TMI Blog2020 (9) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve and not to be reduced from the value of plant and machinery as per Explanation-10 to Section 43(1) of the Act. Whether the CIT(A) was justified in treating the interest subsidy received by the assessee under TUF scheme as a capital receipt? - CIT(A) had categorically observed that the object of the TUF subsidy was to increase the competitiveness in the textile industry and not to increase the profits and hence the said interest subsidy deserves to be treated only as a capital receipt. Similarly, we have also observed that the interest subsidy given under the State Government scheme was also meant for promoting the industry in the area which also deserves to be treated only as a capital receipt. Hon ble Rajasthan High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of depreciation on capital subsidy received by the assessee under Technology Upgradation Fund (TUF) scheme as per the Explanation 10 to Section 43(1) of the Act. Yet another issue is as to whether the ld. CIT(A) was justified in treating the interest subsidy received by the assessee under TUF scheme as a capital receipt. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is a limited company engaged in manufacturing, trading and exporting of fabrics. The return of income for the A.Y.2013-14 was filed by the assessee on 21/09/2013 declaring total income of ₹ 17,99,16,130/-. We find that the ld. AO on perusal of schedule-2 of the balance sheet under the head reserves and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the said capital subsidy is not linked directly or indirectly with any particular asset purchased by the assessee and hence, the provisions of Explanation 10 to Section 43(1) of the Act would not be applicable in the facts of the instant case. We find that this finding has not been controverted by the revenue before us. We also find that the ld. CIT(A) had placed reliance on the decision of the Hon ble Supreme Court in the case of CIT vs. P.J. Chemicals Ltd., reported in 210 ITR 830 in support of his contentions wherein it was held as under:- Government subsidy, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage-of such cost. If that be so, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 only clarifies what is stated in section 43(1). Emphasis is that the cost which is 'met directly or indirectly' has to be reduced from the cost of the asset. 3.3.7 In present case, the capital subsidy has been received under TUFS scheme. A perusal of the Resolution passed by the Ministry of Textiles in its Official Gazette dated 31.03.1999 shows that the objective of the TUF scheme was as under: Given the significance of this industry to the overall health of the Indian economy, its employment potential and the huge historical backlog of technology upgradation, particularly in the context of the liberalization of the national industrial and trade policy and globalization of textile trade, it has been emphasized by exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly following the various decisions relied upon by the ld. CIT(A) and the decision of the Hon ble Supreme Court in the case of Ponni Sugars referred to supra and in the facts and circumstances of the case, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance of depreciation on capital subsidy and accepting the plea of the assessee that the said capital subsidy need to be directly credited only to capital reserve and not to be reduced from the value of plant and machinery as per Explanation-10 to Section 43(1) of the Act. 3.4. We find that assessee had also received interest subsidy under TUF scheme of ₹ 56,54,913/- and interest subsidy of ₹ 29,18,192/- from Government of Gujarat and Maharashtr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to increase the competitiveness in the textile industry and not to increase the profits and hence the said interest subsidy deserves to be treated only as a capital receipt. Similarly, we have also observed that the interest subsidy given under the State Government scheme was also meant for promoting the industry in the area which also deserves to be treated only as a capital receipt. We find that the ld. CIT(A) had also placed reliance on the decisions of the Hon ble Punjab and Haryana High Court in the case of CIT vs. Sham Lal Bansal reported in 200 Taxman 14 (P H) and the Co-ordinate Bench decision of Kolkata Tribunal in the case of DCIT vs. Gloster Jute Mills Ltd., reported in 67 SOT 21 (Kolkata Tribunal) which was later approved b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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