Loading judgment…
Facts
The Revenue filed appeals against the CIT(A)'s order which allowed the assessee's claim that interest subsidy received under the Technology Upgradation Fund Scheme (TUFS) and Rajasthan Investment Promotion Scheme (RIPS) was a capital receipt. The assessee had initially treated the subsidy as revenue in its return but later claimed it as capital. The CIT(A) allowed this claim, relying on various High Court and Supreme Court judgments.
Held
The Tribunal considered the purpose of the TUFS and RIPS schemes, which was to promote technological upgradation, capacity expansion, and modernization in the textile industry. Relying on the 'purpose test' laid down in the Ponni Sugar case and other precedents, the Tribunal held that the subsidy received for these objectives was a capital receipt and not chargeable to tax.
Key Issues
Whether interest subsidy received under TUFS and RIPS is a capital receipt or a revenue receipt.
Sections Cited
Sec 139(5), Sec 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
Before: DR. MITHA LAL MEENA, HONBLE & ANIKESH BANERJEE, HONBLE
The Captioned appeals are filed by the Revenue against the separate order passed by the Ld. Commissioner of Income Tax, (Appeals) Ajmer, [hereinafter referred to as CIT(A))] even dated 27.11.2017, in respect with Assessment Years 2009-10 and Assessment Year 2011-12 to 2013-14. 2. The revenue has raised common issues in the grounds of the above four appeals on identical facts except variation in quantum of addition and therefore all these four appeals were heard together and adjudicated by this consolidated order for the sake of brevity. The appeal in ITA No.906/Jodh/2024 with respect to assessment year 2009-10 is taken as lead case for discussion of the facts of the case and adjudication of the issues challenged by the revenue. The grounds of appeal read as below: ITA No.906/Jodh/2024-
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest subsidy receipts as capital in nature when it was not ascertained whether the same is actually utilized for setting up a new unit or to expand the existing unit.
On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in relying upon the decision of DCIT Circle-9(1), New Delhi vs. Sutlej Textile and Ind. Pvt. Ltd. ITA 5142/DeV2013 which was based upon the Supreme Court decision in the case of M/s. Ponni Sugar and Chemicals Ltd. 306 ITR 392 whereas the facts of the DCIT Circle-9(1), New Delhi vs Sutlej textile and Ind. Pvt. Ltd. are not identical to the facts and circumstances of the instant case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's Claim that interest subsidy receipts were capital receipts ignoring the fact that the assesse had neither claimed it in its return of income nor by way or revised return u/s 139(5) of the income Tax Act, 1961. 4. That the grounds of appeal are without prejudice to each other.
That the appellant craves leave to add amends alter or forgo any ground(s) of appeal either before or at the time hearing of the appeal. ITA No. 907/Jodh/2024-
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest subsidy receipts as capital in nature when it was not was ascertained whether the same is actually utilized for setting up a new unit or to expand the existing unit. ITA No. 906 to 909/Jodh/2024 (Assessment Year 2009-10) (Assessment Year 2011-12 to 2013-14)
On the facts and in the circumstances of the case and in law, the Ld. CIT(A)n erred in relying upon the decision of DCIT Circle-9(1), New Delhi vs. Sutlej Textile and Ind. Pvt. Ltd. ITA 5142/Del/2013 which was based upon the Supreme Court decision in the case of m/s. ponni Sugar and Chemicals Ltd. 306 ITR 392 whereas the facts of the DCIT Circle-9(1), New CIT(A) erred in allowing the assessee's claim that interest subsidy receipts were capital receipts ignoring the fact that the assessee had neither claimed it in its return of income nor by way or revised return u/s 139(5) of the income Tax Act, 1961. 4. That the grounds of appeal are without prejudice to each other.
