THE COMMISSIONER OF INCOME-TAX vs. M/S.KERALA STATE ELECTRONICS DEVELOPMENT CORPORATION LTD.

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ITA/105/2012HC KeralaKLHC01024027201218 December 2018Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the grant of six crore rupees received by the assessee, KELTRON, from the Government was a capital receipt. The Court reasoned that the grant was specifically for the purpose of settling the working capital liability with a consortium of banks, which was a crucial step in the company's revival project formulated under the BIFR. The Court referred to the Supreme Court's decision in Sahney Steel and Press Works Ltd., which stated that monies received to help the assessee set up its business or complete a project should be treated as having been received for capital purposes. In this case, the grant was instrumental in settling liabilities essential for the business's establishment and revival. Therefore, the High Court answered the question of law in favour of the assessee and against the Revenue. The appeal filed by the Revenue was dismissed, upholding the order of the Tribunal. No issue was expressly left undecided.

What were the facts?

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated November 25, 2011. The appeal concerns the assessment year(s) not explicitly stated in the provided text. The dispute revolves around whether a grant of six crore rupees received by the assessee, M/s. Kerala State Electronics Development Corporation Ltd. (KELTRON), from the Government should be treated as a capital receipt. The grant was made to settle working capital liability incurred by the company from a consortium of banks, as part of a revival program formulated under the Board for Industrial and Financial Restructuring (BIFR). The ITAT had previously ruled in favour of the assessee, treating the grant as a capital receipt.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in treating the grant of six crore rupees made by the Government to the assessee as a capital receipt? (Question of law) Assessee's Contentions: The assessee argued that there is a clear distinction in facts between the present case and the precedent cited by the Revenue, Sahney Steel and Press Works Ltd. v. C.I.T. ([1997] 228 ITR 252). The assessee highlighted that the grant was expressly stated to be the Government's share for settling working capital liability incurred through financial assistance from a consortium of banks, in pursuance of a revival program approved by the BIFR. Revenue's Contentions: The Revenue relied on the Supreme Court decision in Sahney Steel and Press Works Ltd. v. C.I.T. ([1997] 228 ITR 252), suggesting that subsidies received from the Government should be treated as income based on the purpose for which they are given.

Which sections of the Income-tax Act were involved?

Section 2(24)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 18TH DAY OF DECEMBER 2018 / 27TH AGRAHAYANA, 1940 ITA.No. 105 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 515/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 25-11-2011 APPELLANT/S: THE COMMISSIONER OF INCOME-TAX THIRUVANANTHAPURAM. BY ADV.SRI PKR MENON, SR COUNSEL FOR GOI TAXES, SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.KERALA STATE ELECTRONICS DEVELOPMENT CORPORATION LTD. KELTRON HOUSE, VELLAYAMBALAM, TRIVANDRUM-695033. BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.BINU MATHEW SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS SRI.V.ABRAHAM MARKOS OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 18.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 105/2012 2 JUDGMENT Vinod Chandran, J. The Revenue is in appeal from the order of the Tribunal, raising the following question of law: Whether on the facts and in the circumstances of the case, the Tribunal was correct in treating the grant of six crores rupees made by the Government to the assessee as a capital receipt ? 2. The learned Senior Counsel, Government of India (Taxes), has relied on [1997] 228 ITR 252, Sahney Steel and Press Works Ltd. v. C.I.T. The learned Senior Counsel for the assessee however would point out that there is clear distinction of facts in the cited decision and the present one. It is pointed out that the Hon'ble Supreme Court was considering the issue of subsidy received from the Government, which was said to be income, having regard to the purpose for which the subsidy is given. In the present case, the grant was expressly stated to be the Government share for settling the working capital liability incurred by way of financial assistance from a consortium of banks. A

ITA 105/2012 3 one-time settlement was offered, which was sought to be availed, that too in pursuance of a revival programme as formulated by the Board forIndustrial and Financial Restructuring (BIFR). 3. We see that the order of the Government was before the Tribunal and the terms of the one-time settlement as found in the order, was extracted. This has been handed over, across the Bar, to us, by the learned Senior Counsel appearing for the assessee. We deem it appropriate to extract the first paragraph of the said order:- “Kerala State Electronics Development Corporation Limited is a sick company referred to the Board of Industrial and Financial Restructuring (BIFR). As per the BIFR order the

company

formulating

a revival/restructuring scheme to be submitted to the BIFR through the Operating Agency viz. State Bank of India. The settlement of working capital liability with the Consortium Banks is the major issue pending to be tied up for formulating a revival proposal of the company.” 4. The extracted portion read with the terms as found in the Tribunal's order puts the issue beyond any pale of doubt. The grant is for the settlement of working capital liability with the consortium of banks.

ITA 105/2012 4 The Hon'ble Supreme Court held in Sahney Steel and Press Works Ltd. that “if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes.” In the present case, the grant was made by the major stakeholder, the Government, to settle the working capital liability, which was availed for setting up the business itself. The grant was also in pursuance of a revival project as proposed by the BIFR. In such circumstances, we are inclined to answer the question of law in favour of the assessee and against the Revenue and dismiss the Appeal, upholding the order of the Tribunal. No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE

ITA 105/2012 5 APPENDIX APPELLANT(S)' ANNEXURES: ANNEXURE A COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3) DATED 16.12.2009 ANNEXURE B COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 25.06.2010 ANNEXURE C COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 25.11.2011.

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