TMI Blog2012 (12) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... red - in favour of revenue. Subsidy receivable – Capital vs Revenue Receipts – Held that:- A bare perusal of the Office Memorandum issued by Govt. of India dated 07.01.2003, as reproduced above, clearly reveals the eligibility for such capital investment subsidy @ 15% of their investment in Plant & Machinery subject to ceiling of Rs.30 lacs. The subsidy is also avai lable to the existing units, on their substantial expansion - following case of CIT V Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT) that subsidy for repayment of capital loan is capital receipt. It was held by the Hon'ble Apex Court that where main eligibility condition in scheme, under which assessee Sugar Mill was granted subsidy, was that subsidy must be utilized for repayment of loans taken by assessee to set-up new unit or for substantial expansion of existing unit. In such a situation, the subsidy is in the nature of capital receipt and not exigible to tax - in favour of assessee Capitalization of Water and Electricity Expenses - Held that:- Copy of account, from which addition has been made, represents details of electricity expenses, which had already been transferred to pre-operative exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3( ii ). Ld. 'AR', on the other hand, placed reliance on the order passed by the CIT(A) . Ld. 'AR' contended that the agreement was not renewed and annual real income can be charged to tax. 4. We have carefully perused the rival submissions, facts of the case and the relevant record. In the course of assessment proceedings, it was noticed by the AO, that the assessee received rental income from letting out plot No. 694, Industrial Area, Phase-I , Chandigarh. The assessee had let out 1/3rd of this premises to M/s Sidharth Agencies and 2/3rd of the premises to M/s Gian Chand Ashok Kumar. The assessee received a rent of Rs.27,500/- p.m. as rental income from M/s Sidharth Agencies and Rs.38,500/- p.m. as rental income from M/s Gian Chand Ashok Kumar. 4( i ) . The AO, referred to para 3 of the Rent Agreement dated 15.07.2001 whereby it is recorded that there will be 10% increase in the rent every year on the last rent paid and this increase will continue till the tenant will remain in possession of the said premises. Invoking the terms of the said clause of the said rent agreement, the AO, worked out the rent in para 3.4 to 3.11 of the assessment order, which is reproduced hereund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.2007 to 31.3.2008 Rs. 70,277 x 5 Rs. 3,51,385/- 3.9 The total amount of rent receivable from M/s Gian Chand Ashok Kumar thus should have been Rs.7,98,601/- (Rs.4,47,216/- + Rs. 3,51,385/-) for the let out property. However, the assessee has shown rental income @ Rs. 55,000/- p.m. in the return of income and for the entire year, the rental income shown by the assessee is amounting to Rs. 6,60,000/-. Thus, an amount of Rs. 1,38,601/- (Rs. 7,98,601/- - Rs. 6,60,000/-) is added back under the head house property on this account. 3.10 Similarly, the other portion of the property SCO 9A, Madhya Marg, Sector 7, Chandigarh has also been rent out @ 55,0007- p.m. to M/s Sidharth Agencies. Following the same logic and discussion, as narrated above, an amount of Rs. 1,38,601/- is added back under the head house property. 3.11 The total addition worked out in the earlier paragraphs thus comes out to Rs. 7,31,737/- (Rs. 85,512/- + Rs. 3,69,023/- + Rs. 1,38,601/- + Rs.1,38,601/-). Thus, an amount of Rs.7,31,737/- is added back under the head income from house property. 4( ii ). Ld. CIT(A), deleted the impugned addition. The CIT(A) mentioned that it is correct that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the decision of the jurisdictional High Court, in the case of M/s Abhishek Industries 286 ITR 1 (P H). 5( ii ) Ld. 'AR', on the other hand, referred to various clauses of the scheme of subsidy and contended that the impugned subsidy is capital investment subsidy, @ 15% of the investment made by the assessee in fixed assets, subject to sealing of Rs.30 lacs. Ld. 'AR' referred to the Office Memorandum of the Govt. of India dated 07.01.2003, whereby in para 3.1 sub-clause ( i i ), it is mentioned, All new industries in the notified locations would be eligible for capital investment subsidy @ their investment in Plant Machinery subject to sealing of Rs.30 lacs. The existing units will also be entitled to this subsidy on their substantial expansion, as defined . 6. We have carefully perused the rival submissions, facts of the case and the relevant record. In the course of assessment proceedings, the AO, sought explanation of the assessee regarding the subsidy receivable amounting to Rs.30 lacs. The assessee, vide letter dated 29.11.2010 submitted as under : Bifurcated detail of additions made to fixed assets along with copies of ledger accounts of such assets are enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove the availability of capital and increase market access to provide a flipp to the private investments in the state. One has to apply the 'purpose test' as enumerated by Hon ble Supreme Court in the case of Ponni Sugars 85 Chemicals Ltd. Others (306 ITR 392) for determining whether an expenditure is of capital nature or revenue nature. If the object of the subsidy scheme was to enable the assessee to set-up of a new unit or to expand the existing unit then the receipt of the subsidy is to be treated on capital account. Moreover, in this case, the name of the subsidy itself is capital investment subsidy. In view of this discussion, it is held that the Assessing Officer was not right in taxing the amount of Rs. 30,00,000/- of capital investment subsidy as revenue receipt. Accordingly, the addition made of Rs. 30,00,000/- is deleted. Ground of appeal No. 5 is allowed. 8. We have carefully perused the rival submissions, facts of the case and the relevant record. A bare perusal of the Office Memorandum issued by Govt. of India dated 07.01.2003, as reproduced above, clearly reveals the eligibility for such capital investment subsidy @ 15% of their investment in Plant Machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that CIT(A) erred in deleting the addition made by the AO of Rs.6,65,511/- on account of capitalization of water and electricity expenses, as the business of the assessee commenced after 01.10.2007. 11. In the course of present appellate proceedings, ld. 'DR' placed reliance on the order passed by the AO, whereas ld. 'AR' supported the order of the CIT(A) . Ld. 'AR' referred to page 39 of the Paper Book, which is ledger for the period from 01.04.2007 to 31.3.2008, demonstrating that an amount of Rs.7,24,860/- representing pre-operative expenses, has been transferred to fixed assets. Thus, the assessee has not claimed any expenses in respect of preoperative expenses. Before the CIT(A), the assessee appellant submitted that a copy of account, from which addition has been made, represents detai ls of electricity expenses, which had already been transferred to pre-operative expenses and no deduction has been claimed in the Profit Loss Account. Having regard to such contention of the assessee, duly supported by documentary evidence, ld. CIT(A) deleted the addition in respect of such transferred pre-operative expenses. We do not find any infirmity in the findings of the CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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