TaxTMI 
TaxTMI 
2015 (7) TMI 515
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....r various schemes of Central and State Governments: i) 3% Central Interest Subsidy under the Central Interest Subsidy Scheme, 2002 of Government of India in favour of Kathua unit; -Rs.3,36,53,526/-. ii) 2.5% interest subsidy under Rajasthan Investment Promotion Scheme, 2003 by Rajasthan Government in favour of Bhawanimandi unit; - Rs. 44,64,000/-. iii) Interest subsidy under Technology Up-gradation Fund Scheme by Ministry of Textiles, Government of India in favour of all the units of the company; - Rs. 25,90,32,252/-. 3. As noticed from the paper book filed by the assessee, copy of Central Interest Subsidy Scheme 2002, Rajasthan Government Promotion Scheme 2003, and Technology Upgradation Scheme of Ministry of Textiles were placed before the A.O., before the completion of assessment proceedings pursuant to revised return filed on 30.03.2011. Pages 6-10 of the paper book contain the revised return and annexures. Pages 236-238 of the paper book refer to detailed written submissions filed before the A.O. (vide letters dated 10.05.2011 and 16.11.2011) wherein the assessee clarified that it had received interest subsidy under the above schemes which deserve to be capitalised, by app....
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....mode of receipt of amount by the assessee, in the light of ratio laid down in the following cases: (a) Sahney Steel and Press Works Ltd. and Others Vs CIT 228 ITR 253 (S.C.) (b) Ponni Sugars & Chemicals Ltd. Vs CIT 306 ITR 392 (S.C.) (c) M/s. Shree Balaji Alloys Vs CIT 198 Taxman 122 (J&K H.C.) (d) CITVs Sham Lal Bansal 200 Taxman 14 (P&H H.C.) 9.1 With regard to interest subsidy, under the Interest Subsidy Scheme 2002, Ld. CIT(A) noticed that the assessee company had received interest subsidy to the extent of 3% of the working capital advanced by the banks / financial institutions. The amount of subsidy so received was shown as part of "miscellaneous income" in Schedule XV. The subsidy was granted for industrial development in the State of Jammu & Kashmir for creating employment opportunities. By applying the "purpose test", laid down by Hon'ble Apex Court in the case of Ponni Sugars & Chemicals Ltd. (supra) and also in the light of other judgements, which have considered the schemes, Ld . Commissioner observed that primary consideration of Central Government in granting incentives was to generate employment through acceleration of industrial development and thus each incenti....
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....falls in the capital field. He thus strongly relied upon the order passed by Ld. CIT(A). 15. We have carefully gone through the rival submissions and perused the material placed on record. We have also gone through the claim made by assessee and the schemes, under which the assessee was enjoying the benefit of subsidies, to appreciate the purpose for which subsidies were granted. In our considered opinion, the subsidies received by the assessee fall in the capital field and Ld. CIT(A) has given exhaustive reasons in coming to the conclusion that the subsidies are in the capital field and it is not necessary for us to reiterate the facts in great detail. However, for the sake of completeness, we extract the relevant observations of Ld. CIT(A) as under: i) Regarding 3% Central Interest Subsidy:- "* Interest Subsidy under the Central Interest Subsidy Scheme, 2002:- The aforesaid subsidy was introduced by the Government of India vide notification dated 22.10.2002, a copy whereof is placed at pages 55 to 57 of the appellant's paper book. On perusal of the said notification, it is noticed that the very first para of the said notification provides that- "The Government of ....
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....hat the subsidy was granted for industrial development in the State of Jammu & Kashmir and for creating employment opportunities. Thus, applying the purpose test laid down by the Supreme Court in the case of Ponni Sugar, as elaborately discussed in detail in earlier paras, the subsidy received by the appellant is in the nature of capital receipt and not revenue receipt. The aforesaid view is also supported by the decision of the Jammu & Kashmir High Court in the case of Shree Balaji Alloys (referred above) which has been relied upon by the AIR of the appellant. In that case, too, the High Court considered the taxability of subsidy amount for setting up units in the State of Jammu & Kashmir. The assessee in that case relied upon Office Memorandum dated 14th June, 2002, Notification dated 28th November, 2003 (as referred in the present case) and the two other notifications referred for exemption from payment of excise duty. Based on these notifications, the assessee claimed that excise refund and interest subsidy was in the nature of capital receipt not liable to tax. The Tribunal however, did not agree with the claim of the assessee and held that excise refund and interest subsidy....
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....hus, the paramount consideration of the Central Government in providing the incentives to the New Industrial Units and Substantial Expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the "- State, additionally creating opportunities for self-employment, hence a purpose in Public Interest. 26. In this view of the matter, the incentives provided to the Industrial units, in terms of the New Industrial Policy, for accelerated Industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional Permanent source of Employment to the unemployed in the State of Jammu and Kashmir, were in fact, in the nature of creation of New Assets of Industrial Atmosphere and Environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve Public Purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the Sta....
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....3,36,53,526) is held to be in the nature of capital receipt." (ii) Regarding 2.5% Interest subsidy under Rajasthan Investment Promotion Scheme, 2003: "On perusal of the records, it is further noticed that interest subsidy under the aforesaid Rajasthan Investment Promotion Scheme was also shown as part of other income in the Schedule 15 of the audited accounts. These facts, in my view, leads to the conclusion that since the subsidy was provided for promoting investment in the state of Rajasthan and was linked to capital investment/additional wages being provided, the same was granted in larger public interests and hence constitute capital receipt not liable to tax. Accordingly, it is held that subsidy of Rs. 44,64,000/- received under the above unit was not liable to tax. (iii) Regarding 5% interest subsidy (TUFS) by Government of India :- "On perusal of the aforesaid, it is clear that the TUF scheme was introduced by the Government recognizing the potential of the textile industry and the larger benefits of technological upgradation in the textile industry, which was necessary to provide a fresh lease of life to the said industry. The Government recognized that technological ....