2024 (1) TMI 972 - HC - Income Tax

Freely usable subsidies taxable as revenue income, mining damage payments deductible, machinery sale profits under Section 43(6)(c)(i)(B) upheld

Commissioner Of Income Tax, Kolkata –II, Kolkata Versus Birla Corporation Ltd.

The Calcutta HC decided three substantial questions of law in this tax appeal. First, regarding subsidies, the court held that freely usable subsidies are ... Nature of receipts - subsidies - revenue or capital receipts - Whether Tribunal erred by not considering that subsides which may be used freely, are operational subsidies and not capital subsides and thus the same are taxable as revenue income? - HELD THAT:- We find that this issue has been decided in favour of the revenue and against the assessee by a judgment and order in Birla Corporation Limited [2011 (7) TMI 1171 - ITAT KOLKATA] Following the aforesaid judgment, the substantial question of law No. 1, as afore-quoted, is answered in favour of the revenue and against the assessee. Disallowance of deduction of proportionate amount of lease hold land written off - HELD THAT:- The amount paid by the assessee was determined by the Collector in terms of the statutory provision of Rajasthan Revenue Act read with the Rajasthan Land Acquisition Act. The event to pay compensation arose to the assessee only on account of damage caused to the surface of the land falling in mining lease area during mining operation/business operation. There was no requirement to pay had there been no damage caused to the surface of the land by mining/business operation. Thus, the payment in question made by the respondent/assessee was in the nature of expenditure for carrying out business operations. No interest in land has been acquired by the respondent/assessee by payment of such compensation. Thus, the payments are in the nature of incidental expenditure to conduct the mining and business operation. Therefore, the expenditure so incurred by the respondent/assessee is revenue in nature. Consequently, the CIT(A) and the Income Tax appellate Tribunal have not committed any error of law to hold the aforesaid expenditure as revenue in nature and accordingly allowed the deduction - substantial question of law no. 2 is answered in favour of the assessee Profit on sale of machinery of a closed down unit - Treatment of accounting profit from sale of certain depreciable fixed assets chargeable of tax on the basis that the accounting treatment - Whether it cannot effect the operation of the statutory provisions contained in Section 43(6) of the said Act and for the purpose of income tax the block of assets concept was followed as per the statutory provisions? - HELD THAT:- Reducing the block assets by the amount in question representing the sale of some of the assets out of the block assets is in terms of the afore-quoted provisions of Section 43(6)(c)(i)(B) of the Act, 1961 which permits reduction of money in respect of any asset falling within that block which is sold or discarded or demolished or destroyed during the previous year together with amount of scrap value, if any, so, however, that the amount of such deduction does not exceed the written down value as so increased. The deduction by the amount in question is undoubtedly under the aforesaid provisions of Section 43(6)(c)(i)(B) of the Act, 1961. Therefore, the CIT(A) and the Income Tax Appellate Tribunal have not committed any manifest error of law to reduce the sale proceeds from the written down value and allowed the depreciation on reduced written down value. The substantial question of law nos. 3 and 4 are answered in favour of the assessee and against the revenue. Issues Involved:The judgment addresses substantial questions of law related to operational subsidies, deduction of leasehold land written off, addition on profit from sale of machinery, and treatment of accounting profit from sale of depreciable fixed assets.Substantial Question of Law No. 1:The Court found in favor of the revenue, citing a previous judgment. The appeal by the revenue was allowed, setting aside the Tribunal's order.Substantial Question of Law No. 2:The case involved the deduction of compensation paid for damages caused during mining operations. The Court determined that the compensation was a revenue expenditure, not a capital expenditure, as it was necessary for conducting business operations. The appeal of the revenue was dismissed on this question.Substantial Questions of Law Nos. 3 & 4:The respondent reduced the written down value of block assets due to the sale of part of those assets. The Court found that this reduction was in accordance with the relevant provisions of the Income Tax Act, allowing for the deduction of the sale proceeds from the written down value. Therefore, the appeals on these questions were also dismissed.In conclusion, the judgment favored the revenue on Substantial Question of Law No. 1, while ruling in favor of the assessee on Substantial Questions of Law Nos. 2, 3, and 4. The appeal was partly allowed based on the findings for each substantial question of law.