Subsidy on Excise Duty is Capital Receipt, not Capital Investment: Delhi HC Holds No Nexus Between Excise Duty Paid & Cost of Machine [Read Order]

The High Court at New Delhi decided that excise duty exemption is a capital receipt and not a subsidy on capital investment, and that there exists no nexus between excise duty and cost of a particular machine.

The appeal was filed by the Revenue department who were aggrieved by the order dated 24.09.2024 of the Income Tax Appellate Tribunal (ITAT), New Delhi Bench where their appeal was dismissed.

The ITAT held that subsidy on excise duty paid, which the assessee/respondent received under excise duty exemption provided for by the Central Government was a capital receipt and thus not liable to be taxed under the Income Tax Act, 1961. This subsidy had been received under the Incentive Scheme 2001 issued by the Gujarat Government.

The High Court referred to CIT, Madras v. Ponni Sugars & Chemicals Limited (2008) wherein it was stated that Sales and Excise Duty refund or subsidy linked to capital investment is a capital receipt.

Considering the facts of the case, the two member bench observed that the subsidy which the assessee-respondent received was capital receipt independent of the cost of any asset. Further, the Delhi HC held that there was no nexus with the excise duty paid with the cost of a particular machine.

Justice Dinesh Mehta and Justice Vinod Kumar opined that the subsidy was not a capital investment subsidy and was a form of reimbursement of the excise duty paid. The High Court of Delhi upheld that view of the Tribunal and noted that the questions presented in the Revenue department’s arguments neither arise nor can be answered in favour of them.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates