TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 1633
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....t or a revenue receipt. Taking the lead case IT(SS)A No. 7/PUN/2019 for A.Y. 2011012 for the narration of facts, we find that the assessee being a private limited company is engaged in manufacturing of steel at Jalna. The assessee-company had set up a mega project as defined in Government of Maharashtra's PSI 2007 in Jalna. Under the scheme PSI 2007 mega project the assessee has received capital incentive subsidy in different years from A.Y. 2010-11 to 2015-16. This incentive being capital receipt was credited to capital reserve in Balance sheet in each of these years. During the A.Y. 2011-12, the assessee received capital subsidy of Rs. 11,51,75,000/- and the same was claimed as capital receipt. The Assessing Officer DCIT Circle 6(1) Mumbai vide regular assessment order u/s 143(3) dated 6-2-2014 for A.Y. 2011-12 held that this subsidy is capital receipt but it needs to be reduced from fixed assets as provided in sec. 43(1) for calculating depreciation. On appeal, the CIT(A)-12 Mumbai vide order dated 17-3-2016 held that entire subsidy of Rs. 11,51,75,000/- is revenue receipt chargeable to tax. The assessee carried the matter further before ITAT Mumbai Bench and the co-ordinate....
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....ived was revenue receipt. During the appeal before the Hon'ble ITAT Mumbai B Bench vide order ITA No. 3428/MUN/2016 dated 03.03.2017 held that the entire subsidy received was in nature of capital receipt not chargeable to tax. The Hon'ble Tribunal relying on the judgment of Hon'ble Bombay High Court in the case of Reliance Industries ltd. 339 ITR 632 held that the subsidy was not given to meet the cost of any particular asset therefore, it need not be reduced from the value of asset for calculating depreciation. The appellant submitted that identical additions were made by the AD in the order passed u/s 143(3) r.w.s. 153A for A.Y.s 2010-11 to 2012-13, 2014-15 & 2015-16 which were fully covered by the decision of the Hon'ble Tribunal Mumbai (supra) Tribunal Mumbai (supra) in the appellant's own case for A.Y. 2011-12. The appellant further relied on the decision of Hon'ble Apex Court in the case of CIT vis Chapalkar Brothers 400 ITR 279 dated 07.12.2017, (IT v/s Shri Balajl Alloys & ors (2016) 138 DTR(SC) 36 wherein it was held that the object for subsidy given must be considered for determining whether it should be treated as capital or revenue receipt. The a....
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....on 43(1) of the Act the AO relied on the decision of Hon'ble Delhi High Court in the case of Steel Authority of India Ltd. v. CIT (2012) 348 ITR 150 (Del) The CIT(A) for treating the subsidy as capital receipt relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 (SC). We find that the CIT(A) while deciding the nature of subsidy granted to the assessee has considered only the form in which the subsidy is granted and conditions based on which the subsidy is granted mainly being generation of employment of local persons. We find that this incentive was granted to the assessee under the Package Scheme of Incentive 2007 as notified by Govt. of Maharashtra. The object of this scheme was to encourage the dispersal of industries to the less developed areas of the States and further improving conducive industrial climate in the State for providing global competitive edge to the states Industry. The policy envisage grant of fiscal incentive to achieve higher and sustainable economic growth with emphasis on balance regional development and employment generation through greater private and public investment in ind....
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.... entitlement of the industrial unit to claim eligibility for the incentive arose even while the industry was in the process of being set up. According to the Tribunal, the scheme was oriented towards and was subservient to the investment in fixed capital assets. The sales-tax incentive was envisaged only as an alternative to the cash disbursement and by its very nature was to be available only after production commenced. Thus, in effect, it was held by the Tribunal that the subsidy in the form of sales-tax incentive was not given to the assessee for assisting it in carrying out the business operations. The object of the subsidy was to encourage the setting up of industries in the backward area. " 5. Thus, it can clearly be seen that a finding has been recorded that the object of the subsidy was to encourage the setting up of industries in the backward area by generating employment therein. In our opinion, in answering the issue, the test as laid down by the Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 219 CTR (SC) 105.' (2008) 13 DTR (SC) 1 .' (2008) 306 ITR 392 (SC) will have to be considered. The Supreme Court has held that the test of the chara....
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....he subsidy was capital in nature. 12. In the present case before us also the assessee has set up a manufacturing unit in notified low human development district Jalana. The assessee has been granted eligibility certificate under PSI-227 No. DIIPSI-20071 Mega Projec/Ec08120091B-401 dated 03-01-2009 on specific criteria that the assessee shall employ 250 employees and at least 75% of same should be local persons. Accordingly, the assessee on complying all conditions of scheme has received Industrial promotion Subsidy (Capital Incentive) from Govt. of Maharashtra under PSI-2007 Scheme. The same was claimed to be capital receipt and credited to capital reserve account by the assessee. We find that in the present case, the cost of the asset is incurred and paid by the assessee and not met by the Government in form of subsidy. The method of quantification i.e. the maximum subsidy limit is the only linked with cost of fixed assets. This quantification is for putting cap on maximum amount of subsidy eligibility. This method of quantification does not mean, in any way, that subsidy is given to offset cost of asset. It is very clear from PSI scheme as well as Eligibility certificate that ....
