TaxTMI 
TaxTMI 
2019 (3) TMI 914
X X X X Extracts X X X X
X X X X Extracts X X X X
.... questions are quoted below for ready reference:- "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding the amount received towards Capital Subsidy from M/s. Royal Sun and Alliance Plc, for infusion of additional capital by the appellant in the joint venture company as per the terms of Letter of Intent, dated 05.04.2000 is revenue receipt chargeable to tax?; (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in not holding that the bad debts recovered by the Appellant, which were written off and allowed as deduction in respect of companies which got amalgamated with the appellant company, should not be taxed in the hands of the appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Assessee is utilised for acquisition of an asset, the same must be understood to be in the nature of a revenue receipt. The Court held that voluntary payments made by the parent company to its loss making Indian Company can also be understood to be payments made in order to protect the capital investment of the Assessee Company. If that is so, the payments made to the Assessee Company by the parent Company for the Assessment Years in question cannot be held to be revenue receipts. 4. The facts of the present case are that under the Letter of Intent, Royal and Sun Alliance Insurance Plc (RSA), a leading UK based Insurance Company entered into an Agreement with the present Assessee Company M/s. Sundaram Finance Limited., (SFL) to start....
X X X X Extracts X X X X
X X X X Extracts X X X X
....invested or for subscription to capital of the said joint venture company, but still the Assessing Authority brought to tax the said capital subsidy received by the Assessee Company from RSA treating the same as Revenue Receipt in the said Assessment Order. The observations of the Assessing Authority in this regard are quoted below for ready reference:- "The Assessee is taking the shelter of the specific clause in the Letter of Intent for claiming that the said receipt is a capital receipt/capital subsidy which is not taxable. However, how is it true? Is the payment really in pursuance of the said clause? Any prudent business house would not return back a part of the capital subscribed by the share holders. So far, this pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... time. Then why the Assessee firm should receive the subsidy of Rs. 2.11 crores when again total capital contribution made by the joint venture partners was Rs. 100 crores, out of which Sundaram Finance Group's share was only Rs. 7.4 crores and that of the Assessee was Rs. 4.80 crores. It is a common knowledge that in an insurance sector, foreign investment has been allowed to the extent of 26%. That is why RSA has been contributing only at 26% of the joint venture capital and the balance has been contributed by the Assessee along with other Sundaram Finance Group companies. Para 5 of the Indent Letter quoted by the learned cousnel for the Assessee reads as under:- "The joint venture will look to RSA to contribute its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed with the Assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time-barred and the amount attained a totally different quality. It became a definite trade surplus. The Assessee itself had treated the money as its own money and taken the amount to its profit and loss account. The amounts were assessable in the hands of the Assessee." Similarly, the Hon'ble Delhi High Court in the conviction and sentence of CIT vs. State Trading Corporation of India Ltd., (247 ITR 114) has held that even receipt of forfeited Security Deposit was to be treated as revenue receipt. Similar view was taken by the Hon'ble jurisdictional High Court in the case of CIT v. Sund....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the share capital of the joint venture company in terms of the Letter of Intent. It may be noted here that 74% of the total subscription share capital was to be invested by the Indian Companies including the Assessee company and only 26% of share capital was to be invested by the RSA (UK Company). There is no material on record to show that the said capital subsidy received by the Assessee Company during the year in question was diverted by the Assessee company for any other purpose except for being invested in the share capital of the joint venture company. This money has not been utilised as subscribing the share capital of the UK Company, RSA itself though the Assessee Company SFL. There is no evidence on record brought by Revenue to....