2025 (8) TMI 1175 - AT - Income Tax

Remit issue for fresh consideration whether Industrial Promotional Subsidy (Chakan) is capital receipt under section 2(24)(viii) amendment

Mahindra & Mahindra Limited Versus Assistant Commissioner of Income tax, Circle 2 (2) (1), Mumbai

Mahindra & Mahindra Limited Versus Assistant Commissioner of Income tax, Circle 2 (2) (1), Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an industrial promotional subsidy received under a state package scheme qualifies as a capital receipt and is thus not chargeable to tax for normal provisions and for computation of book profit under section 115JB, having regard to the amended definition of 'income' in section 2(24)(viii) effective for the relevant assessment year. 2. Whether the appellate authority erred in adjudicating an additional ground raised at first appeal without adequate opportunity and/or without proper consideration of the post-amendment legal framework and supporting documents - i.e., whether the matter should be remitted for de novo adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of the industrial promotional subsidy: capital receipt vs. revenue receipt Legal framework: The question turns on the statutory meaning of 'income' as amended in section 2(24)(viii) (effective for the assessment year in issue) and on general principles distinguishing capital receipts from revenue receipts for taxability under the Act and for computation of book profit under section 115JB. Precedent treatment: The first appellate authority relied on earlier Supreme Court decisions holding that certain government grants/subsidies may be revenue in nature and thus taxable; those decisions were applied to disallow the claim that the subsidy is a capital receipt. The Tribunal noted those precedents were relied upon below but did not treat them as foreclosing consideration under the amended statutory definition. Interpretation and reasoning: The Tribunal examined the record and the submissions made before the appellate authority, observing that the assessee primarily sought to recharacterise the subsidy under the amended definition of 'income' and contended that the amount constituted 'assistance' of a capital nature. The Tribunal found that the appellate authority did not fully engage with the implications of the amended definition when adjudicating the additional ground. The Tribunal also noted factual gaps highlighted by the appellate authority (absence of documentary proof regarding unit location, nature of manufacturing activity, details of capital investment, employment generated, and eligibility certificate), which prevented holistic verification of the claim. Ratio vs. Obiter: The Tribunal did not finally determine the substantive legal question whether the subsidy is capital or revenue under the amended section 2(24)(viii); rather, its conclusion to remit was based on the need for full consideration of the amended statutory provision and supporting facts. Accordingly, any observations on the substantive taxability are provisional (obiter) and the Tribunal's direction to remit is the operative ratio insofar as procedure and need for comprehensive adjudication are concerned. Conclusions: The Tribunal allowed the ground for statistical purposes by remitting the issue to the first appellate authority for de novo adjudication, directing that the amended definition in section 2(24)(viii) be properly considered and that the assessee be afforded a reasonable opportunity to furnish and rely on relevant documentary evidence to establish the capital nature (if any) of the subsidy. No substantive finding was made on whether the subsidy is ultimately taxable or not. Issue 2 - Adjudication of an additional ground raised at first appeal and procedural fairness/remand Legal framework: Principles of natural justice and appellate adjudicatory practice permit admission of additional grounds at first appeal, but adjudication must be on a complete factual and legal record and the party must be given adequate opportunity to present evidence and submissions; remand is appropriate where the appellate authority has not considered material aspects of law or fact or where factual verification is incomplete and fairness requires fresh consideration. Precedent treatment: The appellate order admitted the additional ground but, in the Tribunal's view, did not adequately address the consequences of the statutory amendment relied upon by the assessee nor did it consider the matter holistically because of missing documentation; prior judicial guidance increasingly requires that novel or statute-driven issues be adjudicated on full materials or remitted if they were not before the adjudicator. Interpretation and reasoning: The Tribunal reviewed the record and found that (a) the additional ground was admitted by the appellate authority; (b) the assessee had framed its contention around the amended definition and sought to treat the subsidy as capital; and (c) the appellate authority's decision mainly applied pre-amendment precedent and also emphasised absence of certain documents. Given these circumstances the Tribunal concluded that the appellate authority had not sufficiently engaged with the amended statutory provision and had not afforded the assessee a full opportunity to substantiate its claim. In the interest of justice and fair play, the Tribunal exercised its remedial power to remit the matter for fresh adjudication rather than decide the contentious legal issue on an incomplete record. Ratio vs. Obiter: The Tribunal's finding that remand is warranted is ratio. Observations critiquing the appellate authority's application of precedent without full consideration of the amendment are explanatory and ancillary to the remand direction. Conclusions: The Tribunal remitted the specific issue relating to the subsidy's character to the first appellate authority for de novo consideration, directed that the assessee be given a reasonable opportunity to produce further documentary evidence and make submissions, and declined to exercise its own jurisdiction to decide the substantive tax character in the absence of complete factual material and comprehensive consideration of the amended statutory provision. Cross-references See Issue 1 for the Tribunal's view that substantive determination under the amended section 2(24)(viii) was not appropriately addressed below; see Issue 2 for the Tribunal's procedural reasoning that led to remand and directions for fresh adjudication with opportunity to adduce evidence.