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Facts
The assessee, M/s. Hyundai Motor India Ltd., received an Investment Promotion Subsidy (IPS) of Rs. 58,40,12,807/- in AY 2015-16. Initially treated as revenue receipt, the assessee later claimed it as a capital receipt for setting up/expansion of its manufacturing facility. The Assessing Officer (AO) and Commissioner (Appeals) rejected this claim, treating it as taxable revenue.
Held
The Tribunal referred to its own prior decision in assessee's case for AY 2012-13, where IPS received from the Tamil Nadu government by way of Output Tax was held to be a capital receipt not chargeable to tax. Following this precedent and the AO's subsequent acceptance in remand proceedings, the Tribunal held that the IPS received by the assessee for AY 2015-16 is also a capital receipt.
Key Issues
Whether the Investment Promotion Subsidy (IPS) received by the assessee is a revenue receipt chargeable to tax or a capital receipt not chargeable to tax.
Sections Cited
Sec 143(3), Sec 144C(1), Sec 14A, Sec 43(1), Sec 115JB, Sec 92, Sec 92A, Sec 92F
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal instituted by the assesseeis against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2015-16, vide order dated 12.01.2024.
:-2-: ITA. No:589/Chny/2024
The sole issue involved in this appeal is as regards to ld.CIT(A) erred in upholding the giving effect order of the Assessing Officer in treating the Investment Promotion Subsidy (IPS) in the form of refund of output VAT amounting to Rs.58,40,12,807/- as a revenue receipt chargeable to tax. The assessee has also raised various other grounds which are general in nature an argumentative, exhaustive and hence, need not be reproduced.
Brief facts of the case are that the assessee, M/s.Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea. The assessee is engaged in the business of manufacturing and selling passenger cars in domestic and export market. The assessee company has filed its return of income for assessment year 2015-16 on 30.11.2015 admitting total income of Rs.1329,21,15,480/- under normal provisions of the Income Tax Act, 1961, (In Short “the Act”) and book profit u/s.115JB of the Act at Rs.1496,25,75,490/-. The assessee had entered into various international transactions with its Associated Enterprises (AEs) and international transactions were duly reported in Form 3CEB filed in accordance with provisions of Indian Transfer Pricing
:-3-: ITA. No:589/Chny/2024 Regulations contained in section 92, 92A to 92F of the Income Tax Act, 1961. The case was taken up for scrutiny and during the course of assessment proceedings, a reference was made to JCIT (Transfer Pricing) for determination of Arm’s Length Price (ALP) of international transactions of the assessee with its AEs.
The learned TPO vide its order dated 31.10.2018 has suggested certain transfer pricing adjustments towards upward adjustment for brand development services.
The Assessing Officer, in pursuant to directions of the ld. 4.
TPO, has passed draft assessment order u/s.143(3) r.w.s.144C(1) of the Income Tax Act, 1961 on 21.12.2018 and made transfer pricing adjustments as suggested by the TPO at Rs.212,26,60,000/-. The Assessing Officer had also proposed certain Corporate Tax adjustments including disallowances u/s.14A, r.w.r.8D of IT Rules, 1962, disallowance of subsidy received towards capital expenditure, disallowance of Focus Marketing Scheme expenses, disallowance of additional depreciation on fixed assets for regional offices disallowance of guarantee charges paid to HMC and disallowance of bonus/performance reward u/s.43B(c) of the Income Tax Act, 1961. The assessee has filed objections before learned DRP
:-4-: ITA. No:589/Chny/2024 against draft assessment order, but the learned DRP vide its directions dated 05.09.2019 has rejected objections filed by the assessee. The Assessing Officer, in pursuant to the directions of the learned DRP has passed final assessment order incorporating directions of the ld. DRP. The issues carried upto Tribunal and the Tribunal remanded the file to AO with certain directions in its order in IT(TP)A No.10/Chny/2020 dated 17/09/2021. In the Order giving effect passed by the AO dated 22/12/2021, pursuant to the order of the Tribunal rejected the claim of the assessee that subsidy of Rs.58,40,12,807/- received from Govt. as capital receipt and taxed it as revenue receipt. Aggrieved, the assessee filed appeal before the Ld.CIT(A) and the appeal was dismissed by rejecting the claim of the assessee to treat the subsidy received in the form of Output VAT as capital receipt by the Ld.CIT(A) on 12/01/2024 by confirming the order of the AO by holding as under:
“5. The issue of Refund of Output VAT is recurring one. The facts related to this issue are identical in all the years. The submissions of the assessee in the AYs.2013-14. 2014-15, 2015-16 and 2016- 17 are on the same lines. A common VC was conducted for all these AYs. For AY 2014-15, Appeal Order u/s 250 of the Act has been passed vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1 059021828(1) dated 22.12.2023. Since facts in the present appeal are identical to the facts in AY 2014-15, the Appeal Order for AY 2014-15 is required to be followed. As a result, the Contentions of the assessee on the aforesaid grounds are rejected and the issues raised are decided against the assessee. Accordingly, AO's order is upheld.”