That the appellant craves leave to add amends alter or forgo any ground(s) of appeal either before or at the time hearing of the appeal. ITA No. 908/Jodh/2024-
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest subsidy receipts as capital in nature when it was not was ascertained whether the same is actually utilized for setting up a new unit or to expand the existing unit.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A)n erred in relying upon the decision of DCIT Circle-9(1), New Delhi vs. Sutlej Textile and Ind. Pvt. Ltd. ITA 5142/Del/2013 which was based upon the Supreme Court decision in the case of m/s. ponni Sugar and Chemicals Ltd. 306 ITR 392 whereas the facts of the DCIT Circle-9(1), New CIT(A) erred in allowing the assessee's claim that interest subsidy receipts were capital receipts ignoring the fact that the assessee had neither claimed it in its return of income nor by way or revised return u/s 139(5) of the income Tax Act, 1961. ITA No. 906 to 909/Jodh/2024 (Assessment Year 2009-10) (Assessment Year 2011-12 to 2013-14) claimed it in its return of income nor by way or revised return u/s 139(5) of the income Tax Act, 1961. 4. That the grounds of appeal are without prejudice to each other.
That the appellant craves leave to add amends alter or forgo any ground(s) of appeal either before or at the time hearing of the appeal. ITA No. 909/Jodh/2024-
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest subsidy receipts as capital in nature when it was not was ascertained whether the same is actually utilized for setting up a new unit or to expand the existing unit.
On the facts and in the circumstances of the case and in law, the CIT(A)n erred in relying upon the decision of DCIT Circle-9(1), New Delhi vs. Sutlej Textile and Ind. Pvt. Ltd. ITA 5142/Del/2013 which was based upon the Supreme Court decision in the case of m/s. ponni Sugar and Chemicals Ltd. 306 ITR 392 whereas the facts of the DCIT Circle-9(1), New CIT(A) erred in allowing the assessee's claim that interest subsidy receipts were capital receipts ignoring the fact that the assessee had neither claimed it in its return of income nor by way or revised return u/s 139(5) of the income Tax Act, 1961. 4. That the grounds of appeal are without prejudice to each other.
That the appellant craves leave to add amends alter or forgo any ground(s) of appeal either before or at the time hearing of the appeal.
There was a delay in filing revenue appeals due to delay in obtaining authorization for filing before the Tribunal. The Ld. CIT (DR) submitted that sometimes such delay happens at the level of competent authority in taking a decision and granting approval for filing appeal which constitutes reason/cause and he requested the same may be condoned. The Ld. AR has no objection to the request of the revenue for condonation of delay in filing these appeals. Accordingly, the delay is condoned, and the appeals are admitted.
Briefly the facts are that the Appellant is inter alia engaged in the business of manufacturing and processing cotton and synthetic yarns. During the year under consideration, the Appellant has received Interest subsidy amounting to Rs. 36,25, 79,467/- by virtue of Technology Upgradation Fund Scheme (TUFS). In the original return of income, the Appellant has treated the TUF subsidy as revenue receipt and included in the total income of the Appellant offered to tax. The Ld. CIT (A) by admitting additional ground of appeal on legal issue allowed the claim of the assessee after calling for the remand report of the AO. He stated that the assessee has received interest subsidy by virtue of Technology Upgradation Fund (TUF) granted by Ministry of Textiles, Government of India and interest subsidy under Rajasthan Investment Promotion Scheme (RIPS) and deleted the additions made by the AO by relying on the Judgment of the Hon'ble High Court of Rajasthan in the case of PCIT Vs. Nitin Spinners Ltd. and held that subsidy was being treated as capital in nature and is excludable from book profit under 115JB of the Act.
