[M/s. Shri Balaji Alloys v. CIT, 333 ITR 335 (J&K)]
Pursuant to the new industrial policy announced by the State of J&K the assessee received excise refund and interest subsidy, etc. The assessee claimed it to be capital receipt. Alternatively, the assessee claimed that the subsidy amount was eligible for deduction u/s.80-IB. The Assessing Officer, CIT(A) and the Tribunal rejected the assessee’s claim and held that the receipt was a revenue receipt on the ground that (i) the subsidy was for established industry and not to set up a new one, (ii) it was available after commercial production, (iii) it was recurring in nature, (iv) it was not for purchasing capital assets, and (v) it was for running the business profitably.
On appeal by the assessee, the Jummu and Kashmir High Court reversed the decision of the Tribunal and held as under:
“(i) The ratio of Sahney Steel, 228 ITR 253 (SC), Ponni Sugar 306 ITR 392 (SC) and Mepco Industries, 319 ITR 208 (SC) is that to determine whether incentives and subsidies are revenue or capital receipts, the purpose underlying the incentives is the determinative test. If the object of the subsidy scheme 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 subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit, then the receipt of the subsidy is on capital account. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or mechanism through which the subsidy is given is irrelevant.
(ii) On facts, the object of the subsidy scheme was (a) to accelerate industrial development in J&K, and (b) generate employment in J&K. Such incentives, designed to achieve a public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of the assessee alone. It cannot be construed as mere production or trade incentives.
(iii) The fact that the incentives were available only after commencement of commercial production cannot be viewed in isolation. The other factors which weighed with the Tribunal are also not decisive to determine the character of the incentive subsidies in view of the stated objects of the subsidy scheme.
(iv) The finding of the Tribunal that the incentives were revenue receipt is, accordingly, set aside, holding the incentives to be capital receipt in the hands of the assessee.”
