HYUNDAI MOTOR INDIA LIMITED,KANCHEEPURAM vs DCIT NON CORP CIRCLE 8(1), , CHENNAI

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE

Hearing: 06.06.2024Pronounced: 21.08.2024

PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:

This appeal instituted 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 2016-17, 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.90,95,09,568/-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 2016-17 on

29.11.2016 admitting total income of Rs.1865,03,71,585/-

under normal provisions of the Act and book profit u/s.115JB of

the Act at Rs.1918,63,89,313/-. The assessee had entered into

various international transactions with its AEs and international

transactions were duly reported in Form 3CEB filed in

accordance with provisions of Indian Transfer Pricing

Regulations contained in section 92, 92A to 92F of the Income

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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 of

international transactions of the assessee with its AEs. The

learned TPO vide its order dated 01.11.2019 has suggested

upward adjustment for brand development services.

The Assessing Officer, in pursuant to TPO order, has

passed draft assessment order u/s.143(3) r.w.s 144C(1) of the

Act on 27.12.2019 and made transfer price adjustments as

suggested by the TPO at Rs.237,51,90,000/-. 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 claimed on fixed assets for regional

offices and disallowance of bonus / performance reward u/s.43B

of the Act. The assessee has filed objections before learned DRP

against draft assessment order, but the learned DRP vide its

directions dated 23.03.2021 has rejected objections filed by the

assessee. The Assessing Officer in pursuant to the directions of

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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.39/Chny/2021 dated 22/12/2021. 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.90,95,09,568/- 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.”

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Aggrieved, the assessee has filed present appeal before the

Tribunal.

The ld. AR submitted that neither the AO nor the CIT(A)

has dealt with the taxability of the subsidy by taking into

consideration the amendment made to section 2(24)(xviii) of

the Act. However, this Hon’ble ITAT in Assessee’s own case in

IT(TP)A No.53/Chny/2022 vide order dated 09 Feb 2024 for AY

2018-19 has held that post amendment to section 2(24)(xviii)

of the Act, subsidy will have to be treated as revenue receipt

chargeable to tax and accordingly dismissed the appeal of the

Appellant for AY 2018-19 on this particular ground. Since the

subject AY 2016-17 is the first year in which the amendment to

‘income’ definition has been brought in, the principle laid down

by this Hon’ble ITAT in Appellant’s own case in IT(TP)A

No.53/Chny/2022 for AY 2018-19 would be squarely applicable

to the facts in this case also.

Per contra, the ld.DR stated that the subsidy received by

the assessee in the form of output VAT has been brought into

the definition from the assessment year 2016-17 and hence, it

is to be treated as revenue receipt and chargeable to tax under

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the Act and prayed for dismiss the grounds of the appeal of the

assessee.

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

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. 2016-

17, the assessee has accrued an Investment Promotion Subsidy

(‘IPS’) of Rs.90,95,09,568/- 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

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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.

10.

The assessee has claimed the refund of output tax VAT

as capital receipt and the same has been upheld by the Tribunal

upto the assessment year 2015-16. However, the definition of

income as provided in section 2(24) has been amended by

Finance Act, 2015 w.e.f. 01.04.2016 wherein sub-clause 18 has

been inserted in the definition of income, which reads as under:

“2(24) Income includes…. xxxx xxxx (xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43"

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11.

We note that assistance in the form of ‘subsidy’ is

included in the definition of income and hence, the same is

chargeable to tax under the Act from the assessment year

2016-17. This has been confirmed by the decision of this

Tribunal in IT(TP)A No. 53/Chny/2022 dated 09.02.2024 in

assessee’s own case for the assessment year 2018-19 holding

as under:

“12. Proceeding further, we find that the provisions of Sec.5 provide the scope of total income. It provides that subject to the provisions of this Act, total income of a person who is resident would include all income from whatever sources derived which is received or deemed to be received in India or income which accrue or arise or deemed to accrue or arise in India. The heads of income has been carved out in Section 14 of the Act. The provisions of Sec.14 provide for heads of income under which such income would be assessable. These provisions provide that save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified in five distinct heads of income i.e., Salaries, Income from House Property, Profits and Gains of business or profession, capital gains or income from other sources. In other words, once an item has been found to be covered within the meaning of ‘income’, the same shall have necessarily to be classified in distinct heads of income and computations of tax would be made accordingly. Since the definition of income is an inclusive one, it is not necessary as well as not practical that each item of income is clearly and distinctly spelt out in charging provisions of distinct heads of income. We also find that the provisions of Sec.28 specify the income which shall be chargeable to Income Tax under the heads ‘Profits and Gains of business or Profession’. The sub-clause (i) provides that profits and gains of business or profession which was being carried on by the assessee at any time during the previous year shall be chargeable to tax under the head ‘Profits and Gains of Business or Profession’. From the scheme of the Act, it could be seen that the definition of income as provided in Sec. 2(24)(xviii) is of widest amplitude and it is an inclusive definition and not an exhaustive

