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CASE LAW

2016-TIOL-220-SC-IT + Story

SIEMENS PUBLIC COMMUNICATION NETWORKS PVT LTD Vs CIT: SUPREME COURT OF INDIA (Dated: December 7, 2016)

Income Tax - Sections 143(1) & (2) - Revenue Receipt vs Capital Receipt - voluntary payment.

Whether when the loss-making Indian subsidiary of a non-resident company receives some voluntary contribution from the parent, aimed at protecting its Indian investments, such payment is to be construed as capital receipt - YES: SC

The assessee, an Indian company, is engaged in the business of manufacturing Digital Electronic switching systems, computer software and also software services. it filed ROI for AYs 1999-2000, 2000-2001 and 2001-2002 declaring losses. While doing assessment the AO treated the subvention received from its parent German company as revenue receipt. The CIT(A) and the ITAT disagreed with the AO but the HC agreed.

On appeal, the SC held that,

++ the question of law that was presented before the High Court, namely, whether subvention was capital or revenue receipt, was sought to be answered by the High Court by making a reference to two decisions of this Court in Sahney Steel & Press Works Ltd., Hyderabad versus Commissioner of Income Tax, A.P.-I, Hyderabad 2002-TIOL-11-SC-IT and Commissioner of Income Tax, Madras versus Ponni Sugars and Chemicals Limited 2008-TIOL-174-SC-IT. The view expressed by this Court that unless the grant-in-aid received by an Assessee is utilized for acquisition of an asset, the same must be understood to be in the nature of a revenue receipt was held by the High Court to be a principle of law applicable to all situations;

++ such a view tends to overlook the fact that in both Ponni Sugars and Sahney Steel the subsidies received were in the nature of grant-in-aid from public funds and not by way of voluntary contribution by the parent Company as in the present cases. The voluntary payments made by the parent Company to its loss making Indian company can also be understood to be payments made in order to protect the capital investment of the Assessee Company. If that is so, we will have no hesitation to hold that the payments made to the Assessee Company by the parent Company for Assessment Years in question cannot be held to be revenue receipts. We also find such a view in a recent pronouncement in Commissioner of Income Tax versus Handicrafts and Handlooms Export Corporation of India Ltd. 2013-TIOL-700-HC-DEL-IT (Delhi High Court) with which we are in respectful agreement.

Assessee's appeal allowed