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....irectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot be deducted from the actual cost under sec. 43(1) for the purpose allowing depreciation. It is further held that if Government subsidy is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the "actual cost". By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. 7. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(1). T....
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....st of the asset. Therefore, incentive in the form of subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost and thus it falls outside the ambit of Explanation 10 to Section 43(1) of the Act. In the light of the above discussion, for the purpose of computing depreciation allowable to the assessee, the subsidy amount cannot be reduced from the cost of the capital asset. Accordingly, on both the issues we are of the view that the subsidy received by the assessee is nature and it cannot be reduced capital in from the cost of the fixed assets for computing depreciation. Accordingly this inter-connected issue of assessee's appeal is allowed." 7. We further observe that the relevant observations of the Hon'ble Apex Court in the case of CIT Vs. Chapalkar Brothers 400 ITR 279 dated 7-12-2017 are as follows: 22. Mr. Ganesh, learned senior counsel, also sought to rely upon a judgment of the Jammu & Kashmir High Court in Shree Balaii Alloys & Ors. vs. CfT (2011) 239 CTR (J&K) 70: (2011) 51 DTR (J&K) 217: (2011) 333 ITR 335 (J&K). While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that....
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....by the Hon'ble Apex Court holding that the relevant consideration should be the purpose of subsidy and not its source or mode of payment. When this test was applied it emerged that the purpose of subsidy is industrial growth; it is linked with the setting of industrial units and the amount of subsidy is linked with the amount of investment made in the eligible unit. Another observation by the Tribunal in this decision was that in the Finance Act 2015 clause (xviii) to sec. 2(24) w.e.f. 1-4-2016 relevant from A.Y. 2017-18 onwards was introduced providing that the assistance in the form of subsidy or grant of cash incentive etc. other than the subsidy which has been taken into consideration in determining the actual cost of the asset in terms of Explanation 10 to sec. 43(1) shall be considered as an item of income chargeable to tax. Since the relevant assessment year with which the Tribunal was concerned was A.Y. 2014-15 the said amended provision of sec. 2(24) sub-clause (xviii) was not applicable to the year under consideration and therefore it was held that the subsidy received by the assessee would not form part of its total income. The relevant paragraphs of this judgment ar....
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....certaining that the eligible unit has complied with the provisions of the Scheme and has commenced its commercial production." Clause 5 of the Scheme states that "New projects, which are set up in these categories in different parts of the State, will be eligible for Industrial Promotion Subsidy. The quantum of subsidy will be linked to the Fixed Capital Investment. Payment of IPS every year will be equal to 25% of any Relevant Taxes paid by the eligible unit to the State or to the any of its departments or agencies." Modalities for sanction and disbursement of IPS 2007 have been given by the Govt. of Maharashtra which state that the Industrial Promotion Subsidy in respect of Mega projects under PSI 2001 and 2007 means an amount equal to the percentage of "Eligible Investments" which has been agreed to as a part of the customised Package, or the amount of tax payable under Maharashtra VAT 2002 and CST Act 1956 by the eligible Mega Projects in respect of sale of finished products eligible for incentives before adjusting of set off or other credit available for such period as may be sanctioned by the State Government, less the amount of benefits by way of Electricity Duty exemption, ....
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....h is nothing but momentum in industrial pace in less developed parts of the State. Testing the factual panorama on the touchstone of the ratio laid down by the Hon'ble Supreme Court in the above referred cases, we are of the considered opinion that the subsidy of Rs.89.73 crore is a capital receipt and not chargeable to tax. 7. At this stage, it is relevant to mention that we are concerned with the A.Y. 2014-15. The Finance Act, 2015 has inserted clause (xviii) to section 2(24) w.e.f. 01-04-2016 providing that the assistance in the form of subsidy or grant of cash incentives etc., other than the subsidy which has been taken into consideration in determining the actual cost of the asset in terms of Explanation 10 to section 43(1), shall be considered as an item of income chargeable to tax. Since the amended provision of section 2(24)(xviii) is not applicable to the year under consideration, the sequitur is that the subsidy received by the assessee would not form part of its total income. We, therefore, overturn the impugned order and direct to treat the subsidy as an item of capital receipt not chargeable to tax." 10. Reverting to the facts of the present case, we find that....