Case Details:

Inox Air Products Private Limited vs. ACIT

Appeal No.:

ITA No. 1042/PUN/2017

Order pronounced by:

ITAT Pune

Date of order:

06-07-2021

In favour of:

Assessee

Assessment Year:

2014-15

The assessee is engaged in the business of manufacturing and selling industrial/ medical gases. The assessee company received capital subsidy on setting up of the new/ expansion units at Bokaro, Jejuri and Bhiwadi. In respect of Bhiwadi unit, the plant was set up in the F.Y.2012-13 and the commercial production was commenced on 02.12.2012 and the said plant was eligible for Investment Subsidy and Employment Generation Subsidy for a period of 7 years in terms of the policy announced by Government of Rajasthan. The subsidy was accounted for on accrual basis and credited to Capital Reserve Account.

The A.O. was of the opinion that the subsidies were received after the commencement of commercial production, therefore, these subsidies were granted only to assist the revenue operations of the business of the assessee company and therefore, the nature of the subsidy is only revenue in nature placing reliance on the decision of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Limited vs. CIT reported in 94 Taxman 368 (SC), accordingly, taxed the subsidy amount as revenue income.

On appeal before Ld. CIT(A), the Ld. CIT(A) concluded that the subsidy was given for capital investment. He further concluded that the fact that part of the subsidy was given by way of refund of sales tax paid by the appellant will not change the character of the subsidy and therefore, held that it is a capital receipt. However, the Ld. CIT(A) considering the provisions of Explanation 10 of Section 43(1) of the Act, directed the A.O. to reduce the amount of subsidy from the respective block of assets.

Being aggrieved by decision of Ld. CIT(A) holding it to be a capital receipt, the Revenue is in appeal in Appeal No. 1118/2017. The assessee being aggrieved by directions of Ld. CIT(A) to reduce the subsidy from cost of respective block of assets is in appeal in Appeal No. 1042 of 2017.

The issue in the present appeal relates to the subsidy received by the assessee company is whether it is in the nature of capital or revenue. On perusal of the respective schemes of the subsidy, it is clear that the subsidy is only granted in order to accelerate the industrial development and promote the employment opportunities.

It is settled position of law that to determine the true nature of the subsidy, a “purpose test” has to be applied as held by the Hon’ble Supreme Court in the case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in 306 ITR 392 (SC). The Co-ordinate Bench of the Tribunal has rightly applied the “purpose test” and had come to conclusion that the nature of subsidy is only in capital nature and we do not set any reason to differ with the reasoning of the Co-ordinate Bench of the Tribunal. Accordingly, we do not find merit in the grounds of appeal filed by the Revenue. As such, the appeal of the Revenue is dismissed.

Issue of directions of Ld. CIT(A) to reduce the amount of subsidy received from the respective block of assets in terms of Explanation 10 to Section 43(1) of the Act:

On perusal of the respective scheme of the subsidy, it is clear that the subsidy is not granted to meet the cost of any fixed asset and therefore the Explanation 10 to Section 43(1) have no application to the facts of this case. The Co-ordinate Bench of the Tribunal in appeal in earlier year in assessee’s own case in ITA No. 1041/PUN/2017 had rightly applied the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. M/s Welspun Steel Limited (supra) and we do not see any reason to differ with the reasoning of the decision of the Co-ordinate Bench. Accordingly, we reverse the directions of Ld. CIT(A) directing the A.O. to reduce the amount of subsidy from the cost of the respective block of assets.