:-5-: ITA. No:589/Chny/2024
The ld.AR of the assessee has stated that, during the A.Y. 2015-16, the assessee has accrued an Investment Promotion Subsidy (‘IPS’) of Rs.58,40,12,807/- based on the sales made and credited to P&L account under ‘Other Operating Revenue’. The aforesaid incentive was treated as a revenue receipt in its statutory books and income tax return.During scrutiny assessment proceedings, the Assessee submitted an additional claim that the incentive in the form of Investment Promotion Subsidy (IPS) was received for the purpose of setting up / expansion of Phase II manufacturing facility and as such IPS should be treated as a capital receipt not chargeable to tax.
In the draft assessment order, the Assessing Officer (‘AO’) did not entertain the claim of the Assessee.
Further, the Ld.AR stated that the DRP also did not entertain the claim and as such the AO issued the final assessment dated 18/11/2019 under section 143(3) r.w.s 144C(13) of the Act rejecting the Assessee’s claim.The Ld.AR stated that the Tribunal, while issuing the order in IT(TP)A No.10/Chny/2020 dated 17 Sep 2021, had remanded the matter back to the file of the AO to decide the taxability of the subsidy in accordance with law. In the remand proceedings,
:-6-: ITA. No:589/Chny/2024 the AO adjudicated on the subsidy issue and held that subsidy is not for the purposes of production or for any capital asset.
Even the AO has also given a finding that the Assessee is free to utilize the subsidy for any purpose. With these findings, the AO concluded that the subsidy is a revenue receipt chargeable to tax vide order dated 22/12/2021 giving effect to the ITAT order dated 17/09/2021.The CIT(A) vide order dated 12/01/2024 has upheld the order of the AO. Aggrieved against the CIT(A) order, the Assessee has preferred this appeal.
The Ld.AR argued that the issue is squarely covered in favour of the Assessee by the decision of this Hon’ble ITAT in Assessee’s own case for A.Y.2012-13 in IT(TP)A No.51/Chny/2021 dated 27/09/2023 wherein at Para No.11.6 it is held that the IPS in the form of VAT subsidy is a capital receipt. The extract of the decision is as under:
“11.6…..In the present case, going by the Scheme promoted by the Government of Tamil Nadu, it shows that industrial promotion subsidy has been promoted for encouraging Ultra Mega Integrated Automobile Industry in the state of Tamil Nadu. Therefore, we are of the considered view that from the submissions of the assessee, it appears that IPS accrued to the assessee for the impugned assessment year on the basis of sales is given for setting up/expansion of manufacturing facility and is on capital account. Therefore, said subsidy should be treated as capital receipt.But, fact remains that complete Scheme of IPS given by the Government
:-7-: ITA. No:589/Chny/2024 of Tamil Nadu and relevant conditions specified therein are not available for our benefit. Further, although, the assessee claims that the Nodal Agency i.e. SIPCOT has quantified and issued final eligibility certificate quantifying the amount of investment in fixed assets and consequent subsidy receivable in the form of IPS, but the details of investment are not forthcoming from certificate issued by the Nodal Agency. Therefore, we are of the considered view that this issue needs to be re-looked into by the AO in light of our discussion given hereinabove and also relevantevidences, including IPS of the Government of Tamil Nadu, details ofinvestment made by the assessee and certificate issued by the NodalAgency i.e. SIPCOT quantifying the amount of investment and subsidyIT(TP)A No.51/Chny/2021receivable in the form of subsidy. Thus, we set aside the issue to the fileof the Assessing Officer for verification. 11.7 …………………… ,we set aside the issue to the file of the AO and direct the AO to re-examine the claim of the assessee in light of provisions of Explanation-10 to Sec.43(1) of the Act, provided thereunder and also by considering IPS Scheme given by the Government of Tamil Nadu and other relevant evidences to ascertain whether the subsidy given by the State Government is to offset portion of the cost of an asset acquired by the assessee or is merely issued with an objective ofaccelerating the industrial development. The AO is further directed to examine the issue in light of our discussions given hereinabove and decide the issue in accordance with law.” (Emphasis supplied)
The Ld.AR submitted that in principle the issue was decided in favour of the Assessee by holding that the IPS subsidy seems to be granted for the setting up/expansion and therefore it is capital receipt not chargeable to tax. However, for the limited purpose of verification of the complete scheme and whether the subsidy was given to offset any cost of the asset, the matter was remanded to the AO.
