Whether ‘Capital Receipt’ or ’Revenue Receipt’ Subsidy Received for Setting up of or Expansion of Industry

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The Tax Publishers Subsidy Received for Setting up of or Expansion of Industry : Whether Capital Receipt or Revenue Receipt Akhilesh Kumar Sah In the case of LG Electronics India Pvt. Ltd. v. ACIT 2017 TaxPub(DT) 1975 (Del D-Trib) [ITA No. 2163/Del/2015, decided on 19-4-2017], the assessee received subsidy for setting-up industry. The assessing officer treated the same as revenue receipt. The ITAT held that the assessee received the extant subsidy for accelerating flow of investment in industry in the State of Maharashtra, i.e., for expansion of the industry. The subsidy resulting from such industrial expansion is ex consequenti governed by the judgment of the Supreme Court in the case of CIT v. Ponni Sugars and Chemicals Ltd. 2008 TaxPub(DT) 2302 (SC) : (2008) 306 ITR 392 (SC) and, hence, a capital receipt. 1. Introduction Explanation 10of clause (1) to Section 43 of the Income Tax Act, 1961 (the Act, for short) explains that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It has been, also, provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Subsidy Received for Setting up of or Expansion of Industry : Whether Capital Receipt or Revenue Receipt

Akhilesh Kumar Sah

In the case of LG Electronics India Pvt. Ltd. v. ACIT 2017 TaxPub(DT) 1975 (Del D-Trib) [ITA No. 2163/Del/2015, decided on 19-4-2017], the assessee received subsidy for setting-up industry. The assessing officer treated the same as revenue receipt. The ITAT held that the assessee received the extant subsidy for accelerating flow of investment in industry in the State of Maharashtra, i.e., for expansion of the industry. The subsidy resulting from such industrial expansion is ex consequenti governed by the judgment of the Supreme Court in the case of CIT v. Ponni Sugars and Chemicals Ltd. 2008 TaxPub(DT) 2302 (SC) : (2008) 306 ITR 392 (SC) and, hence, a capital receipt.

1. Introduction

Explanation 10of clause (1) to Section 43 of the Income Tax Act, 1961 (the Act, for short) explains that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. It has been, also, provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.