Taxability of Subsidy A Recent Stunning Decision by ITAT, Chennai on Taxability of Subsidy

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The Tax Publishers Income Tax--Taxability of Subsidy A Recent Stunning Decision by ITAT, Chennai on Taxability of Subsidy Akhilesh Kumar Sah Applying its decision in Sahney Steel & Press Works Ltd. v. CIT [(1997) 94 Taxman 368], Supreme Court in CIT v. Rajaram Maize Products (2002) 166 Taxation 601, held that power subsidy received by assessee which was available to new industries was the revenue receipts. In CIT v. Ponni Sugars and Chemicals Ltd. [(2008) 174 Taxman 87], Supreme Court has observed that one has to apply the purposive test to decide the nature of subsidy and the form of subsidy is immaterial. The ITAT, Chennai has analysed the recent position in a case before it. 1. Introduction Taxability of a subsidy received by an assessee has been a controversial issue in many cases. A recent decision by ITAT, Chennai has taken up the issue in Hyundai Motor India Ltd. v. ACIT [IT (TP)A No. 53/Chny/2022 (AY: 2018-19)] decided on 9-2-2024, wherein one of the ground was that the NaFAC/DRP erred in treating the Investment Promotion Subsidy (for short, 'IPS') in the form of Output SGST amounting to Rs.98,85,43,334 as income for assessment year 2018-19. 2. Facts of the above mentioned case in brief The brief facts were that assessee accrued VAT incentive (IPS) of Rs 98.85 crores as received from State Industries Promotion Corporation of Tamil Nadu (for short, 'SIPCOT'), Govt. of Tamil Nadu and obtained final eligibility certificate from SIPCOT under the scheme. The said amount was not offered to tax on the ground that the subsidy was released by appropriate authority only on submission of proof of commodity taxation in the form of VAT among others under TN VAT Act, 2006. Till that obligation was discharged, the same will not accrue to the assessee. The authorised authority on verification of discharge of applicable tax was to issue a certificate which entitled the assessee to claim the said subsidy subject to satisfaction of all the conditions and terms specified in the Memorandum of Understanding (for short, 'MOU'). The assessee submitted that appropriate authority was entitled to withhold the release of the incentives if some of the conditions were not fulfilled. AO brought the same to tax on the ground that the subsidy had already accrued to the assessee. DRP confirmed the same against which the assessee filed appeal before ITAT. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Taxability of Subsidy

A Recent Stunning Decision by ITAT, Chennai on Taxability of Subsidy

Akhilesh Kumar Sah

Applying its decision in Sahney Steel & Press Works Ltd. v. CIT [(1997) 94 Taxman 368], Supreme Court in CIT v. Rajaram Maize Products (2002) 166 Taxation 601, held that power subsidy received by assessee which was available to new industries was the revenue receipts. In CIT v. Ponni Sugars and Chemicals Ltd. [(2008) 174 Taxman 87], Supreme Court has observed that one has to apply the purposive test to decide the nature of subsidy and the form of subsidy is immaterial. The ITAT, Chennai has analysed the recent position in a case before it.

1. Introduction

Taxability of a subsidy received by an assessee has been a controversial issue in many cases. A recent decision by ITAT, Chennai has taken up the issue in Hyundai Motor India Ltd. v. ACIT [IT (TP)A No. 53/Chny/2022 (AY: 2018-19)] decided on 9-2-2024, wherein one of the ground was that the NaFAC/DRP erred in treating the Investment Promotion Subsidy (for short, 'IPS') in the form of Output SGST amounting to Rs.98,85,43,334 as income for assessment year 2018-19.

2. Facts of the above mentioned case in brief

The brief facts were that assessee accrued VAT incentive (IPS) of Rs 98.85 crores as received from State Industries Promotion Corporation of Tamil Nadu (for short, 'SIPCOT'), Govt. of Tamil Nadu and obtained final eligibility certificate from SIPCOT under the scheme. The said amount was not offered to tax on the ground that the subsidy was released by appropriate authority only on submission of proof of commodity taxation in the form of VAT among others under TN VAT Act, 2006. Till that obligation was discharged, the same will not accrue to the assessee. The authorised authority on verification of discharge of applicable tax was to issue a certificate which entitled the assessee to claim the said subsidy subject to satisfaction of all the conditions and terms specified in the Memorandum of Understanding (for short, 'MOU'). The assessee submitted that appropriate authority was entitled to withhold the release of the incentives if some of the conditions were not fulfilled. AO brought the same to tax on the ground that the subsidy had already accrued to the assessee. DRP confirmed the same against which the assessee filed appeal before ITAT.