:-8-: ITA. No:589/Chny/2024
The Ld.AR further stated that, in the remand proceedings for A.Y.2012-13, after detailed examination, the AO concluded that the claim of the Assessee is accepted that the subsidy accrued is capital receipt not chargeable to tax vide OGE dated 20/02/2024. The extract of the AO’s decision is as under:
“6. Tax treatment of output VAT Incentives ( Investment Promotion Subsidy) “Considering the submissions made and the details verified, the claim of the Assessee that the Subsidy accrued during the year (IPS) (Rs.33,00,82,506/-) is a capital receipt, not chargeable to tax, is hereby accepted.”
In this factual matrix, the Ld.AR submitted that the ITAT order for A.Y. 2012-13 dtd. 27/09/2023 was furnished to the CIT(A) during the appellate proceedings. However, the CIT(A) has not considered the same while issuing his order dated 12/01/2024. Presently, after passing of impugned Ld.CIT(A) order, the AO has issued the OGE for A.Y.2012-13 on 20/02/2024 after detailed examination wherein he has accepted that the subsidy is a capital receipt not chargeable to tax. While the Tribunal held that the IPS received by the Assessee is a capital receipt vide order in IT(TP)A No.51/Chny/2021 dtd.27/09/2023, the sole reason it has been remanded back is for the limited purpose of factual re-confirmation that whether the subsidy is for the purposes of meeting any cost of assets as :-9-: ITA. No:589/Chny/2024
per Explanation 10 to section 43(1) of the Act. In the giving effect proceedings, the AO has come to a conclusion that the subsidy is not for the purpose of meeting any cost of the assets and held that it is a capital receipt not chargeable to tax vide OGE dated 20/02/2024.
In light of the above, the Ld.AR stated that the issue in the present appeal is squarely covered in favour of the Assessee by the decision of this Hon’ble ITAT in IT (TP) A No.51/Chny/2021 dtd. 27/09/2023 and by the OGE dated 20/02/2024 issued by the AO for the A.Y.2012-13 and prayed for allowing the IPS as capital receipt not chargeable to tax.
Per contra, the Ld.DR relied on the orders of the lower authorities.
We have heard the rival contentions and perused the orders of the lower authorities and of the Tribunal. It is admitted fact that the assessee company has entered into a MOU with Government of Tamilnadu on 22/01/2008 for setting up / Expansion of its manufacturing facility. As per the said MOU incentive was granted for the purpose of setting up of :-10-: ITA. No:589/Chny/2024 Phase II manufacturing facility by way of refund of Output VAT under the state policy. After the completion of the project on 31/03/2011, a final eligibility certificate was issued by SIPCOT on 17/04/2014 and accordingly quantified the subsidy receivable in the form of IPS of Rs.4,023.36Crores.
On perusal of records we note that during the A.Y. 2015- 16, the assessee has accrued an Investment Promotion Subsidy (‘IPS’) of Rs.58,40,12,807/- based on the sales made and credited to P&L account under ‘Other Operating Revenue’. The aforesaid incentive was treated as a revenue receipt in its statutory books and income tax return.During scrutiny assessment proceedings, the Assessee submitted an additional claim that the incentive in the form of Investment Promotion Subsidy (IPS) was received for the purpose of setting up / expansion of Phase II manufacturing facility and as such IPS should be treated as a capital receipt not chargeable to tax. In the draft assessment order, the Assessing Officer (‘AO’) did not entertain the claim of the Assessee.
We note that the Tribunal in assessee’s own case for A.Y.2012-13 in IT(TP)A No.51/Chny/2021 dated
:-11-: ITA. No:589/Chny/2024 27/09/2023(supra) decided the issue in favour of assessee holding that the IPS received from Govt. of Tamilnadu by way of Output Tax as capital receipt not chargeable to tax. The same has been given effect by passing OGE by the AO for the A.Y. 2012-13 dated 20/02/2024. The extract of the AO’s decision is as under:
“6. Tax treatment of output VAT Incentives (Investment Promotion Subsidy) “Considering the submissions made and the details verified, the claim of the Assessee that the Subsidy accrued during the year (IPS) (Rs.33,00,82,506/-) is a capital receipt, not chargeable to tax, is hereby accepted.”
In the facts and circumstances of the case and following the decision of the Tribunal (supra), we are of the considered view that the IPS received by way of Output tax for the A.Y. 2015-16 is capital receipt not chargeable to tax.
In the result the appeal of the assessee is allowed. Order pronounced in the open court on 21stAugust, 2024 at Chennai.