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2016 (2) TMI 117 - AT - Income TaxAddition on account of Capital Subsidy u/s. 41(1) - revenue or capital in nature - Held that:- Admittedly, in the case in hand, the capital subsidy, as it is named in the notification of the scheme dated 12.03.1998 of the Government of Maharashtra, has been granted as an incentive to promote and encourage the installation of wind mill for generation of electricity. The said subsidy being provided to the assessee to encourage the setting up of wind mill to promote generation of energy through non conventional sources, thus, is to be treated as capital receipt. So far as the applicability of the section 41(1) is concerned, it relates to the benefit derived by an assessee in respect of loss, expenditure or trading liability and not in respect of capital receipts. So far as the ‘Explanation 10’ to ‘Section 43(1)’ is concerned, we find that as per the policy of the government, the subsidy is not given automatically on the acquisition of asset or for the purpose of acquisition of asset. The precondition is that the assessee must install a wind power project and that the wind power plant must be successfully operated with a minimum 12% plant load factor for at least one year. Admittedly, the assessee had installed the project in the financial year i.e. 2001-02. The assessee after successfully operating the plant with a minimum 12% plant load factor for one year had applied for capital subsidy vide letter dated 31.03.03, which subject to fulfillment of certain conditions were ultimately released to the applicant during the financial year i.e. 2007-08 at ₹ 20 lakhs. However, out of the said amount of ₹ 20 lakh, ₹ 10 lakh had to be returned back by the assessee to the government. So the mere acquisition of the asset was not sufficient to claim subsidy. The subsidy was not given for the purpose of acquisition of the asset but on the production of power generation as an incentive to promote through non conventional sources. Hence, the grant of subsidy in this case is of such a nature that it cannot be directly relatable to the asset acquire. So far as the contention of the AO that the subsidy is liable to be taxed under section 50 of the Act is concerned, we find that in this case neither there was a transfer of any asset from the block nor did the block has ceased to exist. It is not a case of capital gains by way of transfer but it is only a case of capital receipt as observed above as an incentive by the state government to promote the generation of electricity through non conventional sources. In view of the above, in our view, the subsidy received by the assessee is not taxable under section 41(1) neither under section 43(1) and nor under section 50 of the Act. - Decided in favour of assessee
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