HYUNDAI MOTOR INDIA LIMITED,KANCHEEPURAM vs. DCIT NON CORP CIRCLE 8(1), , CHENNAI
Facts
The assessee received an Investment Promotion Subsidy (IPS) in the form of a refund of output VAT, amounting to Rs. 32,75,56,192/-, which was treated as a revenue receipt by the Assessing Officer. The assessee claimed this subsidy was for setting up/expansion of a manufacturing facility and should be treated as a capital receipt not chargeable to tax.
Held
The Tribunal held that the Investment Promotion Subsidy (IPS) received by way of Output VAT is a capital receipt not chargeable to tax, following its own decision in a similar case for AY 2012-13. The AO accepted the assessee's claim in the remand proceedings for AY 2012-13 that the subsidy is a capital receipt.
Key Issues
Whether the Investment Promotion Subsidy (IPS) received in the form of refund of output VAT is a capital receipt or a revenue receipt chargeable to tax.
Sections Cited
143(3), 144C(1), 115JB, 92, 92A, 92F, 43B(c), 43(1), 154, 250
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 appealinstituted by the assessee is against the
common order of the Commissioner of Income Tax (Appeals),
National Faceless Appeal Centre (NFAC), Delhi, for the
assessment year 2013-14 vide order dated 12.01.2024.
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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.32,75,56,192/- as a revenue receipt chargeable to tax. The
assessee has raised various other grounds on the same issue
which are general in nature, 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 2013-14 on
28.11.2013 admitting total income of Rs.1717,21,91,860/-
under normal provisions of the Income Tax Act, 1961, (In Short
“the Act”) and book profit u/s.115JB of the Act at
Rs.2145,05,22,193/-. 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:608/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 31.10.2016 has suggested
certain transfer pricing adjustments towards downward
adjustment to the value of imports and 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 30.12.2016 and
made transfer pricing adjustments as suggested by the TPO at
Rs.179,07,77,331/-. 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, and disallowance of bonus /
performance reward u/s.43B(c) of the Income Tax Act, 1961.
The assessee has filed objections before learned DRP against
draft assessment order, but the learned DRP vide its directions
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dated 16.09.2017 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 ITA 3192/Chny/2017 dated 01.09.2021. In the
Order giving effect passed by the AO dated 09/09/2021 and
subsequently rectified U/s.154 of the Act on 20/09/2021,
pursuant to the order of the Tribunal rejected the claim of the
assessee that subsidy of Rs.32,75,60,000/- 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:608/Chny/2024
The ld.AR of the assessee has stated that, during the
A.Y. 2013-14, the assessee has accrued an Investment
Promotion Subsidy (‘IPS’) of INR 32,75,60,000 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 30 Oct 2017 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 ITA
No.3192/Chny/2017 dated 01 Sep 2021 for the subject AY, 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
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proceedings, 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 09/09/2021 giving
effect to the ITAT order dated 01/09/2021 read with
rectification order dated 20/09/2021 under section 154 r.w.s
254 r.w.s 143(3) of the Act.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
:-7-: ITA. No:608/Chny/2024
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 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.The Ld.AR further
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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 (InvestmentPromotion 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
20/02/2024after 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:608/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:608/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. 2013-
14, the assessee has accrued an Investment Promotion Subsidy
(‘IPS’) of Rs.32,75,60,000/- 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:608/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
2013-14 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.
Sd/- Sd/- (एबीटीवक�) (एस.आर.रघुनाथा) (S. R. RAGHUNATHA) (ABY T VARKEY) लेखासद�/Accountant Member �ाियकसद�/Judicial Member
चे�ई/Chennai, �दनांक/Dated, the21stAugust, 2024
:-12-: ITA. No:608/Chny/2024 JPV आदेशकी�ितिलिपअ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. �(थ�/Respondent 3.आयकर आयु./CIT – Chennai 4. िवभागीय �ितिनिध/DR 5. गाड= फाईल/GF
