By TIOL News Service

NEW DELHI, JULY 08, 2016: THE issue is: Whether the Excise Duty Refund, Interest Subsidy and Insurance Subsidy provided by the State Government in pursuance of an industrial policy, which was made not only for the benefit of assessee but also for eradicating unemployment in the State as a part of public policy, is entitled to be treated as 'capital receipt', hence not chargeable to tax. And the answer is YES.

Facts of the case

The assessee, pursuant to the New Industrial Policy announced for the State of J&K, received excise refund and interest subsidy, etc which it claimed to be a capital receipt. In the alternative, it was claimed that the same was eligible for deduction u/s 80-IB. The AO, CIT(A) as well as the ITAT rejected such claim and held the receipts to be revenue on the ground that the subsidy was for established industry and not to set up a new one. Further, the ITAT also observed that such subsidy was available after commercial production, so it was recurring in nature, and for running the business profitably. On appeal, the High Court reversed the lower authorities by relying on the ratio of Sahney Steel case & Ponni Sugar Chemical case, and held that such incentives offered by the State government not only for the benefiting the assessee but also for eradicating unemployment in the State as a public policy, is liable to be treated as 'capital receipt', hence not chargeable to tax.

Having heard the parties, the Supreme Court held that,

++ the appeal filed by the Revenue deserves to be dismissed as the issue in the present case is covered against the Revenue by the decision of this Court in "Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd." or in the alternate, in "Commissioner of Income Tax Vs. M/s Meghalaya Steels Ltd.".

(See 2016-TIOL-98-SC-IT)