2019 (3) TMI 397 - HC - Income Tax

Subsidy or incentive - purpose tests for grant of subsidy/incentive - incentives received in the form of Sales Tax and Central Excise benefit - characterization of income - revenue or capital receipt - HELD THAT:- The subsidy was granted under schemes framed by the State and the Central Government, to be given to the assesses who set up new industry in Kutch District. The scheme was envisaged to encourage investment which would in turn, provide fresh employment opportunity in the district which had suffered due to devastating earthquake. The computation of subsidy may be on the basis of sales tax or excise duty. Nevertheless, the purpose test would ensure that, the subsidy was capital in nature.

Adjustment of subsidy - Subsidy not to be considered as payment directly or indirectly to meet any portion of the actual cost - whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets? - If the subsidy is treated as a capital in nature, the same must bring down assessee's costs of acquisition of plant and machinery - HELD THAT:- Similar question was considered in case of CIT v/s. Grace Paper Industries Pvt. Ltd. [1990 (3) TMI 66 - GUJARAT HIGH COURT]. The Court noted that, the subsidy was granted by the Government for development of industries in backward areas. It was not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition.

Also as decided in SWASTIK SANITARY WORKS LIMITED.[2006 (4) TMI 89 - GUJARAT HIGH COURT] basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. No question of law.

Disallowance u/s. 14A if the assessee has own surplus funds - HELD THAT:- Question itself records that the issue at hand is covered by the decision of this Court in case of HDFC v/s. DCIT [2014 (8) TMI 119 - BOMBAY HIGH COURT] but that, the department has not accepted the decision of the High Court. In that view, this question also is not required to be entertained.