AI Drafter 
TaxTMI 
TaxTMI 
2021 (4) TMI 675
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....der dated 28.12.2016 passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') at total income of Rs. 8,78,57,740/-. 3. While doing so, the Assessing Officer made addition of subsidy of Rs. 3,51,550/- received from Government of Maharashtra in terms of Package Scheme of Incentives - 2007 as notified under Government of Maharashtra Resolution No.PSI-1707. The Assessing Officer was of the view that the subsidy is nothing but assistance provided by the Government of Maharashtra to the assessee to run the industry profitably, as the subsidy is granted only once the production had commenced. Accordingly, the Assessing Officer held that the subsidy received is revenue in nature, accordingly, brought to tax as revenue receipt. Being aggrieved, an appeal was preferred before the CIT(A), who vide impugned order, confirmed the action of Assessing Officer in bringing to tax the subsidy receipt of Rs. 3,51,550/- as revenue receipt. Being aggrieved, the present appeal is preferred before us by the assessee company. 4. The Ld. AR submitted before us that the object of subsidy was only to encourage the setting up of industries in less developed areas. Theref....
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....ed 29.08.2018, wherein it was held as under:- "7. We have heard the rival submissions and perused the material on record. The only issue in the present appeal is whether the subsidy received from the Government of Andhra Pradesh as an incentive for setting up of a new industry in the eligible area is capita in nature or revenue. On perusal of the G.O.Ms.No.178, dated 21.06.2005 it is clear that the subsidy is granted as an incentive for setting up of a new industry in the State of Andhra Pradesh in the eligible area. No doubt, the subsidy is in the form of reduction / concession in the power tariff which is obviously on revenue account. The Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd (228 ITR 253) (supra) had decided that if the monies are given to the assessee for assisting them in carrying out their business operations after commencement of production such subsidy must be treated as a assistance for the purpose of trading which can be brought to tax as revenue receipt. The said proposition in the case of Sahney Steel & Press Works Ltd (supra) was distinguished by the Hon'ble Apex Court in the case of Ponni Sugars and Chemicals Ltd....
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....ed that such payment received by the assessee under the scheme was not in the course of a trade but was of capital nature." 8. This position of law again was reiterated by the Hon'ble Supreme Court in the case of CIT vs. Chaphalkar Brothers (400 ITR 279) wherein the Apex Court referring to the earlier decisions in the case of Sahney Steel & Press Works Ltd (supra) and Ponni Sugars and Chemicals Ltd (supra) held as under:- "11. Having heard learned counsel for both sides, it becomes necessary to analyze the judgments relied upon. 12. In Sahney Steel & Press Works Ltd.'s case (supra), the notification issued by the Andhra Pradesh Government was concerned with certain facilities and incentives which were to be given to all new industrial undertakings which commenced production on or after 01.01.1969 with investment capital not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. Concession was also available for subsequent expansion of 50% and above. The incentives were in the form of, inter alia, refund of sale tax on raw materials, machinery and finished goods. This Court ....
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....monies must be treated as to have been received for capital purpose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade." 15. Thereafter, the Court went on to discuss certain High Court judgments and, in para 30, specifically referred to the Bombay High Court judgment inSadichha Chitra v. CIT [1991] 189 ITR 774 and approved the view taken by the Bombay and Kerala High Courts as they accorded with the principle laid down in Seaham Harbour Dock Co. case (supra) The facts in Sahney Steel & Press Works Ltd's. case (supra) were distinguished from the facts of the Bombay and Kerala judgments as follows:- "In the case before us, subsidies have not been granted for production of or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. Applying the te....
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....ows: (i) Benefit of the incentive subsidy was available only to new units and to substantially expanded units, not to supplement the trade receipts. (ii) The minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units. (iii) Increase in the free sale sugar quota depended upon increase in the production capacity. In other words, the extent of the increase of free sale sugar quota depended upon the increase in the production capacity. (iv) The benefit of the Scheme had to be utilised only for repayment of term loans." 18. After discussing the judgment in Sahney Steel & Press Works Ltd.'s case (supra) this Court then held: "The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to the applied in judging the character of a subsidy. The test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which....
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....ives qua entertainment duty. It was also added that government with a view to commemorate the birth centenary of late Shri V. Shantaram decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. The aforesaid object is clear and unequivocal. The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centers. This being the case, it is difficult to accept Mr. Narasimha's argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. We hasten to add that the object of the scheme is only one -there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. 23. Mr. Ganesh, lea....
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....Since the subsidy scheme in the West Bengal case is similar to the scheme in the Maharashtra case being to encourage development of Multiplex Theatre Complexes which are capital intensive in nature, and since the subsidy scheme in that case is also similar to the Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, we are of the view that West Bengal cases must follow the judgment that has been just delivered in the Maharashtra case. 28. Accordingly, the appeals filed by the Department are dismissed." 9. Thus, from the above it is clear that the object behind the grant of subsidy is important to determine the nature of the subsidy. In the present case, the scheme specifically provides that the incentives are given to promote industrial investment to all new eligible industrial units. Therefore, we have no hesitation to conclude that the object behind the grant of subsidy is only to promote the setting up of new industry and therefore having regard to the ratio laid down by the Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd (supr....