comprising of Manish Borad (Accountant member) and Sonjoy Sharma (Judicial member) held that subsidy received in the form of VAT reimbursement from the State Governments was towards industrialization in the State and to generate employment and, therefore, the entrepreneurs with the attraction of such subsidy plan to establish and commence business operations in such areas and for establishing such business has to make capital expenditure in the form of land, building, plant and machinery and such investments are partly reimbursed by the subsidies granted by the State Governments.

Therefore, the alleged subsidy has been rightly held to be capital receipt by the CIT(A) which thus calls for no interference. Thus, the appeal of the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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