Subsidy from State Govt under ‘Capital Investment Subsidy’ is a Non Taxable Capital Receipt: ITAT [Read Order]

Subsidy

The New Delhi bench of Income Tax Appellate Tribunal on yesterday ruled that the amount received as subsidy from the State Government under ‘Capital Investment subsidy’ is not taxable under the Income Tax Act as it is ‘capital’ in nature.

The bench including Vice President Shri.R.S Syal and Judicial Member Smt.Beena Pillai were held so while dismissing the appeal of revenue.

In the instant case, the assessee declared receipt of Rs.2.5 crore as capital in nature, being, the amount of subsidy from West Bengal Government under West Bengal Incentive Scheme 2000. The assessee maintained that the same was ‘Capital Investment subsidy’ given to incentivize the setting up of units in West Bengal and, hence, not revenue receipt. The AO, however, treated the amount as revenue receipt and demanded tax.

The CIT (A) reversed the order in appeal. Aggrieved, the Revenue carried the matter to the tribunal and the tribunal admitted the fact that the given amount of subsidy for setting up of unit in West Bengal and the same has been characterized as `Capital investment subsidy’.

The Tribunal, noticed that the Apex Court, in Sahney Steel and Press Works vs. CIT (1997) 228 ITR 253 (SC), has held that the operational subsidy which is received after commencing the business is taxable income.

Following the above decision, the Tribunal held that an admitted position that the assessee received this amount as a quid pro quo for setting up of its unit in West Bengal. The same, being, allowed for setting up of industry has been rightly held by the CIT (A) to be capital receipt.

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