2003 (5) TMI 26 - HC - Income Tax

High Court rules power subsidy as revenue receipt subject to income tax; differs from Tribunal's view.

The High Court of Madhya Pradesh ruled in favor of the Revenue, holding that the power subsidy received by the assessee-company was a revenue receipt and ... Power subsidy received by the assessee-company - objects of power subsidy granted to an industrial undertaking on the percentage of its electricity bills is to meet a certain percentage of the expenditure on power - Tribunal was not justified in holding that the power subsidy received by the assessee-company was a capital receipt and therefore, not chargeable to income-tax Issues involved:1. Taxability of power subsidy received by the assessee-company as revenue or capital receipt.Analysis:The High Court of Madhya Pradesh was tasked with providing an opinion on whether the power subsidy received by the assessee-company should be considered a capital receipt not chargeable to income tax, as held by the Tribunal, or a revenue receipt subject to taxation. The court examined the nature of the subsidy in question and its treatment under the Income-tax Act, 1961.The assessee-company, engaged in manufacturing tyres and tubes, received a power subsidy during the assessment year 1992-93. The Income-tax Officer treated the subsidy as revenue in nature and added it to the assessee's taxable income. This decision was upheld by the appellate authority but overturned by the Tribunal, which relied on a previous decision without detailed discussion. The Tribunal's decision was challenged by the Revenue, leading to the reference to the High Court.The court emphasized that the taxability of income is not determined by its utilization but by its nature. It held that the power subsidy received by the assessee was a revenue receipt and should be taxed accordingly. Citing Supreme Court precedents, the court noted that power subsidies are intended to offset a percentage of power expenditure and are therefore considered revenue in nature. The court disagreed with the Tribunal's characterization of the subsidy as a capital receipt and upheld the Income-tax Officer's decision to include it in the assessee's taxable income.In conclusion, the High Court ruled in favor of the Revenue, stating that the power subsidy received by the assessee-company was indeed a revenue receipt and should be subject to income tax. The court directed the Appellate Tribunal to take necessary action in line with the judgment.