2015 (10) TMI 2764 - AT - Income Tax

Sales tax subsidies deemed capital, not taxable. Appeals allowed. Clarity on subsidy treatment.

Vardhman Acrylic Limited Versus The A.C.I.T., Ludhiana, The D.C.I.T. Versus M/s Steel Strips Wheels Limited, M/s Steel Strips Wheels Limited Versus The Addl. C.I.T., Chandigarh, The D.C.I.T. Versus M/s Indian Acrylics Ltd.,

Vardhman Acrylic Limited Versus The A.C.I.T., Ludhiana, The D.C.I.T. Versus M/s Steel Strips Wheels Limited, M/s Steel Strips Wheels Limited Versus The ... Issues Involved:Appeals against separate orders of the Commissioner of Income Tax (Appeals) for various assessment years; Determination of whether sales tax subsidy received is capital or revenue in nature.Analysis:1. The appeals were filed by different assessees and the Department against separate orders of the Commissioner of Income Tax (Appeals) for various assessment years. The common issue in all appeals was whether the sales tax subsidy received should be treated as capital or revenue in nature. The appeals were heard together for convenience.2. The facts and circumstances of the case were similar in all appeals. Reference was made to a specific case involving Vardhman Acrylics Limited to understand the treatment of sales tax subsidy. The Assessing Officer had treated the subsidy as a revenue receipt and taxed it under 'income from other sources,' a decision upheld by the Commissioner of Income Tax (Appeals).3. Upon appeal to the ITAT, the assessee's appeal was dismissed based on a judgment of the Punjab & Haryana High Court. However, following a subsequent decision by the Hon'ble Supreme Court in a different case, the appeals were restored to the Tribunal to determine the nature and purpose of the sales tax subsidy.4. The main issue before the Tribunal was to decide whether the sales tax subsidy received was capital or revenue in nature. The Tribunal considered the schemes under which the subsidies were granted by the Governments of Gujarat and West Bengal. It was noted that the subsidies were aimed at promoting industrial development and growth through capital investments.5. The Tribunal compared the schemes of the two states and concluded that the sales tax subsidy received by the assessee was capital in nature based on the purpose for which the subsidy was given. The Tribunal's decision was guided by the judgment of the Hon'ble Supreme Court in a similar case involving Ponni Sugars & Chemicals Ltd.6. The arguments put forth by the learned counsel for the assessee were not contested by the Department's representative. The Tribunal carefully analyzed the facts, schemes, and purpose of the subsidies to determine their nature.7. Relying on a previous decision of the Coordinate Bench of the Tribunal, the Tribunal held that the sales tax subsidy received was capital in nature and therefore not taxable. The appeal of the assessee was allowed based on this determination.8. The Tribunal's decision in the present case was consistent with its findings in a previous case involving Vardhman Acrylics Limited. The Tribunal held that the sales tax subsidy received by the assessee was capital in nature, leading to the allowance of the appeal.9. In cases where assessees had received sales tax subsidies from the Punjab Government under a specific scheme, the Tribunal applied the same reasoning and held the subsidies to be capital in nature, resulting in the allowance of the appeals filed by the assessees.10. The Tribunal's order was pronounced in open court on October 21, 2015, with a consistent decision across all appeals regarding the treatment of sales tax subsidies as capital in nature.