TMI Blog2012 (7) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... Sabharwal, Sr. Standing Counsel. For Respondent: Mr. Rajiv Tyagi and Mr. Ajay Kumar, Advocates. S. RAVINDRA BHAT, J: (OPEN COURT) 1. The Revenue seeks to appeal against the impugned order of the Income Tax Appellate Tribunal (hereinafter called "ITAT‟) in Income Tax Appeal No.1405/Del/2010 dated 14.10.2011. 2. The substantial question sought to be urged by the Revenue is as follows: - Whether the amount of Rs.11,22,38,874/-, infused by BHW Holding AG, Germany to the assessee by way of subvention assistance, is taxable as a revenue receipt and therefore falls within the definition of "income‟ under Section 2 (24) of the Income Tax Act, 1961. 3. The facts necessary for the determination of the question are that the assessee is a 100% subsidiary of one BHW Holding AG, Germany (hereinafter called "Holding Company‟) and is engaged in the activity of housing finance. By two letters dated 24.09.2004 and 04.02.2005, the Holding Company granted subvention assistance to the assessee to an extent of Euro two million i.e. equivalent to Rs.11,22,38,874/-. This was done on the evaluation of the Holding Company, that the assessee was likely to, on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account as on 31st March, 2005. During the year under consideration the assessee had operational income of Rs.47,92,05,285/- and other income of Rs.3,07,75,900/- totaling to Rs.50,99,81,185/-. The assessee has incurred expenditure of Rs.61,04,33,338/-, which includes depreciation of Rs.1,34,50,656/-. Thus, the loss suffered by the assessee during the year under consideration was Rs.10,04,52,153/- if the depreciation claim of Rs.1,34,50,656/- (a notional loss) is excluded even then the loss suffered by the assessee will be about Rs.8.7 crores. The holding company vide their letter dated 24th September, 2004 and informed the assessee that a sum of Euro 2 Million will be paid to Birla Home Finance Ltd. as subvention payment towards restoration of the net worth of the company expected to be partly eroded by the losses suffered/ projected by the assessee company for the financial year 2004-05. The holding company remitted a sum of Euro 14,99,980 and the balance amount of Euro 5,00,000 was remitted vide letter dated 04.02.2005. In this letter also it has been clearly mentioned that the amount was paid for the purpose of restoration of net worth of the company expected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the assessee received a sum of Rs.13 crores from its parent company M/s. Lurgi Company AG, which was credited to profit and loss account by way of capital grant. However, in computation, this amount was also appended to the return stating, inter alia, that in the relevant previous year assessee received Rs.13 crore from Lurgi AG for re-couping of its losses. The amount so received was held to be capital grant not chargeable to tax under the Act in view of decision of Hon ble Delhi High Court in the case of Handicrafts Handloom Export Corporation of India Vs. CIT (supra). 10. If the facts of the case before us are examined in the light of the decision of Hon ble Delhi High Court in the case of Handicrafts and Handloom Export Corporation of India Ltd. (supra), we find that the amount subvention money was received by the assessee from its holding company not as trader, but to recoup the losses likely to be suffered by it. The amount was received by virtue of their relationship of parent and subsidiary company. These are voluntary payments arising out of personal relationship of parent and subsidiary company. These are voluntary payments arising out of personal relationship of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, submitted that the view taken by the CIT(A) as confirmed by the ITAT are predominantly based upon the decision of this Court in the Handicrafts Handloom Export Corporation of India case(supra). He therefore submitted that there is in fact no substantial question of law which requires to be answered since the issue has been settled by the previous decision in Handicrafts Handloom Export Corporation of India (supra). 9. In view of the above discussion the question which this Court is confronted with is whether assistance given by the assessee‟s holding company is a capital receipt or a revenue receipt in the hands of assessee. 10. Both the CIT(A) as well as the ITAT in the present case noticed and relied upon the decision of Handicrafts Handloom Export Corporation of India (supra). A brief account of that judgment would be essential. In that case cash assistance of Rs.11.70 lakhs given by the STC. The question formulated was whether such cash assistance amounted to income. The Court noticed previous rulings of the Allahabad and Madras High Court respectively in Ratna Sugar Mills Co. Ltd. (supra) and Meenakshi Achi (supra) the reasoning of which were confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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