2021 (7) TMI 266 - AT - Income Tax

Characterization of income - subsidy received considering of new industrial sales from State Governments - revenue or capital receipt - HELD THAT:- 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 [2008 (9) TMI 14 - SUPREME COURT]

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 see any reason to differ with the reasoning of the Co-ordinate Bench of the Tribunal in assessee’s own case[2020 (11) TMI 418 - ITAT PUNE] - Decided against revenue.

Directions of ld.CIT(A) to reduce the amount of the subsidy received from the respective block of assessment years in terms of the Explanation 10 to Sec.43(1) - HELD THAT:- As decided in own case [2020 (11) TMI 418 - ITAT PUNE] on perusal of the respective schemes 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 Sec.43(1) have no application to the facts of the present case had rightly applied the decision of M/s. Welspun Steel Ltd., [2019 (3) TMI 397 - BOMBAY HIGH COURT] 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 the ld.CIT(A) directing the Assessing Officer to reduce the amount of the subsidy from the cost of the respective block of assets.