1994 (7) TMI 51 - HC - Income Tax

Attributable To Computation Of Capital Debt Due Income Tax Act New Industrial Undertaking

Summary

Issues:
- Interpretation of subsidy as a loan or grant
- Eligibility of deduction under section 80J on subsidy amount

Interpretation of Subsidy:
The case involved two references concerning the assessment years 1983-84 and 1984-85. The Income-tax Appellate Tribunal raised questions regarding the nature of a subsidy granted by the Government to an undertaking. The Tribunal considered the subsidy to be a loan until the completion of five years from the date of grant, during which the Government retained the right to recover the subsidy if conditions were not met. The Tribunal held that the subsidy, if not utilized as per conditions, would become a liability, rather than a grant. The court analyzed the purpose of the subsidy, which aimed to encourage entrepreneurs to develop industries in backward areas. The court emphasized that the subsidy was not linked to a specific asset but was intended to attract investment in underdeveloped regions.

Eligibility of Deduction under Section 80J:
Regarding the deduction under section 80J, the court referred to relevant legal precedents, including the exclusion of borrowed money and debts due from the capital employed. The court cited the case of Lohia Machines Ltd. v. Union of India, which clarified that borrowed money and debts due could not be considered part of the capital employed. Additionally, the court highlighted the provisions of sub-section (1A) of section 80J, which outlined the computation of capital employed in an industrial undertaking. The court concluded that the subsidy could not be treated as borrowed money or a debt due, as it did not involve a third party lender. Therefore, the court held that the Tribunal erred in considering the subsidy as a loan and denying the deduction under section 80J based on the nature of the subsidy. The court ruled in favor of the assessee, stating that the subsidy amount should be included in the capital employed for the purpose of computing deductions under section 80J.

Conclusion:
In summary, the court determined that the subsidy granted by the Government to the assessee was not akin to a loan but rather a grant intended to promote industrial development in backward areas. The court clarified that the subsidy should be considered part of the capital employed for the purpose of claiming deductions under section 80J. As a result, the court ruled in favor of the assessee, holding that the Tribunal's interpretation regarding the nature of the subsidy and its impact on section 80J deductions was incorrect.