The Ld. CIT DR submitted that the claim was 1st time raised before the Ld. CIT (A) by way of additional ground without filing revised return u/s 139(5) of the Act. He contended that the Ld. CIT(A) has erred in treating the interest subsidy receipts as capital in nature when it was not ascertained whether the same is utilized for setting up a new unit or to expand the existing unit and allowing the assessee's Claim that interest subsidy receipts were capital receipts ignoring the fact that the assesse had neither claimed it in its return of income nor by way or revised return u/s 139(5) of the income Tax Act, 1961. The Ld. CIT (DR) argued that the Ld. CIT (A) erred in relying upon the decision of DCIT Circle- 9(1), New Delhi vs. Sutlej Textile and Ind. Pvt. Ltd. ITA 5142/DeV2013 which was based upon the Supreme Court decision in the case of m/s. Ponni Sugar and Chemicals Ltd. 306 ITR 392 whereas the facts of the DCIT Circle-9(1), New Delhi judgement of Hon'ble Juri iction Rajasthan High Court and the SLP dismissed by the Hon'ble Apex Court in favour of assessee. 6 The defendant Ld. Counsel, at the outset argued that the appeals of the revenue are covered matter in favour of assessee by the decision given by honourable Delhi Tribunal in respondent assessee's own case in subsequent years i.e. assessment year 2014-15 and 2015-16 in ITA Nos. 145 and 146/Del/2021 by following the decision of Hon'ble Rajasthan High Court considering Hon'ble Apex Court classifying interest subsidies under TUFS subsidy and RIPS as capital receipts while dismissing the appeals filed by the department. The Ld. AR placed reliance on the impugned order and pleaded that the TUFS subsidy and RIPS are capital receipts and not chargeable to Tax. He has filed detailed vide assesses paper book (APB) and case law paper book (CLPB) each containing 78 pages. The AR referred Copy of the relevant extract of profit and Loss Account, Ledger Extract was filed as Annexure 2 [APB, Pgs. Nos. 26 to 40] and pleaded that the order of the Ld. CIT Appeal may be upheld.
We have heard both the sides and perused the material on record. Admittedly, the assessee has received interest subsidy by virtue of Technology Upgradation Fund (TUF) granted by Ministry of Textiles, Government of India and interest subsidy under Rajasthan Investment Promotion Scheme (RIPS). It is noted that the Ld. CIT (A) by way of additional ground allowed the said claim, although the assessee failed to raise the claim by way of revised return/s 139(5) of the Act or during the scrutiny assessment proceedings.
The additional ground of appeal admitted by the Ld. CIT (A) reads as follows-
That on the facts and in the circumstances of the case, Interest subsidy received under Rajasthan Investment Promotion Scheme (RIPS) during (the year under consideration be treated as capital receipt and hence not taxable in computing income as per normal provisions and Book Profit u/s 115JB.
1 After admitting additional ground and considering the assesee's submission, and calling for the remand report of the AO, the Ld. CIT (A) had granted relief to the assessee by observing as under:
2 The appellant has contended that there is no reason as to why the appellate authority can not modify the assessment order on an additional ground even if not raised before the AO. The Commissioner of Income- tax(Appeal) is vested with all the plenary powers which the Sub-ordinate Pruthvi Brokers & Shareholders Pvt, Ltd. (349 ITR 0336), In addition to Court while dealing with the issue has observed as under:
"
The Revenue preferred appeal before the Income Tax Appellate Tribunal. The Tribunal held that the Appellate Assistant Commissioner had no juri iction to entertain an additional ground or to grant relief to the assessee on a ground which had not been raised before the Income Tax Officer, The Tribunal set aside the order ofthe Appellate Assistant Commissioner placing reliance on the decision of This Court in Addl. Commissioner ofIncome Tax, Gujarat v, Gurjargravures P. Ltd.. [1978] 111 1.T.RI. The assessee made application before the Tribunal under Section 256(1) of the Income Tax Act, 1961 for making reference to (he High Court The Tribunal refused to refer the question on the findings that the question stood covered by this Court's decision in Gurjargravures (supra). The assessee thereupon approached the High court under Section 256(2) of the Act for calling the statement of case and reference from the Appellate Tribunal. A Division Bench ofthe Calcutta High court held that the Tribunal, was right in rejecting the assessee's application, therefore it refused to call ment of case. The assessee thereupon approached this Court under Article 136 ofthe Constitution. and obtained leave. Hence this Appeal, The question of law which the assessee sought to be referred to the High Court under section 256(1) of the Act was: on the facts and in the circumstances of the case the Income Appellate Tribunal in holding that the Appellare Assistant Commissioner of Income Tax had exceeded his powers in entertaining the additional ground of appeal taken before him in respect of the claim for " deduction of a sum of Rs. representing liability for raw jute Purchase Tax.. Section 251 ofthe Income Tax Act (hereinafter referred 10 as the 'Act') prescribes power of the Appellate Authority hearing appeal against the order of..Income Tax ()fficer. Clause (a) of Section 25 1(1) confers power on the Appellate Authority namely the Appellate Assistant Commissioner [now after the Amendment of 1987 the Deputy Commissioner (Ap- peals)) according to which Appellate Authority while hearing appeal against an order ofassessment. has power to confirm, reduce, enhance or annual the assessment; he "
In the case of Jute Corporation of India Ltd. v. Cl. T.. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed thal an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, ifany, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenarypowers Whiö% the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional cound raised by the assessee in seeking modification of the order of assessment passed by the Income-tav Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. The Ld. CIT (A) has further referred and discussed the following judgement:
The Bombay High Court in the case of CIT vs Pruthvi Brokers & submission in Commissioner of income-tax v. Jai Parabolic springs Limited, (2008) 306 42. The Division Bench, in paragraph 17 of the judgment (held that the Supreme court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal, arises in the matter.
