Commissioner Of Income Tax v. Sh. Sham Lal Bansal

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Commissioner of Income Tax. Vs. Sh. Sham Lal Bansal. I.T.A. No.472 of 2010 (O&M)Date of decision: 17.1.2011 -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Rajesh Katoch, Standing counselfor the Revenue. --- ADARSH KUMAR GOEL, J. 1.This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order of the Income Tax Appellate Tribunal,Chandigarh dated 22.9.2009 in I.T.A. No.639/Chandil/2009proposing to raise following substantial question of law:- “Whether in the facts and circumstances of the case,the Hon’ble ITAT is justified in law in holding that thesubsidy received by the assessee amounting toRs.60,90,000/- under the Technology Up-gradationFund Scheme (TUFS) of Ministry of Textiles,Government of India is capital in nature whereas theAssessing Officer has rightly held the receipt ofsubsidy as revenue in nature applying the ratio of thedecision of Hon’ble Supreme Court in the case of M/sSawhney Steels and Press Works Ltd. & Others Vs.CIT reported at 228 ITR 253.” 2. The assessee is engaged in manufacture and sale ofwoolen garments. It received subsidy for repayment of loan takenfor building, plant and machinery under the Credit Linked CapitalSubsidy Scheme under Technology Upgradation Fund Scheme(TUFS) of Ministry of Textiles, Government of India. Theassessee claimed the said subsidy to be capital receipt but theAssessing Officer did not accept the same and added back thesame to the income of the assessee holding the same to berevenue receipt. On appeal, the CIT(A) upheld the plea of theassessee, which view has been affirmed by the Tribunal with thefollowing observations:- “Having regard to the aforesaid, in our view, it is quiteclear that the objective of the subsidy scheme was toenhance the technology apparatus of the assessee byassisting in acquiring machinery and further that thesubsidy so received was utilized for repayment ofloans taken by the assessee to set up the new unit, aswas the intention of the subsidy. 10.Considered in the aforesaid light, in our view,the facts of the instant case are on all fourscomparable to those considered by the Hon’bleSupreme Court in the case of Ponni Sugars &Chemicals Ltd. (supra) and therefore, a naturalcorollary is that the nature of the subsidy in questionis capital. Therefore, both on the issue of theobjective of the scheme and on the utilization of thefunds received as subsidy, the subsidy is to be viewedas capital in nature having regard to the judgment ofthe Hon’ble Supreme Court in the case of PonniSugars & Chemical Ltd. (supra). 11. Reliance placed by the Revenue on the case ofSawhney Steels and Press Works Ltd. & others(supra), in our view, is not appropriate having regardto the aforesaid features of the scheme, which are notin dispute. Moreover, in the case of Sawhney Steelsand Press Works Ltd. & others (supra), it was foundas a fact that the subsidy was given to meet recurringexpenditure and was not for acquiring a capital asset.Whereas in the instant case, admittedly, there is noprovision in the scheme to grant subsidy to meet anyrecurring expenditure and neither such a case hasbeen set up by the Department. The only objectionsof the Department are that the subsidy has beengiven after commencement of production and,secondly that it was for repayment of loans. Boththese factors do not distract from the nature of thesubsidy being treated as capital, as explained by theHon’ble Supreme Court in the case of Ponni SugarsChemicals Ltd. (supra).” 3. We have heard learned counsel for the appellant. 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that thesubsidy was not given at the time of setting up of the industry butafter commencement of production for repayment of loan. Insuch situation, the amount should have been treated as revenuereceipt, as per judgment of the Hon’ble Supreme Court inSahney Steel & Press Works Ltd. & Ors.v. CIT(1997) 228 ITR253, 5. We are unable to accept the submission. 6. The purpose of scheme under which the subsidy isgiven, has been discussed by the Tribunal. To sustain and provethe competitiveness and overall long term viability of the textileindustry, the concerned Ministry of Textile adopted the TUFSscheme, envisaging technology upgradation of the industry.Under the scheme, there were two options, either to reimbursethe interest charged on the lending agency on purchase oftechnology upgradation or to give capital subsidy on theinvestment in compatible machinery. In the present case, theassessee has taken term loans for technology upgradation andsubsidy was released under agreement dated 12.7.2005 withSmall Industry Development Bank of India. The relevant clauseof the agreement under which the subsidy was given is as under:- “Para8.to prevent mis-utilization of capital subsidyand to provide an incentive for repayment, the capitalsubsidy will be treated as a non interest bearing termloan by the Bank/Fis. The repayment schedule of theterm loan however will be worked out excluding thesubsidy amount and subsidy will be adjusted againstthe term loan account of the beneficiary after a lock inperiod of three years on a pro-rate basis in terms ofrelease of capital subsidy. There is no apparent orreal financial loss to a borrower since thecountervailing concession is extended to the loanamount.” 7. In view of above, the view taken inSahney Steel & Press Works Ltd. & Ors., could not be applied in the present case, as in said case the subsidy was given for running thebusiness. For determining whether subsidy payment was‘revenue receipt’ or ‘capital receipt’, character of receipt in thehands of the assessee had to be determined with respect to thepurpose for which subsidy is given by applying the purpose test,as held inSahney Steel & Press Works Ltd. & Ors.itself andreiterated in later judgment inCITv. Ponni Sugars & ChemicalsLtd. & ors.(2008) 306 ITR 392, referred to in the impugned orderof the Tribunal. 8. In view of above, since the matter is covered byjudgment of the Hon’ble Supreme Court in Ponni Sugars &Chemicals Ltd. & ors.against the revenue, no substantialquestion of law arises. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE January 17, 2011ashwani ( AJAY KUMAR MITTAL ) JUDGE