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2015 (7) TMI 515 - AT - Income TaxTreatment to interest subsidy - revenue v/s capital - 3% Central Interest Subsidy under the Central Interest Subsidy Scheme, 2002 of Government of India in favour of Kathua unit; 2.5% interest subsidy under Rajasthan Investment Promotion Scheme, 2003 by Rajasthan Government in favour of Bhawanimandi unit and Interest subsidy under Technology Up-gradation Fund Scheme by Ministry of Textiles, Government of India in favour of all the units of the company - Held that:- With regard to interest subsidy, under the Interest Subsidy Scheme 2002, Ld. CIT(A) noticed that the assessee company had received interest subsidy to the extent of 3% of the working capital advanced by the banks / financial institutions. The amount of subsidy so received was shown as part of “miscellaneous income” in Schedule XV. The subsidy was granted for industrial development in the State of Jammu & Kashmir for creating employment opportunities. By applying the “purpose test”, laid down by Hon’ble Apex Court in the case of Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT ) and also in the light of other judgements, which have considered the schemes, Ld . Commissioner observed that primary consideration of Central Government in granting incentives was to generate employment through acceleration of industrial development and thus each incentive can be said to have been designed to achieve public purpose and therefore, it is not by any stretch of imagination constitute as production incentive for the benefit of assessee alone. Therefore, the interest subsidy is in the nature of capital receipt. With regard to 2.5% capital investment subsidy, under Rajasthan Investment Promotion Scheme, 2003, Ld. CIT(A) observed that subsidy was provided for promoting investment in the State of Rajasthan and was linked to capital investment/ and hence the scheme was in the larger public interest, therefore, it constitutes capital receipt and not liable to tax. Similarly, with regard to 5% interest subsidy granted by Ministry of Textiles, Ld. CIT(A) perused the objects of the scheme while coming to the conclusion that it was introduced to promote technological upgradation in the Indian Textile Industry and also noted that the issue is squarely covered by Punjab & Haryana High Court decision in the case of Shyam Lal (2011 (1) TMI 409 - PUNJAB AND HARYANA HIGH COURT ) wherein it was held that such subsidy received under the said scheme is capital in nature. - Decided against revenue.
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