Having considered the above decisions of the Supreme Court and High Court and the CBDT Circular No. 14 (XL-35) of 1955 dated 11.04.1955, the Ld. CIT (A) was justified in agreeing with the contention of the appellant that CIT(A) can admit the additional ground, even if, these were not raised before the AO. In the submission filed by the appellant, in support of the additional grounds raised by the appellant, it has mainly relied upon the decision of ITAT Delhi Bench 'G', New Delhi order ted 03.07.2015 in the case of DCIT, Circle - 9(1), New 5142/Del/2013, A.Y. 2009-10). The decision was not available with the appellant The ground no. 1 and 2 are inter-related to each other where the department has challenged treating the interest subsidy receipts as capital in nature without ascertaining whether the same is actually utilized for setting up a new unit or to expand the existing unit relying upon the decision of DCIT Circle- 9(1), New Delhi vs. Sutlej Textile and Ind. Pvt. Ltd. ITA 5142/DeV2013 which was based upon the Supreme Court decision in the case of M/s. Ponni Sugar and Chemicals Ltd. 306 ITR 392 whereas the facts of the DCIT Circle-9(1), New Delhi vs Sutlej textile and Ind. Pvt. Ltd. are not identical to the facts and circumstances of the instant case.
Heard both the parties and perused the material available on record and case law cited on the issue of interest subsidy on TUF/RIPS. Admittedly, it is not disputed that the assessee has received interest subsidy by virtue of Technology Up gradation Fund (TUF) granted by Ministry of Textiles, Government of India and interest subsidy under Rajasthan Investment Promotion Scheme (RIPS). The Ld. A.O. made additions which have been deleted by the Ld. CIT(A) by relying on the Judgment of the Hon'blc High Court of Rajasthan in the case of PCIT Vs. Nitin Spinners Ltd. [116 Taxman.com 26 (Raj.)] and held that subsidy was to be treated as capital in nature and is excludable from book profit under 115JB of the Act.
The Ld. Counsel for the assessee argued that the issue regarding allowability of claim of interest subsidy under TUFFS and RIPS has been decided by the Hon'ble High Court of Rajasthan in the case of PCIT Vs. Nitin Spinners Ltd. (Supra) which has been confirmed by the Hon'ble Supreme Court by dismissing favour of the appellant by the decision of ITAT Delhi 'G' Bench in the case of DCJT, Circle - 9(1), New Delhi vs Sutlej Textiles & Industries Ltd., Bhawani Mandi, Rajasthan (ITA No. 5142/Del/2013, A-Y. 2009-10) order dated 03.07.2015. He pleaded that in view of the decision of the ITAT (Supra), the subsidy of Rs. 36,25,79,467/- credited by the appellant as interest subsidy under TUFS is capital subsidy which is not chargeable to tax under the I.T. Act.
