TMI Blog2023 (7) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... eal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2010-11. 2. The only point raised in this appeal is against the nominal addition of Rs. 3,22,200/- made by the Assessing Officer (AO) treating the amount of subsidy as a revenue receipt. 3. The facts apropos the issue are that the assessee is a private limited company engaged in the business of manufacturing of Press parts, Engineering goods, Fabrication and Trading thereof. A return was filed declaring total income of Rs. 12,77,358/-. During the course of assessment proceedings, the AO observed that the assessee received a subsidy of Rs. 3,22,200/- in the year under consideration, which was taken to Reserve and Surplus in the balance sheet. On being called upon to explain as to why the amount should not be charged to tax as a revenue receipt, the assessee submitted that it received Incentive under the Package Scheme for expansion of industry in the approved backward area. In support of its contention, the assessee also furnished a copy of the Agreement for disbursement of Special Capital incentive and Package Scheme of Incentive. The AO opined that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the Certificate has been placed on record. Para 2 of the Certificate states that: On the basis of the information/details furnished by you, under the application form for Eligibility Certificate under the Package Scheme of Incentives, 2001....., the Gross Value of Fixed Capital Investment proposed to be made for the above indicated thereunder is found to be of the order of Rs. 35.80 lacs. Para 6 of the Certificate states that: The holder of Eligibility Certificate shall - (i) Complete all the Final Effective Steps as are listed under the 2001 Scheme by 31st March, 2007 and furnish the complete documentary evidence in respect thereof to the satisfaction of IMPLEMENTING AGENCY. On going through the relevant paras of the Eligibility Certificate, it clearly transpires that the incentive of Rs. 8.055 lakh was sanctioned as a quid pro quo for the Gross Value of Fixed Capital Investment of Rs. 35.80 lakh agreed to be made by the assessee. This fact is further corroborated from para 3 of the Eligibility Certificate stating that: Accordingly subject to fulfilment of all the terms and conditions of the 2001 Scheme Procedure made thereunder of this Eligibility Certificate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Capital receipt. The manner of disbursement of subsidy, that is, whether by means of cash paid or bank loans on soft terms or reduction in expenses or taxes etc. is absolutely alien to the question of determination of the nature of subsidy as a Capital or a Revenue receipt. It is quite possible that a scheme of the Government makes an assessee eligible for subsidy on setting up or expansion of industry in a particular backward area and such subsidy is granted after the commencement of production in the shape of reduction in Sales Tax or Electricity bill etc. In such circumstances, even though, the subsidy is in the nature of reduction in Sales Tax or Electricity bills etc. after the commencement of production, still it will be a capital receipt, because purpose of the subsidy is to set up a new units or expansion of the existing units. Thus, it is evident that one needs to examine the purpose of subsidy and not the manner of its quantification or disbursement. If subsidy is in the nature of a Revenue receipt as is the case of Sahney Steel Works Ltd. (supra) , it becomes Revenue receipt chargeable to tax. If, however, the subsidy assumes the character of a Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultantly, the capital subsidy was held to be not deductible from the cost of assets in terms of section 43(1) of the Act. The Finance (No.2) Act, 1998 inserted Explanation 10 to section 43(1) w.e.f. 01-04-1999 to the effect that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Govt. or a State Govt. etc. in the form of a subsidy or grant, then so much of the cost as is relatable to such subsidy or grant etc. shall not be included in the actual cost of an asset to the assessee. Proviso to the Explanation further provides that where such subsidy or grant etc. is of such a nature that it cannot be directly related to the asset acquired, then, so much of the amount which bears to the total subsidy the same proportion as such asset bears to all the assets in respect of which the subsidy is so received, shall not be included in the actual cost of the asset to the assessee. It is palpable that Explanation 10 to section 43(1) has the effect of neutralizing the decision of P.J. Chemicals (supra) by making it clear that where a portion of cost of an asset acquired by the assessee has been met directly or indirectly by mean ..... X X X X Extracts X X X X X X X X Extracts X X X X
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