Subsidy Received for Setting Up or Expansion of Industry is ‘Capital Receipt’, Not Taxable: ITAT Delhi [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal held that, Subsidy received for setting up of or expansion of industry falls in the realm of ‘Capital receipt’ which is not chargeable to tax.

The Assessee M/s LG Electronics India Pvt. Ltd filed a return declaring total income of Rs.337.00 crore and odd was filed by the assessee on 25.9.2008. Assessment in this case was completed u/s 143(3) read with section 144C of the Income Tax Act on 27.11.2012 at a total income of Rs.654.97 crore. During the year under consideration, the assessee received, inter alia, subsidy amounting to Rs.49,38,00,503/- from the Government of Maharashtra which was treated as a capital receipt not chargeable to tax.

The Assessing Officer, while framing the assessment, accepted the treatment given to it by the assessee. However, the ld. CIT, invoking jurisdiction under section 263 of the Income Tax Act, came to hold that such subsidy received from the Government of Maharashtra was a revenue receipt and hence chargeable to tax. Characterizing the assessment order as erroneous and prejudicial to the interests of the Revenue, he revised the assessment order and directed the Assessing Officer to include the amount of such subsidy in the total income.

The Tribunal observed that the assessee received the extant subsidy for accelerating flow of investment in industry in the State of Maharashtra i.e., for expansion of the industry. The subsidy resulting from such industrial expansion is ex consequenti governed by the judgment of the Supreme Court in the case of Ponni Sugars and Chemicals Ltd.and, hence, a capital receipt.

The Tribunal also observed that the Package Scheme of Incentive 2001, under which the assessee received the above subsidy, is a successor of the 1993 Scheme of Maharashtra Government and 1979 Scheme of Maharashtra Government. All these schemes were/are aimed at increasing the pace of industrialization and the incentive is based on the amount of investment in fixed assets.

While allowing the appeal the tribunal also held that, “It is a settled legal position that if two views are possible on a particular point and the Assessing Officer has taken one of such possible views, it is not open to the CIT to treat the assessment order erroneous and prejudicial to the interest of the Revenue and impose the other possible view as against the one canvassed by the Assessing Officer”.

Read the full text of the Order below.

taxscan-loader