TMI Blog2011 (10) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... /- by treating it as Capital receipt instead of revenue. 3. The only issue for our consideration relates to deleting the addition on account subvention receipt of ₹ 11,22,38,874/- by treating it as capital receipt as against revenue receipt treated by the assessing officer. The facts of the case stated in brief are that the assessee is hundred per cent subsidiary of BHW Holding AG Germany. The assessee had received an amount of ₹ 11,22,38,874/- as subvention payment towards restoration of net worth of the assessee, which was eroded due to losses suffered by the assessee. This payment was unconditional without any legal or contractual obligation liability on the part of the assessee. To a query from the assessing officer as to why the subvention money received from holding company should not be treated as revenue receipt, it was submitted by the assessee that the money was received without any contractual or legal obligation and, therefore, the same was to be treated as capital receipt. It was also stated that the amount was paid by the holding company without any claim of the assessee company and was entirely voluntarily payment motivated by relationship as a paren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer accordingly treated the amount of ₹ 11,22,38,874/- as revenue receipt. 5. On appeal it was submitted that the amount of ₹ 11,22,38,874/- was received by the assessee as subvention money towards restoration of net-work of the assessee which was eroded due to losses suffered by the assessee. The amount was received by the assessee without any condition and without any contractual or legal obligation on the part of the assessee. The payment was entirely voluntarily payment motivated by a relationship of subsidiary and parent company. The payment was made for restoration of eroded net-worth. The ld. AR of the assessee relied on the decision of Hon ble Delhi High Court in the case of Handicrafts Handloom Export Corporation of India Vs. CIT (supra), decision of Hon ble Calcutta High Court in the case of Stewards Lloyds of India Ltd. 165 ITR 416 (Cal.); decision of Hon ble Bombay High Court in the case of Indian Textile Engg. Pvt. Ltd. 141 ITR 69 and decision of ITAT, Delhi bench in the case of Lurgi India Company Ltd. 302 ITR (AT) 67 (Del). The ld. CIT (Appeals) on consideration of the submissions made by the assessee recorded finding of fact that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of banking company, the income arises from interest accrued to the company by way of giving loan and financing business assets of other business companies and loan given to individuals, other traders. The income to a finance company generally comes from money lending. However, when the company is receiving some assistance or grants to recuperate its loss from the holding company, then such grant or financial help cannot be taxed as revenue receipt. From the above submissions of the assessee it is found that the parent company is having more than 99% shares in the Indian company. Therefore, the money given by the parent company as assistance to restore its financial health can only be treated as capital receipt. The assessee relied on a decision of Lurgi India Ltd. where he has underlined the discussion on subvention payments as capital receipt in the above manner. The assessee had also relied on the decision in the case of Indian Textile Engrs. (P) Ltd. [1983] 141 ITR 69 (Bom.), in which subvention payments were made by the holding company and other associate companies to the assessee company against losses, which were treated as bad and doubtful debts. The Hon'ble B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ₹ 1,34,50,656/-. Thus, the loss suffered by the assessee during the year under consideration was ₹ 10,04,52,153/-. If the depreciation claim of ₹ 1,34,50,656/-(a notional loss) is excluded even then the loss suffered by the assessee will be about ₹ 8.7 crores. The holding company vide their letter dated 24th September, 2004 had 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 4/02/2005. 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 be partly eroded by the losses suffered by the company for financial year 2004-05. In certificate of inward remittance issued by UTI Bank Ltd. the purpose of remittance has been mentioned as subvention payment towards restoration of net worth of the company eroded by the suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return stating, inter alia, that in the relevant previous year assessee received ₹ 13 crores 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 of 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 and not stemming from any business considerations. Therefore, the assessee s case is squarely covered by the decisions of Hon ble Delhi High Court in the case of Handicraft Handloom Export Corporation (supra) and the ITAT in the case of Lurgi India (supra). The decisions relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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