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definition. The scope of total income includes all types of income that is received or that accrues or arises to the assessee. The income has to be divided into five distinct heads one of which is ‘Profits and Gains of Business or Profession’. In our considered opinion, when the definition of income is not exhaustive one, it is not necessary that to tax the income, corresponding amendment should have been made in Sec.28 of the Act. The argument that the amendment is not a substantive amendment is not correct and we do not concur with this argument.

13.

It could also be observed that even before this amendment, the subsidy was not specifically spelt out in Sec.28 yet the subsidies which were of revenue in nature were always brought to tax under the head ‘Profits and Gains of Business or Profession’ and capital receipts were held to be non-taxable considering the ‘purpose test’ as laid down by Hon’ble Supreme Court in various case laws. The revenue subsidies were so brought to tax under the head ‘Profits and Gains of Business or Profession’ on the reasoning that subsidies primarily arose to the assessee while conducting its business and the same was to be treated as per the provisions as applicable to computation of Income under the head ‘Profits and Gains of Business or Profession’. The subsidies, in our opinion, in all such cases were covered under the provisions of Sec. 28 (i) itself i.e., the ‘profits and gains of any business or profession which was carried on by the assessee at any time during the year’. This being the case, the logical conclusion that would follow would be that after amendment of the definition of ‘income, there was no separate requirement of bringing corresponding amendment to Sec.28 since clause (i) was wide enough or in fact, was already governing the treatment of such subsidies. Therefore, the argument of Ld. AR that there should be corresponding amendment in the charging provisions before an item could be brought to tax is not acceptable. These arguments stand rejected. 14. Upon perusal of amendment, we find that the effect of amendment made in Sec.2(24) by Finance Act 2015 w.e.f. 01.04.2016 by way of insertion of Clause (xviii) would be that income would include any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with

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the provisions of Explanation 10 to clause (1) of section 43. The effect of the amendment, in our considered opinion, was that various concessions etc. provided by specified authorities either in cash or in kind by whatever name called will be included within the meaning of term ‘income’ and consequently, the same would be taxable under the Act. The phrase by whatever name called captures the essence of the amendment as brought out by the legislatures and the same in crystal clear terms expresses the intention of the legislatures. In our opinion, the distinction being hitherto created by judicial decisions between capital receipts and revenue receipts was done away by this amendment and the earlier case laws holding the field would cease to apply after the amendment. The intention of legislature was to bring to tax all kinds of subsidies irrespective of their nature, manner of receipt and the agency from which it was received. The only exception provided is that in case the said concessions were taken into account to determine the actual cost of an asset in terms of Explanation 10 to clause (1) to Section 43, the same would not be separately taxable since in such a case, the quantum of depreciation would be reduced. In all the other cases, irrespective of nomenclature or the manner in which the same are given, such concessions would always form part of income of the assessee notwithstanding the ‘purpose’ or objective of the scheme or whether the same was in capital field or in revenue field. This amendment has, thus, taken away the distinction between capital receipts and revenue receipts or the ‘purpose test’ as laid down by Hon’ble Apex Court in various decisions. The amended definition provide that all sorts of assistance received by an assessee from the specified persons, irrespective of its nature as capital or revenue, shall be taxable as income of the assessee unless the same falls in the exclusion category. In such a situation, the relevant case laws as cited by Ld. AR in support of the argument that ‘purpose test’ must be followed are to be disregarded and it was to be held that those case laws would have no application after the aforesaid amendment. We concur with the stand of Ld. CIT-DR, in this regard. 15. In view of the foregoing, the amount of subsidies as received by the assessee has rightly been brought to tax by Ld. AO in the assessment order. Ground No.6 and all its sub-grounds as raised by the assessee, stand dismissed.”

:-11-: ITA. No:609/Chny/2024 12. Considering the facts, amendment to section 2(24) of the

Act and decision of theTribunal (supra), we are of the view that

the subsidy received in the form of output VAT by the assessee

has been rightly brought to tax by the AO and hence, the

appeal of the assessee is dismissed.

13.

In the result, appeal filed by the assessee is dismissed. 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 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

HYUNDAI MOTOR INDIA LIMITED,KANCHEEPURAM vs. DCIT NON CORP CIRCLE 8(1), , CHENNAI