9911796707
TMI Blog2015 (12) TMI 1629X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the AO after observing as under :- "On careful consideration of the relevant facts and the appellant‟s submissions, I find that it is significant to note that the appellant has itself pointed out that the interest subsidy was credited to its profit and loss account as income of the year. Subsequently however, the appellant during the appellate proceeding before the Hon'ble ITAT made a claim that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective 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 though the subsidy was given as an incentive to the cooperative movement. In the instant case also, the subsidy has been given towards interest expenditure which has been found by the A.O. to be revenue expenditure and such finding of the A.O. has neither been contradicted nor denied by the appellant. The subsidy receipt therefore has rightly been held by the A.O. as revenue receipt as was also initially treated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Reliance was also placed on P&H High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the judgment, are reproduced as under: * 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 at which the subsidy is paid is not relevant. * The source is immaterial. The form or the mechanism through which the subsidy is given are irrelevant. * If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Supreme Court as discussed above, we can infer that the incentive given under the TUF Scheme was solely with the motive of helping the assessee-company in the purchase of the state of the art new machinery as exclusively specified in the scheme with the object of achieving modernization of the Textile Industry. However, both the AO and the Ld.CIT failed to appreciate the above fact and wrongly interpreted the motive of implementation of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. On further appeal, the Tribunal held that in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the Ministry adopted the "technology upgradation fund scheme" envisaging technology upgradation of the industry. Therefore, the subsidy received in that regard was capital in nature. The precise observation of the bench was as under :- "7. We have heard the rival submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 observations:- "Having regard to the aforesaid, in our view, it is quite clear that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. 10. Considered in the aforesaid light, in our view, the facts of the instant case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended to the loan amount." 7. In view of above, the view taken in Sahney Steel & Press Works Ltd. & Ors., could not be applied in the present case, as in said case the subsidy was given for running the business. For determining whether subsidy payment was „revenue receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
