1993 (11) TMI 80 - AT - Income Tax

ITAT clarifies timing of subsidy inclusion in income, directs further investigation

The ITAT partially allowed the appeal, emphasizing the need for clarity on the timing of the subsidy's inclusion in the income and the formal process for ... Income, Assessable As Issues:1. Tax treatment of sales tax subsidy received by the assessee.2. Timing of inclusion of the subsidy amount in the assessee's income.Detailed Analysis:1. The primary issue in this appeal was the tax treatment of a sales tax subsidy received by the assessee. The Assessing Officer treated the subsidy amount as income of the assessee for the year in question, as the dispute regarding the subsidy had been decided in favor of the assessee by the Supreme Court. The CIT (Appeals) upheld this treatment, considering the subsidy as part of the sale proceeds and taxable as income. The assessee contended that the subsidy was a revenue subsidy granted by the State Government for setting up a new industrial undertaking. The ITAT considered whether the subsidy should be treated as revenue or capital in nature based on various government orders and legal precedents.2. The timing of inclusion of the subsidy amount in the assessee's income was also a crucial issue. The assessee argued that since the subsidy related to assessment years 1980-81 and 1981-82, any addition should have been made in those years. During the proceedings, both sides debated whether the subsidy should be considered as revenue or capital in nature. The ITAT analyzed the nature of the subsidy, which was a cash refund of sales tax paid on raw materials purchased by the assessee for the first five years of production. The ITAT concluded that the subsidy was of revenue nature and taxable. However, they found no reason to include the amount in the income of the assessee for the particular year under appeal.3. The ITAT further delved into the timeline of the subsidy entitlement, emphasizing that the Supreme Court's order did not automatically grant the subsidy to the assessee. They highlighted the need for a formal action by the government to make the subsidy payable to the assessee. Due to insufficient evidence showing when the subsidy became payable, the ITAT directed the Assessing Officer to determine the point in time when the subsidy amount actually became payable to the assessee. Ultimately, the ITAT reversed the lower authorities' orders and deleted the addition to the assessee's income for that year, with directions for further investigation.In conclusion, the ITAT partially allowed the appeal by the assessee, emphasizing the need for clarity on the timing of the subsidy's inclusion in the income and the formal process for the subsidy to become payable to the assessee.