2005 (12) TMI 216 - AT - Income Tax

Tribunal decision on interest and transport subsidy treatment

The Tribunal upheld the deletion of the addition related to non-charging of interest on loans advanced to a sister concern, following earlier decisions. ... Chargeable As Issues Involved:1. Deletion of addition on account of non-charging of interest on loans advanced to a sister concern.2. Deletion of addition on account of transport subsidy received from the State Government.Issue-wise Detailed Analysis:1. Non-Charging of Interest on Loans Advanced to Sister Concern:The department contested the deletion of an addition of Rs. 23,58,000 made by the Assessing Officer (AO) due to the non-charging of interest on loans advanced to a sister concern, while the assessee paid interest on bank borrowings. The Tribunal noted that this issue had already been decided in favor of the assessee in previous years (1992-93, 1994-95, and 1996-97) by the Tribunal itself. The AO had calculated interest at 18% on the funds diverted to the sister concern and added Rs. 23,58,000 to the income. The CIT(A) deleted this addition by following earlier orders for the assessment years 1990-91 to 1992-93 and 1994-95. The Tribunal upheld the CIT(A)'s order, following its own earlier decisions.2. Transport Subsidy Received from State Government:The department also contested the deletion of an addition of Rs. 1,19,27,429 made by the AO, who treated the transport subsidy received from the State Government as a revenue receipt. The assessee claimed this amount as a capital receipt based on judgments from the Gauhati High Court (CIT v. Assam Asbestos Ltd) and the Kerala High Court (CIT v. Ruby Rubber Works Ltd).Assessing Officer's View:The AO observed that the transport subsidy was a recurring benefit reimbursed against freight paid, thus a revenue receipt. The AO distinguished the cited cases and noted that the subsidy was for operational expenses, not for creating a new asset.CIT(A)'s View:The CIT(A) relied on the Supreme Court judgment in CIT v. P. J. Chemicals and the Gauhati High Court's decision in Assam Asbestos Ltd, treating the transport subsidy as a capital receipt.Tribunal's Analysis:The Tribunal examined the scheme under which the subsidy was granted and noted that it was intended to reduce the cost of raw materials and finished goods transportation, a trading activity. The Tribunal referenced the Supreme Court's decision in Sahney Steel & Press Works Ltd, which held that subsidies assisting in carrying out business operations are revenue receipts. The Tribunal also cited the Calcutta High Court's decisions in Merinoply & Chemicals Ltd and Sarda Plywood Industries Ltd, which supported the view that transport subsidies are revenue receipts. The Tribunal concluded that the transport subsidy was a revenue receipt and reversed the CIT(A)'s order, restoring the AO's decision.Separate Judgment by Vice President:The Vice President concurred with the conclusion but provided additional reasoning. He emphasized examining the scheme's nature and purpose, referencing the Supreme Court's decision in P.J. Chemicals Ltd, which distinguished subsidies based on their purpose. He reiterated that subsidies reducing operational costs are revenue receipts, aligning with the Supreme Court's principles in Sahney Steel & Press Works Ltd. The Vice President also distinguished the case from other cited decisions, emphasizing the specific nature of the transport subsidy.Conclusion:The Tribunal upheld the deletion of the addition related to non-charging of interest on loans advanced to a sister concern, following earlier decisions. However, it reversed the CIT(A)'s decision on the transport subsidy, treating it as a revenue receipt based on the nature of the subsidy and relevant judicial precedents. The appeal of the department was partly allowed.