TMI Blog2015 (12) TMI 1629X X X X Extracts X X X X X X X X Extracts X X X X ..... l in nature. 3. Rival contentions have been heard and record perused. Facts in brief are that during the years under consideration the assessee received subsidy from Central Government under the Technology Upgradation Fund Scheme (in short TUF‟ Scheme). The contention of the assessee was that it is capital in nature. The A.O. upon consideration of the submissions made by the assessee and the decisions in the cases of Ponni Sugars and Chemicals Ltd.(Supra) Sahnay Steel Pressworks Ltd. (Supra) held that the contention of the assessee was not acceptable. The reasons stated by the A.O. are that the incentive under TUF Scheme was for payment of interest which the assessee would have paid in case the incentive had not been given and claimed as revenue expenditure as the incentive that was given was not for repayment of loan but for payment of interest. The A.O. drew support from the decision in the case of Sahnay Steel Pressworks Ltd.(Supra) to conclude that the purpose of granting incentive was for interest payment which was revenue expenditure and not repayment of loan which would have been capital expenditure. 4. By the impugned order the CIT(A) confirmed the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of acquisition of new capital asset is therefore not correct as the stated purpose of the Scheme under which the subsidy was granted was improvement of competitiveness and over all long term liability which was to be achieved by acquisition of advanced technology. I therefore find that the appellant's contention that subsidy was not granted to supplement the profit of unit is not correct. The stated objective of the subsidy was improving the competitiveness of the assessee's unit which necessarily means enhancing the profit .of the assessee so as to make such units viable in the long run. It requires to be further clarified that the stated objective of the Subsidy Scheme was not modernization of the unit but to improve competitiveness and overall long term viability. Improvement in competitiveness necessarily means improved profitability. The subsidy received for improving profitability is revenue expenditure. In the case of Ludhiana Central Cooperative Consumers Stores Ltd. Vs.CIT (122 ITR 942 P H ), where subsidy was received towards managerial and rental expenses, the subsidy was held to be revenue receipt meant for recoupment of revenue expenditure even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and improve its competitiveness and overall long term viability, it is essential for the textile industry to have access to timely and adequate capital at internationally comparable rates of interest in order to upgrade its technology level. As per ld. AR a careful study of the objective of the Government in formulating the Scheme reveals that the main purpose in implementing the scheme was to promote Modernization of the Textile Industry through technology upgradation in the industry. The TUF Scheme was introduced for the purpose of encouraging the acquisition of technologically advanced textile machineries by way of extending loans for the specified purpose through Commercial Banks/ Financial Institutions on subsidized rates of interest, being the rate of 5% in the case of the assessee. Further, the Scheme was formulated in the interest of the overall health of the Indian economy and for increasing employment in the country. This inevitably confirms the fact that the Scheme was in the interest of the public at large and had nothing to do with supplementing the profits of the unit eligible under the said Scheme. As per ld. AR the subsidy was to be granted only in the case of acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite immaterial. In case of Ponni Sugars and Chemicals Ltd. (supra), the Hon‟ble Supreme Court observed as under :- 14 The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to determined with respect to the purpose with which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is not relevant. The form of subsidy is immaterial. A close and detailed examination of the above decisions of the Supreme Court in the cases of Sahney Steel (supra) and Ponni Sugars and Chemicals Ltd.(supra) in which the decisions of the House of Lords in case of Sea ham Harbour Dock Co. v. Crook [1931] 16 TC 333 (HL) were referred to reveals that it lays down the basic test to be applied in judging the character of a subsidy. These observations in our humble understanding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the specific purpose of enabling the acquisition of new state of the art modern machinery by way of extending loans for the specified purpose. Installation of the specified machinery in a new unit or in an existing unit by way of replacement of existing machinery and/or expansion will be eligible for coverage under TUF scheme. Thus, it is clear that the subsidy was to be granted only in the case of acquisition of new machinery. Second hand machines were specifically kept out of the purview of the Scheme except for certain specified second hand imported machinery. Further the eligible machinery were to be state of the art machinery and it was specifically stated that machinery with technology levels lower than that specified will not be permitted for funding under the TUF Scheme. From perusal of the Scheme, it is evident that the eligibility for the receipt of the interest subsidy under the TUF Scheme was the date of sanction of the loan by the Bank/Financial Institution and that the subsidy was nowhere dependent on the commencement of any business operations of the assessee-company. 11. In view of the above and applying the proposition of law laid down by the Hon‟ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als Ltd.(supra) that it is not the mode of payment but it is the purpose for which the subsidy is granted which is decisive in determining the character of the incentive subsidy under a given scheme. Moreover, relying on the decision of the House of Lords in the case of Sea ham Harbour Dock Co. v. Crook [1931] 16 TC 333 (HL) as followed by the Supreme Court, wherein even though the payment was equivalent to half the interest amount payable on the loan (interest subsidy) still the House of Lords held that money received by the company was not in the course of trade but was of capital nature. 14. The issue of subsidiary receipt under TUF Scheme is squarely covered by the decision of coordinate bench in the case of Gloster Jute Mills Ltd. {2014) 33 ITR (Trib) 322 (Kol), wherein the assessee received subsidy from the Central Government under the technology upgradation fund scheme by way of interest refund. In computing the assessable income the assessee deducted the amount on the ground that the subsidy was capital in nature. The AO held that the subsidy was revenue in nature and had to be added in the total income of the assessee as a revenue receipt. The CIT(A) confirmed this. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCH 526 (Del.)(ITAT). 9. Ld. Departmental Representative, on the other hand, relied upon the orders of the authorities below. 10. We have carefully considered the submissions. We find considerable cogency in the submissions of the ld. Counsel of the assessee. We find that identical issue under the Technology Upgradation Fund Scheme (in short TUFS‟) of Ministry of Textiles was considered by the Hon‟ble Punjab Haryana High Court in ITA No. 472 of 2010 vide decision dated 17.01.2011. Hon‟ble High Court has considered and held the issue as under:- 2. The assessee is engaged in manufacture and sale of woolen garments. It received subsidy for repayment of loan taken for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (TUFS) of Ministry of Textiles, Government of India. The assessee claimed the said subsidy to be capital receipt but the Assessing Officer did not accept the same and added back the same to the income of the assessee holding the same to be revenue receipt. On appeal, the CIT(A) upheld the plea of the assessee, which view has been affirmed by the Tribunal with the following o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept the submission. 6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12.7.2005 with Small Industry Development Bank of India. The relevant clause of the agreement under which the subsidy was given is as under:- Para 8. - to prevent misutilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated as a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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