TaxTMI 
TaxTMI 
2013 (10) TMI 650
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....ow compass. Question is whether a certain subsidy received by the respondent assessee under the scheme framed by the Government of Haryana under Chapter IV-C of Haryana General Sales Tax Rules, 1975 should be treated as a capital receipt or a revenue receipt. The Tribunal in the impugned judgement relied on the decision of the Supreme Court in case of Commissioner of Income-tax v. Ponni Sugars and Chemicals Ltd. reported in (2008) 306 ITR 392(SC) and ruled in favour of the assessee in the following manner : "11. We have considered rival submissions and have perused the material on record and gone through the orders of the authorities below. We find that in the course of the assessment proceedings, it was stated by the Assessing Officer in the show cause notice issued to the assessee on 17.11.2006 that the assessee was requested to show cause as to why the amount of capital subsidy should not be reduced from the cost of respective assets for the purpose of calculating depreciation. In reply dated 27.11.2006, it was submitted by the assessee before the AO that the amount of sales-tax incentives received by the assessee of Rs.62,38,589/- was included in the schedule-2 of reserves a....
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....this contention is not put forward in so many words, but this is the ground of the Revenue that the learned CIT(A) is wrong in holding that the Assessing Officer was wrong in treating the subsidy as revenue receipt for the reason that subsidy was not for fixed assets. Hence, as per this ground of the revenue, it comes out that if it is held that the subsidy is for fixed assets, then the natural consequence as per the law should follow and if it is held that it is not for fixed assets, then the same should be required to be added to the income of the assessee is revenue receipt. On this aspect, as to whether the subsidy receipt by the assessee is revenue or capital receipt, we feel that this aspect is covered in favour of the assessee by the decision of the Special Bench rendered in the case of Reliance Industries(supra) and also by the judgment of the Hon'ble Apex Court in the case of Ponni Sugar & Chemicals Ltd.(supra) and hence, we decide this issue in favour of the assessee. But at the same time we direct the Assessing Officer to consider the receipt as subsidy received by the assessee for fixed assets and therefore the Assessing Officer should recalculate the depreciation as pe....
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....ical know how fees or drawing fees paid as lump sum to foreign or Indian collaborations or suppliers as approved by Government of India or paid to laboratories of the State Governments or the Central Government. This fee shall not exceed 5% of the fixed capital investment. Explanation:- Fixed capital investment will cover all the assets of the unit as erected on the site on the date of commercial production and paid for as on any day falling within ninety days after the date of commencement of commercial production" 6. Clause 5(a) of the scheme specified the concession available to the eligible units and inter-alia provided that an eligible industrial unit holding a valid entitlement certificate shall be entitled to the concession of deferment of payment of sales tax including central sales tax and conversion of the same to capital subsidy, computed on the sale of goods manufactured by such unit and declared in the sales tax returns as per the rules specified in Table-I and Table-II. Table-I pertains to concession being available to new industrial unit and Table-II pertains to expansion and diversification of units. Different rates of concession were specified in terms of fixed ....
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....ld normally be presumed to be revenue in nature. In other words, according to the Department, since incentives were given through price and duty differentials, the character of the impugned incentive in this case was revenue and not capital in nature. On the other hand, according to the assessee, what was relevant to decide the character of the incentive is the purpose test and not the mechanism of payment. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case ....
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....dy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." 1. In a recent judgement dated 8.1.2013 in case of DCIT-Circle1(2)-Baroda v. Inox Leisure Ltd., we had an occasion to consider somewhat similar question in the backdrop of entertainment tax waiver scheme of State of Gujarat as well as State of Maharashtra. Even in such a case, the entertainment tax waiver which was granted in terms of sale of tickets was treated as capital in nature when it was found that same was relatable to the capital investment made by the assessee. It was held as under : "10. From the above noted provisions of the scheme it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the terrorism sector. This was to be achieved by attracting higher investment in areas with tourism potential. In order to achieve such purpose, exemption from various taxes as may be applicable was granted. It is true that the exemption was to be computed in terms of tax otherwise payable by the industry. However, the purpose of such exemption was to meet with the capital outlay alread....