AI Drafter 
TaxTMI 
TaxTMI 
2014 (6) TMI 501
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....with the main object of uplifting the poor cobblers to a higher standard of living above the poverty line. In 2001, the Government of Andhra Pradesh vide GO Ms. No.573 dated 26.11.2001 notified the Assessee as the Nodal agency for establishing leather industrial parks at various places in the state, with a view to generate employment and value addition. The government had been providing funds to the Assessee over the years. For the year under appeal, viz. financial year 2008-09, relevant for assessment year 2009-10, the assessee was granted subsidy of Rs. 2.03 Crores, vide Cf G.O.Rt No 39 dated 21.1.2009, a copy of which is placed at Pages 29 and 30 of the Paper Book. The Assessing Officer, observing that this grant was given to meet the expenses towards salaries, etc., treated this amount of subsidy as income of Revenue nature, and consequently brought the same to tax. 4. On appeal, before the CIT(A), the assessee submitted that the grant received by them is a capital receipt and in support of that proposition, quoted excerpts extensively from a plethora of case-laws. It also referred to the audited accounts and statutory auditor's report in that regard, more specifically the o....
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....vant for assessment year 2009-10, the assessee was granted subsidy of Rs. 2.03 Crores, vide Cf G.O.Rt No 39 dated 21.1.2009, Vide letter No Lr. No. LIDCAP/1-49/75 dated 13.10.2011, a copy of which is furnished at Page 7 of the paper Book, addressed by the Assessee to the Principle Secretary to government, it has been stated that so far the Government had granted Rs. 30.82 crores which has been classified as Investment by the Government. But it would appear that the company has been classifying the same as Government grant. This is a mistake as pointed out by the Accountant General vide his report dated 31.3.2011 for the Financial year 2004-05 (Page 13 of the paper Book). However, in the accounts of the assessee for the year ended 31.3.2009, the amount granted for the year under appeal viz., Rs. 2,03,00,000/- has been shown as amounts received as Investments from Govt of AP. (Rs. 9,79,25,000/- as on 31.3.2008 and Rs. 11,82,24,882/- as on 31.3.2009) and is shown as part of share capital. In the Auditor's report for the accounts for the year ended 31.3.2009, relevant for the year under appeal, at item 12 (D) (at page 73 of the paper Book), it has been mentioned that the sum of Rs. 11,....
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....ks. Even in that case, any subsidy received in connection with setting up of Industry, in whatever manner the subsidy may be given, is in the capital field. In this behalf, we are supported in this behalf by the ratio laid down in various cases by the Apex Court and others. It is pertinent to refer at this juncture, to the decisions of the Supreme Court in the case of Sahney Steel and Press Works Limited and others 228 ITR 253 (SC) , Ponni Sugars and Chemicals Limited (306 ITR 392 SC) and Mepco Industries Limited (319 ITR 208 SC), wherein it was held that to determine whether incentives & subsidies are revenue or capital receipts, the purpose underlying the incentives is the determinative test. If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is g....
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....red the Assessee as the Nodal Agency to act as a facilitator and for setting up Leather Industrial parks all over AP. As explained by the Assessee in their letters dt 14.10.2011 and 28.11.2011, the subsidies to the extent of Rs. 15 crores were received from Government of AP for setting up of an International leather Complex at Nellore. The AO himself had held that grants to the extent of 15 Crores is capital in nature and only a sum of Rs. 2.03 Crores (wrongly mentioned as Rs. 2.30 crores by the AO) utilised for paying salaries is revenue in nature. However, there is no bifurcation into two parts, and the entire grant is for setting up of Industrial parks and hence applying the ratio of the decisions referred to above, the entire subsidy received by the assessee has to be concluded as of capital nature. Merely because a portion of the grant is paid to enable the Assessee to meet the expenses, it would not alter the character of the grant. As held by various courts in the case law discussed above, it is the overall purpose of the grant that determines the character of the grant. The method of determination of the quantum of subsidy will not matter: similarly the various heads under ....
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....ct of assessee's claim of loss. 18. Aggrieved, Revenue is in appeal. 19. We heard both sides and perused the orders of the lower authorities. Taking into account the figures of sale of goods, purchase and figures of opening and closing balances of stocks, relevant for the years under appeal, the CIT(A) agreed with the plea of the assessee that there was no stoppage of business activity, and the Assessing Officer mistook the plea of the assessee that the manufacturing activity was stopped as admission of stoppage of business activity. No material to the contrary has been brought on record before us by the Revenue. In the circumstances, we find no infirmity in the conclusion of the CIT(A) on this issue. We accordingly uphold the order of the CIT(A) and reject the grounds of the Revenue on this issue. 20. The next ground of the Revenue in this appeal relates to treatment of lease rental claimed by the assessee as 'business income', as against the Assessing Officer's action in assessing the same under the head 'property income'. 21. Facts in brief are that the assessee admitted lease rental income of Rs.12,33,550 as income from business. Against this, the Assessing Officer ....