2001 (8) TMI 13 - SCH - Income Tax

Supreme Court reclassifies power subsidy as revenue, impacting taxation

The Supreme Court allowed the appeal, overturning the Tribunal's decision on power subsidy classification as a capital receipt. The Court ruled that power ... Revenue v. capital receipt distinction - Taxability of power subsidy as business receipt - Application of precedent: Sahney Steel and Press Works Ltd. on power subsidies - Scope of income chargeable under section 28(iv) of the Income-tax Act, 1961Taxability of power subsidy as business receipt - Revenue v. capital receipt distinction - Scope of income chargeable under section 28(iv) of the Income-tax Act, 1961 - Power subsidy received by the assessee is a revenue receipt and taxable under section 28(iv) rather than a capital receipt. - HELD THAT: - The Court followed the precedent in Sahney Steel and Press Works Ltd., which held that power subsidies are of a revenue nature and taxable. The terms on which the subsidy was granted in the present case showed that it operated to reduce the assessee's electricity bills; consequently the receipt cannot be characterised as capital. Applying that principle, the Tribunal's conclusion that the subsidy was a capital receipt was set aside and the subsidy was held to be liable to tax as a business receipt under the charging provision relied upon.The Tribunal's finding that the power subsidy was a capital receipt is rejected; the subsidy is a revenue receipt taxable under section 28(iv).Final Conclusion: Appeals allowed; the orders under challenge are set aside insofar as they held the power subsidy to be a capital receipt. The question is answered against the assessee and in favour of the Revenue. The Supreme Court allowed the appeal and set aside the Tribunal's decision regarding power subsidy being a capital receipt. The Court held that power subsidies are of revenue nature and should be taxed accordingly. The subsidy in this case went towards reducing electricity bills. The decision favored the Revenue.