9. Principal CIT vs. Ankit
Metal and Power Ltd.; [2019] 416 ITR 591 (Cal.) Date of order: 9th
July, 2019 A.Y.: 2010-11
Income
or capital – Subsidies – Book profit – Computation – Sections 2(24) and 115JB
of ITA, 1961 – Receipts and power subsidies granted as incentives by State
Government under schemes for setting up units in specified backward areas in
State – Capital in nature – Not income – Cannot be included for purpose of computation
of book profit u/s 115JB
The assessee was a
manufacturer who invested in a sponge iron plant and mega project that made him
eligible for subsidy under the West Bengal Incentive Scheme, 2000 and the West
Bengal Incentive to Power Intensive Industries Scheme, 2005. For the A.Y.
2010-11 the assessee disclosed Nil income under the normal computation and an
amount as book profits u/s 115JB of the Income-tax Act, 1961. In the course of
the assessment proceedings, he filed a revised computation of income under the
normal provisions and section 115JB in order to claim deduction of the sums of
interest subsidy and power subsidy amounts received by him under those schemes
as capital receipts which he had treated as revenue receipts in the original
return. The AO treated the subsidies as revenue receipts and brought them to
tax.
The Tribunal held that the
‘interest subsidy’ and ‘power subsidies’ were capital receipts and would be
excluded while computing the book profits u/s 115JB.
On appeal by the Revenue, the
Calcutta High Court upheld the decision of the Tribunal and stated as under:
‘(i) According to the West Bengal Incentive Scheme, 2000 and the West
Bengal Incentive to Power Intensive Industries Scheme, 2005 the subsidies were
granted with the sole intention of setting up new industry and attracting
private investment in the State of West Bengal in the specified areas which
were industrially backward, and hence the subsidies were of the nature of
non-taxable capital receipts. Thus, according to the “purpose test” laid out by
the Supreme Court and the High Courts, the subsidy should be treated as a
capital receipt in spite of the fact that the computation of “power subsidy”
was based on the power consumed by the assessee.
(ii) Once the purpose of the subsidy was established, the mode of
computation was not relevant. The mode of giving incentive was reimbursement of
energy charges. The nature of subsidy depended on the purpose for which it was
given. The entire reason behind receiving the subsidies was for setting up of a
plant in the backward region. Therefore, the incentive subsidies of interest
subsidy and power subsidy received by the assessee were “capital receipts” and
not “income” liable to be taxed in the A.Y. 2010-11.
(iii) The amendment to the definition of income u/s 2(24) wherein
sub-clause (xviii) has been inserted including “subsidy” for the first time by
Finance Act, 2015, w.e.f. 1st April, 2016, i.e., A.Y. 2016-17 has
prospective effect and has no effect on the law on the subject applicable to
the year in question.
(iv) Where a receipt was not in the nature of income it could not be
included in the book profits for the purpose of computation u/s 115JB.
Therefore, the interest and the power subsidies received by the assessee under
the government schemes would have to be excluded while computing the book
profits u/s 115JB, when they were capital receipts and did not fall within the
definition of income u/s 2(24).’
