The Income Tax Appellate Tribunal (ITAT), Indore bench held that subsidies received under Industrial promotion scheme is revenue in nature. The subsidies are provided to assessee for initial support to the industry during the earlier days to enable it to become operational competitive with other established industries.
Assessee, is engaged in the business of Tyre and Allied Products manufacturing. The assessee has taken Radial Tyre Manufacturing Technology and use of Bridgestone brand of manufactured products for its entrepreneurial venture in India.
During the assessment proceedings the AO noted that the assessee has credited a sum of Rs.5,07,64,000/- on account of Madhya Pradesh Industrial Investment Promotion Assistance receivable but in computation of income the assessee has reduced its total income by Rs.45,75,39,588/
After the assessment proceedings AO held that the subsidy received from Government of Madhya Pradesh Under Industrial Promotion Scheme 2004 is revenue receipt.
Aggrieved by the order, the assessee filed objections before theDispute Resolution Panel DRP. The DRP has confirmed the draft assessment order and rejected objections filed by the assessee
Thereafter the assesee filed another appeal before tribunal against the order of DRP.
Before the tribunal Sukhsagar Syal, Counsel for assessee relied upon the decision of incentives scheme was for setting up new industries undertakings in the State and also for the purpose of stimulating substantial expansion of the industries.
It was further contended that the subsidy given by the State was upto 10% of the capital investment in the undertakings. Since the subsidy was calculated on the basis of quantum of investment in capital such subsidy cannot be considered to have been received by the assessee on a revenue account.
P.K. Mishra, Counsel for Revenue supported the decision of AO and DRP.
The tribunal during the proceedings observed that the dispute is only regarding the subsidy received by the assessee in the shape of refund of commercial tax and Central Sales tax, now State GST and Central GST.
The purpose to give the subsidy is initial support being provided to the industry during the earlier days to enable it to become operational competitive with other established industries.
Therefore, the subsidy by way of refund of commercial tax/GST is certainly not an aid to setting up of the industries or reducing the cost of capital in setting up of industry. Thus subsidy is not given to acquire capital assets but it is given for more beneficial carrying business of industry set up by the assessee.
The subsidy is aimed to supplement trade receipts or recoupment of revenue expenditure already incurred by the assessee and therefore, the same is revenue in nature.
After reviewing the facts and submissions of the both parties, the two member tribunal bench of B.M. Biyani, (Accountant Member) and Vijay Pal Rao (Judicial Member) held that the subsidy received by the assessee under Industrial Promotion Scheme of Madhya Pradesh is revenue in nature.
Therefore the bench decided the ground against the assessee.
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