M/S. SHIVALIK PRINTS LTD.,NEW DELHI vs. ADDL. CIT, NEW DELHI

10% capital subsidy for the processing machinery and also relied on the judgment of the Hon’ble Supreme Court in the case of CIT vs.

Ponni Sugars and Chemicals Ltd. – 306 ITR 392 (SC) and also CIT vs. Triumala Bricks and Tiles Factory – 217 ITR 547 (AP). The AO observed that the case laws relied upon by the assessee are not applicable in the present case of the assessee on the facts of the case and after relying on certain judicial pronouncements, he treated the aforesaid amount of Rs.74,02,171/- as revenue receipt and added back to the income of the assessee.

“2.2 I have also gone through the submission by the Ld AO. The crux of the issue is to decide whether subsidiary received from the Textile Ministry in the present facts of the case should be treated as Revenue receipt or capital receipt. According to appellant it is a capital receipt because of the particular scheme of the Govt. Conversely according to the Ld AO it is Revenue receipt and nothing but profit supplement to be offered as income from the relevant period. The appellant in its favour has given some case laws, equal number of decisions were also given by the Ld AO.

2.3 According to me, this is essentially a question of fact. The grant was received from the Textile Ministry would by itself will not make the issue either in favour of the Revenue or the appellant. We have to go behind the documents and to see the nature of grant given by the Govt Authority. The examination of document shows that the State has given the appellant enterprise a running support to continue its business activity. The fact that the scheme indicates that the appellant would get 10% of the total P&M installed during the year would not make the nature of payment as capital. The fact of the matter is that this is a profit substitute as rightly observed by the Ld AO and he has referred decisions which are identically suitable for the case under review. Some of the catena of cases referred by him are listed below :-

Merinopli & Chemicals Ltd v CIT (1994) 209 ITR 508 (Cal) V.V.S.V. Meenakshi Achi v CIT (1996) 60 ITR 253 (SC) Saroja Mills Ltd v CIT (1997) 220 ITR 626 (Mad)

There are also other cases referred by him and it is no need to mention a" the cases. From the facts of the present case and also from the judicial decision as pronounced by the High Courts and the Apex Court, and the Apex Court, the ground of the appellant does not get substantiated. An examination of commentaries thereon it was held that over about 50 years since inception of the present statute, the Courts with very few exceptions have recognized such type of grant issued by the Govt. Authority as profits supplementing and not as capital receipt. Therefore, it is concluded that the grant received is a Revenue receipt and the action of the AO does not require interference of any sought from this office.”

Government either in AY 2006- 07 or in 2008-09. He further submitted that the scheme indicates that the assessee would get 10% of the total P&M installed during the year. He submitted that the assessee’s case is squarely covered by the decision of Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd reported in 306 ITR 392 (SC) wherein the Hon’ble Supreme Court has held that, “The character of the receipt of subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account.” He also relied on the decision of CIT vs. Tirumala Bricks & Tiles Factory reported in 217 ITR 547 (AP), wherein it was held that subsidy for setting up/ expansion of plant is a capital receipt. The ld. AR further submitted that the case laws relied upon by the AO pertain to revenue subsidy in the form of reimbursement of specified revenue expenditure so as to supplement the trading receipts and as such, the same are not applicable in the facts of the assessee where the subsidy was given on capital account in the form of reimbursement of part of capital cost to encourage the upgradation of the textile industry. He submitted that the capital subsidy paid in assessee’s case is clearly within the purpose and object to promote capital investment, as such the same is clearly a capital receipt as per the said case law relied upon by the assessee. He categorically submitted that the aforesaid Apex Court decision is a binding and a recent one and in any case, the Hon’ble High Court decisions cited by Ld. AO of earlier dates could not override the aforesaid recent Hon’ble Supreme Court decision, which is in assessee’s favour. He, however, submitted that in any case, the Hon’ble High Court decisions relied by the AO are clearly distinguishable and are not applicable to the facts of this case. Further, he relied on the CBDT Circular No.142 dated 01.08.1974, the capital subsidy involved is a capital receipt. In view of the above, ld. AR submitted that the subsidy received by the assessee is a capital receipt and not a revenue receipt and pleaded to delete the addition and allow the appeal of the assessee.

Ministry of Textile for the purchase of plant and machinery and it was received under the Technology Upgradation Fund Scheme (TUF Scheme) against the purchase of new machinery. The very nomenclature of the subsidy, according to the ld. AR, was to get additional incentive in the form of 10% capital subsidy for purchasing the machinery and relied on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Ponni Sugars and Chemicals Ltd. (supra), CTI vs. Sham Lal Bansal – (2011) 11 taxmann.com 369 (P&H) and CIT vs. Tirumala Bricks and Tiles Factory (supra) and contended that a receipt of such nature which is given directly to the bank cannot be termed as revenue receipt and ought not to have been added to the income of the assessee. We find force in the contention of the ld. AR that in a similar case, the Hon’ble Punjab & Haryana High Court in CIT vs. Sham Lal Bansal (supra), the facts being similar, wherein the assessee received subsidy for repayment of loan taken for building and plant and machinery under the Credit Linked Capital Subsidy Scheme under the TUF Scheme of the Ministry of Textiles was held as capital in nature. We find that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and since it was the intention of the subsidy for the purpose for which it was given was for TUF Scheme by the Ministry of Textiles to the assessee, so the AO and the CIT (A) erred in determining that the receipt is revenue and that the receipt is a profit substitute of the assessee.

Therefore, in the light of the judgment of the Hon’ble Supreme Court in CIT vs.

Ponni Sugars and Chemicals Ltd. (supra), wherein the Hon’ble Lordships have held that the character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account. We find that in the facts of this case, where the subsidy was given on the capital account in the form of capital cost to encourage upgrading the textile industry and the purpose and object was for capital investment, as such, is clearly a capital receipt as per the case laws relied upon by the ld. AR before us.

Therefore, we direct that the receipt of Rs.74,02,161/- be treated as receipt of capital nature and not to be taxed in the hands of the assessee. We order accordingly.