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M/s. UniDeritend Limited Versus The Additional Commissioner of Income Tax, Range 1 (3) , Mumbai

2016 (2) TMI 117 - ITAT MUMBAI

Addition on account of Capital Subsidy u/s. 41(1) - revenue or capital in nature - Held that:- Admittedly, in the case in hand, the capital subsidy, as it is named in the notification of the scheme dated 12.03.1998 of the Government of Maharashtra, has been granted as an incentive to promote and encourage the installation of wind mill for generation of electricity. The said subsidy being provided to the assessee to encourage the setting up of wind mill to promote generation of energy through non .....

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asset. The precondition is that the assessee must install a wind power project and that the wind power plant must be successfully operated with a minimum 12% plant load factor for at least one year. Admittedly, the assessee had installed the project in the financial year i.e. 2001-02. The assessee after successfully operating the plant with a minimum 12% plant load factor for one year had applied for capital subsidy vide letter dated 31.03.03, which subject to fulfillment of certain conditions w .....

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dy in this case is of such a nature that it cannot be directly relatable to the asset acquire.

So far as the contention of the AO that the subsidy is liable to be taxed under section 50 of the Act is concerned, we find that in this case neither there was a transfer of any asset from the block nor did the block has ceased to exist. It is not a case of capital gains by way of transfer but it is only a case of capital receipt as observed above as an incentive by the state government to p .....

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ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 21.02.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09. 2. The assessee has taken the following grounds of appeal: A) Addition on account of Capital Subsidy - ₹ 10,00,000/- 1) The learned Commissioner of Income Tax (Appeals) - 2, Mumbai [CIT(A)] erred on facts and in law in upholding the addition m .....

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was a capital receipt and was not liable to tax. B) General 4) The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal. 3. The brief facts of the case are that during the financial year 2001-02 the assessee had installed wind energy project at a cost of ₹ 1189.87 lakhs. As per the policy of Maharashtra Government, to promote generation of energy through non conventional source .....

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elevant financial year 2007-08 at ₹ 20 lakh. During the subsequent year i.e. F.Y. 2008-09, assessee had to refund back subsidy to the extent of ₹ 10 lakhs. 4. The Assessing Officer (hereinafter referred to as the AO) observed that the assessee had already claimed 100% depreciation on the windmill, and as such the subsidy was required to be reduced from the cost of asset and hence the assessee had received a benefit of ₹ 10 lakh. He accordingly added the said sum into the income .....

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us. 6. We have heard the rival contentions and have also gone through the records. At the outset, the Ld. A.R. of the assessee has brought our attention to the decision of the Hon ble Bombay High Court in the case of CIT vs. Reliance Industries Ltd. (2011) 339 ITR 632 (Bom.) wherein the Hon ble Bombay High Court, while relying upon the decision of the Hon ble Supreme Court in the case of CIT vs. Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC), has held that if the object of the subsidy .....

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ded to the assessee to encourage the setting up of wind mill to promote generation of energy through non conventional sources, thus, is to be treated as capital receipt. 8. So far as the applicability of the section 41(1) is concerned, it relates to the benefit derived by an assessee in respect of loss, expenditure or trading liability and not in respect of capital receipts. So far as the Explanation 10 to Section 43(1) is concerned, we find that as per the policy of the government, the subsidy .....

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tal subsidy vide letter dated 31.03.03, which subject to fulfillment of certain conditions were ultimately released to the applicant during the financial year i.e. 2007-08 at ₹ 20 lakhs. However, out of the said amount of ₹ 20 lakh, ₹ 10 lakh had to be returned back by the assessee to the government. So the mere acquisition of the asset was not sufficient to claim subsidy. The subsidy was not given for the purpose of acquisition of the asset but on the production of power gener .....

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hieving more than 12% plant load factor. It is also pertinent to mention here that the assessee had to pay back half of the amount of subsidy because of non fulfillment of certain conditions. Under such circumstances the proviso to explanation 10 to section 43(1), is applicable to the case in hand. The co-ordinate Kolkata bench of the Tribunal in the case of DCIT vs. Rasoi Ltd. (2014) 46 taxman.com 214 (Kolkata- Trib.), while relying upon the decision of the Hon ble Supreme Court in the case of .....

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from Govt. of West Bengal under West Bengal Incentive Scheme, 1999 (WBIS) as encouragement for setting up of industrial project. It is also a fact that maximum limit of the subsidy was restricted with reference to the value of fixed capital investments in land, building, plant and machinery but no part of the subsidy was specifically intended to subsidize the cost of any fixed asset, therefore, it cannot he said that the subsidy was to meet a portion of cost of the asset. According to us, the as .....

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10 ITR 830/76 Taxman 611 has considered this issue and held that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. Therefore, the said amount of subsidy cannot .....

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of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. 7. The law is alre .....

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y or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It is further, provided thereunder, that where such subsidy or grant or reimbursement of such nature that it cannot be directly relatable to the as set acquired, so much of the amount which bear s to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shal .....

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