The Hon'ble High Court of Rajasthan in the case of PCIT vs. Nitin Spinners (Supra) while allowing the claim of interest subsidy under TUFFS and RIPS held as under: - "
In its order, the ITAT took note of several previous Bench ruling as well as judgment of the Punjab and Haryana High Court in CIT v. Sham Lal Bansal [20111 11 taxmann.com 396/200'Taxman 14 (Mag.) (Punj & Har.). In Shyam Lal Bansal (supra) the Punjab and Haryana High Court observed as follows:
"
The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain TUFS 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 mis-utilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated as a noninterest 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 proa 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.
In view of the above, the view taken in Sahney Steel & Press Works Ltd., 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' or 'capital receipt', character of receipt in the hands of the assessee had to be determined with respect to (he purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel & Press Works Ltd. itself and reiterated in later judgment in CIT v. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 306 ITR 392, referred to in the impugned order of the Tribunal. This Court notices that the Punjab and Haryana High Court considered the previous binding ruling of the Supreme Court in CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87/306 ITR 392 and Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253. In these circumstances, the Court is of the opinion that the amount was received as capital stream and therefore, not taxable.
A similar view was taken by the Calcutta High Court in CIT v. Gloster Jute Mills Ltd, [2018] 96 taxmann.com 303/257 Taxman 512/12019] 416 ITR 458. 15. Similar view has been taken by the Coordinate Bench of ITAT Delhi, in assesse's own case in ITA Nos. 145and 146/Del/2020 in respect to Assessment Years 2014-15 and 2015-16 vide order dated 31.01.2024, and decided the issue of Interest subsidy under TUFS and RIPS, on identical facts, in favour of assessee.
The Ld. CIT (DR) could not file any contrary decision of either the Juri ictional or Non- Juri ictional High Court. He failed to distinguish the judgement relied by the Ld. CIT (A) and the Assessee in support of the impugned order. The decision of Ahmedabad Tribunal (Supra) referred by the Ld. CIT (DR) is distinguishable on peculiar facts of the present case, and it is irrelevant as it has not considered the judgement of the Hon'ble High Courts and the Apex Court referred above.
From the record, it is apparently clear that the TUF scheme was introduced by the Government recognizing the potential of the textile industry and the larger benefits of technological Up gradation in the textile industry, which was necessary to provide afresh lease of life to the said industry. The Government recognized that technological upgradation in textile industry would
result in capacity expansion and modernization, which would have direct impact on employment generation, exports and globalization of textile trade. In order to achieve such objective, TUF scheme was introduced by the Government to provide interest subsidy on loans taken for technological upgradation by the units in the textile industry.
Thus, in our view, the interest subsidy under the TUFS and RIPS Scheme was given for technological upgradation of the textile industry and for promoting capacity expansion, globalization of textile trade and employment generation. Thus, applying the purpose test laid down in Ponni Sugar, such subsidy is held to be capital receipt.
Considering the factual matrix of the case and judicial precedents, we find no reason to interfere in the findings of the Id. CIT (A). Respectfully following the ratio laid down by the Rajasthan High Court (supra), and Hon'ble Apex Court, we upheld the decision of the Id. CIT(A). Accordingly, we find no merit in the Ground No. 1 and 2 of the Revenue, and same are rejected.
Ground No. 4 and 5 of the Revenue are general in nature and hence as such rejected without merits.
The issues raised in ITA Nos. 907 to 909/Jodh/2024 in respect to Assessment Years 2011-12 to 2013-14 are identical on facts to that dealt with in ITA No. 906/Jodh/2024 in respect to Assessment Year 2009-10 and therefore, our observation and finding given in in ITA No. 906/Jodh/2024 shall apply to appeal in ITA Nos. 907 to 909/Jodh/2024 mutatis Mutandis, ordered accordingly.
In the result, the revenue appeals are dismissed. Order pronounced on 29/09/2025 under Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963. (ANIKESH BANERJEE) JUDICIAL MEMBER (DR. MITHA LAL MEENA) ACCOUNTANT MEMBER Dated :29/.6.9 /2025 Copies to: (1) The appellant. (2) The respondent. (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By Order