TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1428
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.... by the AO that the assessee had received capital subsidy of Rs. 4,86,00,000/-, which was capitalised in the books. The AO observed that under Section 5 of the Act, all income received or accrued was taxable unless specifically exempt. The Assessing Officer also took note of the fact that capital subsidies were held to be not taxable subject to reduction of the same from 'actual cost' of assets in case of depreciable assets. The Assessing Officer also referred to a fact of insertion of sub-clause (xviii) in section 2(24) of the Act, by the Finance Act 2015 w.e.f. 01.04.2016 providing for an exclusive definition of the expression 'Income' under the taxing laws. The Assessing Officer noted that the assessee had received a subsidy of Rs. 4,86,00,000/- as financial support for setting up a 1.40 MW Small Hydro Power (SHP) Project from the Government of Himachal Pradesh and Haryana. Further, the AO observed that the assessee neither treated the subsidy as revenue income nor reduced the cost of depreciable assets as per the law laid down by the Hon'ble Supreme Court. The assessee was accordingly asked to justify why the capital subsidy should not be reduced from the cost of the assets. In....
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....inference in respect of the said capital subsidy and accounting treatment thereof as to the same being in the nature of capital subsidy and also not subject to reduction from cost of fixed assets keeping in view the decision of Hon'ble Supreme Court of India as per judgement quoted supra." 3. The AO rejected the above submissions of the assessee and held that since the assessee had received subsidy on plant and machinery from the Government and therefore, the assessee was bound to reduce the cost of plant & machinery by the said subsidy amount. Accordingly, depreciation relatable to subsidy amounting to Rs. 72,90,000/- (@15% of Rs. 4.86 crore) was withdrawn and added to the total income of the assessee. The relevant discussion by the AO is reproduced as under: "The reply of the assessee is duly considered and found that the same is not tenable. In my view, if the assessee has received subsidy on plant & machinery from Government and the assessee was bound to reduce the cost of plant & Machinery. Therefore, depreciation on Rs. 4,86,00,000/- under the head subsidy on plant & Machinery @ 15% is hereby withdrawn and added to the income of the assessee which comes to Rs. 72,....
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....AO has disallowed depreciation of Rs. 72.90 lakhs as "withdrawal of depreciation on subsidy received". Subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Debatable points regarding the Taxability of Subsidy have been whether the concessional receipt would be brought within the purview of tax as the same has been advanced for the purpose of stimulating and incrementing the profit earring capacity of business entities or to encourage setting up of industrial units in low profile areas? Or whether such chief and vital source of receipt is attributable towards the profitmaking activity of the business entity or towards capacity building & utility expansion? 3.3. These issues have passed through the judicial scrutiny in plethora of cases adjudicated and settled upon by various High courts & including the Hon'ble Supreme Court of India. The ever-growing dispute concerning the taxability of subsidy (by whatever name called) has been dealt prospectively by the provision of Finance Act, 2015 w.e.F01.04.2016 3.4. Prior to the amendments mad....
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....n into account for determination of the actual cost of the asset in accordance with the provisions of explanation 10 to clause (1) of section 43. Section 43: Definitions of certain terms relevant to income from profits and gains of business or profession (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Explanation 10 Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion a....
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....tified and erred both on facts and in law as to disallow the said Rs. 72.90 in account said depreciation disallowance, contrary to and against the spirit and principles and Rules of consistency since no such disallowance was made in the asstt. year 2012-13 and 2013-14 which assessments have been completed u/s 143(3) of the Act after due application of mind by the then Assessing Officer. 4. That the Ld. ACIT was also wrong and unjustified and erred both in facts and in law to disallow impugned depreciation of Rs. 72.90 contrary to the facts on record that the said Power Plant was commissioned in Asstt. year 2012-13 and consequently for the Asstt year 2014-15, the disallowable amount would be the depreciation on WDV value of the said assets for the cited Asstt. year, if any, without prejudice to legal rights and grounds as above. 5. That the assessee craves to add, delete and modify any grounds of appeal during the course of Appeal proceedings." 9. At the outset, the ld AR submitted that in this case, the present appeal of the assessee was decided earlier by the Tribunal vide order dated 28.07.2022 which had set aside the order of ld. CIT(A) and directed the Ld. ....
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....taking into consideration the definition of Income under Section 2(24) of the Income Tax Act, 1961, where sub- clause (xviii) has been inserted including 'subsidy for the first time by Finance Act, 2015 w.e.f. April, 2016 i..e assessment year 2016-17. The amendment has prospective effect and had no effect on the law on the subject discussed above applicable to the subject assessment years." By respectfully following the ratio laid down in the case of Ankit Metal (supra), we allow the Ground No. 5 of the Assessee. Since, we have allowed the Ground No. 1 & 5 by quashing the addition, other grounds of the Assessee requires no adjudication. In the result, the appeal of the assessee is partly allowed." 9.2 In view of the above decision the ld AR submitted that the reliance placed by the Assessing Officer and confirmed by the ld CIT appeal that the sub- clause (xviii) inserted by including 'subsidy for the first time by Finance Act, 2015 w.e.f. April, 2016 i..e assessment year 2016-17 in Section 2(24) of the Act to be part of income, to hold that the subsidy received by the assessee in assessment year 2014-15 would also be taxable in view of the above insertion was no....
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...., Govt. of India's policy guidelines to encourage setting up Hydro Power Projects in the states. In order to appreciate the rival submissions, the salient features of the subsidy scheme as noted by the AO in para no 6 of the assessment order are reproduced as under : "6. The said Capital Subsidy was due and released as per the declared Policy to encourage setting up New SHP Projects in the States; as envisaged of his Central Govt: through Ministry of New and Renewal Energy (MNRE) and salient features thereof, (1) The Ministry of New and Renewable Energy (MNRE) of the Central Govt, is encouraging setting up, of Small Hydro Power (SHP) projects in the private sector, joint sector, co operative sector etc. the Ministry will provide financial support for the new SHP projects upto 25 MW capacity (2) The financial support would be released in one or two instalments. The first instalment of 50% of financial support may be released to the financial Institution/bank, after placement of order for electro mechanical equipment and disbursement of 50% loan during the execution of the project and the balance 50% of financial support after successful commissioning of pr....
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....mance guarantee tests, testing & certification of performance of the project and the commencement of commercial generation. 29. The financial institution/bank, after receipt of the financial support would reduce the loan by the equal amount as pre-payment of loan. The Fl/bank will not charge any pre-payment penalty, if any, from the developer for this amount. " (emphasis supplied by us) 11.2 Para no. 2 of this scheme states that the first instalment of 50% of the financial support may be released to the financial institution / bank after placement of order for electro-mechanical equipment, which gives an indication that the subsidy has been given to the assessee towards the cost of the assets. Similar features are also in para no. 20, 25 and 29 of the said scheme as highlighted above. However, after a careful perusal of the entire scheme, we are of the considered view that such clauses only lays down a mechanism for the release of the subsidy and not intended to meet the cost of the assets installed by the assessee on which the present assessee has claimed depreciation. This would be evident from the condition in para no. 2 of the said subsidy scheme wherein it is pr....