State industrial-unit incentives reimbursing energy charges treated as capital subsidy; excluded from s115JB book profit and not taxable

Incentives received under state schemes, though computed as reimbursement of energy charges, were held to be capital receipts because the determinative test is the purpose of the subsidy, which here was to induce setting up an industrial unit in a backward region; the later insertion of s. 2(24)(xviii) by the Finance Act, 2015 was held prospective and inapplicable to the relevant AY, with the consequence that the receipts were not taxable. For MAT, since the incentives were not in the nature of "income" at all, they could not be included in book profit under s. 115JB, distinguishing SC authority dealing with exempt but taxable income; accordingly, they were excluded from book profit. The Tribunal was held empowered under s. 254 to entertain the claim based on a revised computation without a revised return, and the assessee succeeded.

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Issues Involved:
1. Whether the incentives received by the assessee under the West Bengal Incentive Schemes should be treated as capital receipts or revenue receipts.
2. Whether the subsidies should be included in the Book Profit under Section 115JB of the Income Tax Act, 1961.
3. Whether the Tribunal was correct in allowing the claim of deduction by the assessee through a revised computation instead of a revised return.

Issue-wise Detailed Analysis:

1. Nature of Incentives:
The primary issue was whether the incentives received by the assessee, namely 'Interest subsidy' under the West Bengal Incentive Scheme, 2000, and 'Power subsidy' under the West Bengal Incentive to Power Intensive Industries Scheme, 2005, should be treated as capital receipts or revenue receipts. The Tribunal had held these subsidies as capital receipts based on the purpose test, which is a determining factor in judging the character of the subsidy. The purpose test, as laid out by the Supreme Court in the cases of Sahney Steel and Ponni Sugars, indicates that if the subsidy is given to set up a new unit or expand an existing unit, it is a capital receipt. The court found that the subsidies in question were granted to promote industrialization in backward areas, specifically for setting up new industries or expanding existing ones, thus qualifying them as capital receipts.

2. Inclusion in Book Profit:
The second issue was whether these subsidies should be included in the Book Profit under Section 115JB of the Income Tax Act, 1961. The court held that since the subsidies were capital receipts and not income as defined under Section 2(24) of the Act, they should not be included in the Book Profit. The court distinguished this case from the Apollo Tyres case, where the income was taxable but exempt under a specific provision. Here, the subsidies were not in the nature of income at all, and thus, could not be included in the Book Profit for computation under Section 115JB.

3. Revised Computation vs. Revised Return:
The third issue was whether the Tribunal was correct in allowing the claim of deduction by the assessee through a revised computation instead of a revised return. The revenue relied on the Goetze (India) Ltd. case, which restricts the power of the Assessing Officer to entertain claims without a revised return. However, the court noted that this restriction does not apply to the powers of the Appellate Tribunal under Section 254 of the Income Tax Act. The Tribunal, therefore, was justified in entertaining the claim of deduction even though the assessee did not file a revised return.

Conclusion:
The court dismissed the revenue's appeal, holding that the subsidies in question were capital receipts and not liable to be taxed. These subsidies should not be included in the Book Profit under Section 115JB, and the Tribunal was correct in allowing the claim of deduction through revised computation. The court's decision was based on the purpose test and the nature of the subsidies as capital receipts, aligning with established legal precedents.

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