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2015 (4) TMI 944 - GUJARAT HIGH COURT

2015 (4) TMI 944 - GUJARAT HIGH COURT - [2015] 377 ITR 411 (Guj) - Subsidy received from Government of Gujarat - capital receipts OR revenue receipts (Trade Receipts) - Held that:- The learned Tribunal has materially erred in not following and/or distinguishing the decision of the Hon'ble Supreme Court in the case of Sahney Steel and Press works Ltd. (1997 (9) TMI 3 - SUPREME Court) wherein held that if payments in nature of subsidy from public funds are made to the assessee to assist him in car .....

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g and setting aside the order passed by the Assessing Officer confirmed by the learned CIT(A). - Decided in favour of revenue. - Tax Appeal No. 1240/2006 - Dated:- 8-4-2015 - M. R. Shah And S. H. Vora,JJ. For the Petitioner : K M Parikh, Adv. For the Respondent : None ORDER (Per : Honourable Mr. Justice M. R. Shah) 1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench 'D' dated 08.02.2006 passed in .....

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f income for A.Y. 1996-1997 declaring the total loss of ₹ 35,60,619/-. That subsequently, notice under Section 142(1) of the Income Tax Act along with the detailed questionnaire was issued on 27.05.1998. That during the course of the assessment proceedings and as per the balance-sheet of the assesseecompany, it revealed that the assessee-company received state subsidy of ₹ 19,82,600/- in the assessment year under consideration. As the aforesaid subsidy was not offered as revenue rece .....

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he said subsidy was to be disbursed in installment after fixed assets of the proposed project was acquired and paid before 01.04.1986. The condition as per the approval letter of the subsidy shall be discussed hereinafter. That thereafter, the Assessing Officer treated the subsidy of ₹ 19,82,600/- as revenue receipt and it added to the income of the assessee, relying upon the decision of the Hon'ble Supreme Court in the case of Sahney Steel and Press works Ltd. and others V/s. Commissi .....

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sfied with the order passed by the learned CIT(A), the assessee preferred the appeal before the learned Tribunal and the learned Tribunal, by impugned judgment and order and considering the decision of the co-ordinate bench in ITA No.3565/Ahd/2003 and 1721/Ahd/2005 by which, on facts, the learned Tribunal earlier distinguished the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press works Ltd. (supra), has allowed the appeal preferred by the assessee by quashing and .....

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in law and on facts in treating the amount of subsidy of ₹ 19,82,600/- received from Government of Gujarat as capital receipts instead of revenue receipts (Trade Receipts) liable to income tax?" 4. Shri K.M. Parikh, learned advocate appears on behalf of the Revenue. Though served, nobody appears on behalf of the respondent - assessee. 5. Shri Parikh, learned advocate appearing for the Revenue has vehemently submitted that in the facts and circumstances of the case, the learned Tribuna .....

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l has not properly appreciated the findings recorded by the Assessing Officer as well as the learned CIT(A) and the purpose for which the subsidy was granted and the purpose for utilization of the amount of subsidy. 6. It is submitted that, therefore, on facts, the learned Tribunal ought not to have followed its earlier decision when, on facts, the same may not applicable. 6.1. It is submitted that in the present case, the subsidy was given to the assessee not to set up its business or complete .....

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ooperative Bank Ltd., Ankleshwar on 13.02.1996. It is further submitted that even as per the condition as per approval letter of the subsidy, sanctioned subsidy was to be disbursed only if the unit shows increase of 25% of the production over the existing installed capacity within one year at any point of time after implementing the expansion scheme. It is submitted that, therefore, the case would squarely fall within the law laid down by the Hon'ble Supreme Court in the case of Sahney Steel .....

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Revenue and against the assessee. 7. Heard Shri Parikh, learned advocate appearing for the Revenue and perused and considered the order passed by the Assessing Officer, learned CIT(A) as well as the impugned judgment and order passed by the learned Tribunal. The short question which is posed for consideration of this Court is whether the subsidy amount of ₹ 19,82,600/- received by the assessee is to be considered as revenue in nature or capital in nature?. 7.1. From the order passed by th .....

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it appears that the above subsidy was to be disbursed in installment after fixed assets of the proposed project was acquired and paid before 01.04.1986. One of the conditions as per the approval letter of the subsidy was that the sanctioned subsidy shall be disbursed only if the unit shows increase of 25% of the production over the existing installed capacity within one year at any point of time after implementing the expansion scheme. It has come on record that the assessee received the amount .....

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02.1996. It has also come on record that thus, the assessee received subsidy after production was commenced. The purpose of subsidy does not seem to buy any capital asset or for establishment of project. In the backdrop of the aforesaid facts, the substantial question of law raised/involved in the present tax appeal is required to be considered. 8. In the case of Sahney Steel and Press works Ltd. (supra), while considering the similar question, the Hon'ble Supreme Court has observed and held .....

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ssee to set up its business or complete a project, the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of trade. In the case before the Hon'ble Supreme Court, the amounts of subsidy were granted year after year, only after setting up .....

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