TaxTMI 
TaxTMI 
2021 (3) TMI 504
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.... "On the facts and circumstances of the case and in law, whether the ld. CIT(A) has erred in treating the subsidies given in the form of sales tax subsidy and refund of interest on term loan as capital asset." 2. The facts in brief are that the assessee-company is engaged in the business of manufacturing and exporting of cotton yarn. During the year, the assessee has received 'Industrial Promotion Subsidy' amounting to Rs. 21,66,57,592/- from the Government of Maharashtra under the 'Package Scheme of Incentives, 2001' and another subsidy amounting to Rs. 6,22,55,596/- from the Central Government as incentive in the form of reimbursement of interest under the 'Technology Up-gradation Fund Scheme'. These subsidies were claimed as 'cap....
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....d Capital investment or employment generation. The State Govt, has also declared the Industrial, Investment and Infrastructure Policy, 2006 so as to ensure sustained industrial growth, further improve the conducive investment climate in the State, provide a global competitive edge to the State's industry and promote employment and balanced regional development. The Policy envisages grant of a customized package of incentives to Mega Projects. While the Package Scheme of Incentives 2007 declared subsequently outlines the eligibility criteria and monitoring mechanism for administering the incentives, the issue of putting in place a mechanism for sanction and disbursement of Industrial Promotional Subsidy (IPS) as part of the cust....
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....referred to as "the 2001 Scheme") for encouraging entrepreneurs for setting up Mega Projects in the eligible area in the State of Maharashtra". (e) As eloquently reflected by the "Eligibility Certificate" placed at page 102 to 109 of the APB, (kind attention is drawn to column 7 on page 103 of the APB), it was on account of a capital investment of Rs. 18531.53 crore made by the appellant company in the said mega project that it became eligible for grant of the "Industrial Promotion Subsidy" in question. This fact by itself is cogent enough to irrefutably establish that the subsidy so received is capital in nature not chargeable to tax. (f) As demonstrated by the aforesaid documents, the primary purpose for which incentives....
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....e part of the said mega project was registered under the Technology Upgradation Fund (TUF) and a term loan of about Rs. 165 crores was taken by the appellant company from financial institutions/banks for making investment in plant and machinery. In terms of the TUF scheme, the appellant company is receiving incentive in the form of reimbursement on a quarterly basis of 5% of interest charged by the financial institutions/banks. Under the "Interest Subvention" scheme introduced by the RBI on the advice of the Ministry of Finance, an interest subvention of 2 percentage point per annum is provided by the Government. Thus, applying the purpose test laid down by the Supreme Court in various decisions, particularly Sahney Steel (supra) a....
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....he 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 upgradation in textile industry would result in capacity expansion and modernization, which would have direct impact on employment generation, exports and globalization of textile trade. In order achieve such objective, TUF scheme was introduced by the Government to provide interest subsidy on loan taken for technological up gradation by the units in the textile industry. In terms of the said scheme, the appellant received interest subsidy of Rs. 25,90,32,252 in respect of v....