“Section 2(24)(xviii)”
The decision most relied on for Section 2(24)(xviii) is CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392), cited in 577 judgments on BharatTax.
Leading authorities on Section 2(24)(xviii)
The "Purpose Test" determines whether an incentive or subsidy is a capital or revenue receipt for income tax purposes. If the incentive's purpose is to enable an assessee to set up a new industry or make investments in capital assets, it is a capital receipt and not taxable.
A subsidy is treated as a revenue receipt if the assessee is free to use the money in its business as it likes and is not obligated to spend it for a specific capital purpose, such as acquiring assets or repaying loans.
This Supreme Court decision clarifies the conditions under which a capital subsidy received by an assessee should be reduced from the 'actual cost' of an asset for computing depreciation under Section 43(1) of the Income-tax Act, depending on whether the subsidy directly meets the cost of the asset.
Expenditure incurred by pharmaceutical companies on freebies provided to medical practitioners is not deductible under Explanation 1 to Section 37(1) of the Income-tax Act, as such gifting is prohibited by the Medical Council Regulations, 2002. The court also held that what is directly prohibited by law cannot be indirectly evaded through contrivance.
A subsidy is classified as a capital receipt if its object is to enable the assessee to set up or expand a new or existing unit. Conversely, it is a revenue receipt if its purpose is to help the assessee run the business more profitably.
A fiscal statute must be interpreted strictly based on its plain language, without substituting judicial impressions for legislative intent. Exemptions and exclusions within such statutes must also be construed strictly and cannot be extended through interpretation.
Tax can only be levied or collected by authority of law, as mandated by Article 265 of the Constitution; consequently, any tax collected contrary to law must be refunded.
Income tax law intends to avoid double taxation, and where an item is brought to tax in one form, appropriate relief or adjustment should be provided to prevent its taxation again in another form. This principle is applicable when considering government grants or subsidies included in income and their impact on the actual cost of assets for depreciation.
