TMI Blog2016 (1) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Dated:- 15-1-2016 - Shri N.V.Vasudevan, JM Shri Waseem Ahmed, AM For The Appellant : Shri J.M.Thard, Advocate For The Respondent : Shri Pinaki Mukherjee, JCIT, Sr.DR ORDER Per Shri N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 10.1.2014 of CIT(A)- IV, Kolkata, relating to AY 2006-07. 2. The Assessee is a company. It carries on the business of manufacturing Tea. The Assessee manufactures and sells tea. The Assessee procures tea leaves from tea gardens and produces tea in its factory. During the previous year the Assessee received a sum of ₹ 23,26,506 as subsidy under the Quality Upgradation and Product Diversification Scheme (hereinafter referred to as the Scheme ). The Scheme was introduced by the Tea Board and Ministry of Commerce Industry, Government of India. The question before the AO was as to whether the subsidy received by the Assessee was capital in nature not chargeable to tax or was revenue in nature, chargeable to tax. The AO held that the subsidy in question received by the Assessee under the Scheme was revenue in nature and was therefore taxable. Over and above that the AO also reduced the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es replacement of old and worn out machinery and equipment. Therefore by virtue of the scheme a new unit or expansion of an existing unit does not happen. The scheme and the subsidy given thereunder is only for the purpose of enabling the Assessee to carry on its business more profitably and therefore, the subsidy received by the Assessee was revenue in nature, chargeable to tax. In doing so, the learned CIT(A) followed the ruling the Hon ble Supreme Court in the case of Sahani Steel Press Works Ltd. 220 ITR 253 (SC). 5. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. 6. The learned counsel for the Assessee firstly pointed out that the subsidy received by the Assessee was ₹ 23,26,506. The AO however took the difference in the opening and closing balance of Profit and Loss account in the balance sheet of ₹ 3,84,60,617 and ₹ 3,64,11,186, which is a sum of ₹ 20,49,431 as the value of the subsidy and brought to tax the aforesaid sum by including it as part of the total income of the Assessee. 7. He next pointed out that the AO reduced ₹ 3,48,976 which is 15% of ₹ 23,26,506 from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased/installed by the Assessee was ₹ 93,06,024. The machineries were installed during the financial year 2003-04 relevant to AY 04-05. 25% of the cost of the machinery viz., ₹ 23,26,506 was received by the Assessee as subsidy. 9. His next submission was that, if the value of the subsidy is treated as revenue receipt chargeable to tax, than the value of the subsidy in question cannot be reduced from the block of depreciable assets and depreciation allowed on the value as so reduced, which will reduce the claim of depreciation which the Assessee had made. His submission was that the amount given as subsidy cannot be said to be cost of an asset acquired by the assessee met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called) and therefore Explanation 10 to Sec.43(1) of the Act will not be attracted. 10. He drew our attention to the fact that the Finance Act, 2015 with effect from 01/04/2016 has inserted of Sub-Clause (xviii) in Section 2(24) of the Income Tax Act, 1961 providing an inclusive definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied to decide the question whether a subsidy received by an Assessee has to be regarded as capital or revenue subsidy has been laid down in several decisions of Hon ble Supreme Court and Hon ble High Courts. The Hon ble Supreme in CIT , Madras vs. Ponni Sugars Chemicals Limited, Civil Appeal No.5694 to 5715 of 2008, [2008] 174 Taxman 87 (SC) has held that, `It is the object for which subsidy/assistance is given, that truly determines nature of subsidy. 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 when the subsidy is paid is not relevant. The source is immaterial; the form of subsidy is also immaterial. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipt was on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand its existing units, then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the needy tea gardens/factories for renovating as well as augmenting the processing capabilities including, creation of facilities for packaging and bagging, and produce diversification. At present, only 35 to 40% of tea is sold in package form and the rest in the form of loose tea. During the 10th plan period, thrust would be on more value realization. For this purpose, proper infrastructure needs to be created for improving not only the packaging standards but also for increasing the volume of value added teas and specialty teas such as green teas, flavoured teas, ready to drink teas etc. Towards this end, it is proposed to provide for subsidy for the packaging machineries and creating facilities for product diversification. Because of the high variability in the quality of tea produced, there is a greater need for evolving appropriate quality-market matching. For this the process of manufacture needs to undergo changes to suit to the emerging new markets. Moreover, quality assurance should be the USP in the emerging completive environment. To facilitate the tea growers and manufacturers to participate in the quality improvement programmes such HAACP and ISO certification, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery items eligible for subsidy and their basic cost is annexed as annexure-1. 17. A perusal of annexure-1 would show that the purpose of the scheme is to ensure better working of the tea manufacturing unit, plucking practices adopted in the tea garden etc. Subsidy is given for improving the infrastructure of the existing tea manufacturing unit. The predominant purpose of the scheme is to ensure that tea manufactures function more profitably and not for setting up of a new unit or expansion of the existing unit. 18. We are therefore the view that the subsidy in question is revenue subsidy and was rightly brought to tax. 19. The Finance Act, 2015 with effect from 01/04/2016 has inserted of Sub-Clause (xviii) in Section 2(24) of the Income Tax Act, 1961 providing an inclusive definition of the expression `Income . The relevant portion of Sub-Clause (xviii) is produced below:- 2(24)(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any other authority or body or agency in cash or kind to the assessee other than the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Incometax Act. 5.2 As mentioned in Press Release dated 5th May, 2015, the amended definition of income shall not apply to the LPG subsidy or any other welfare subsidy received by an individual in his personal capacity and not in connection with the business or profession carried on by him.. 5.3 Applicability:- This amendment takes effect from 1st April, 2016 and would accordingly apply to assessment year 2016-17 and subsequent assessment years. 20. The debatable points referred to in the explanatory notes referred to above, is to various judicial precedents that brought out debatable principles for tax treatment of the subsidies received by an assessee. The dispute between the Revenue and the taxpayers about the treatment of the subsidy received from the government or any other authority as a capital receipt or revenue receipt has now been resolved by inserting a new clause (xviii) under the definition of 'income' under Section 2(24) of the Income Tax Act (the Act). Sub-clause (xviii) to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the purpose of allowing depreciation, if the conditions laid down in Explanation 10 to Sec.43(1) of the Act are satisfied. In the present case there is no dispute that the other conditions laid down in Explanation 10 to Sec.43(1) of the Act are satisfied. 22. The learned counsel for the Assessee has also placed reliance on the decision of the ITAT, Kolkata in the case of DCIT Vs. M/S.Gloster Jute Mills Ltd., ITA No.766/Kol.2010 dated 2.7.2014. We have perused the aforesaid decision of the Tribunal. In that case the subsidy in question was given to persons engaged in the manufacture of jute and jute products and generation of power. The subsidy was given for the purpose of investment in specified plant and machinery, factory building etc., using funds borrowed from certain banks/financial institutions then out of the interest paid on such borrowed funds, 5% is refunded by the government. The tribunal placed reliance on the decision of the Hon ble Punjab Harayana High Court in the case of CIT Vs. Sh.Sham Lal Bansal ITA No.472 of 2010 dated 17.1.2011 whereby the Hon ble High Court upheld the order of the Tribunal. The tribunal had held that the subsidy was utilized for repa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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