IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI SAKTIJIT DEY(JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA No. 4375/MUM/2015 Assessment Year: 2012-13 DCIT 9(3) (1) Vs. Dicitex Home Furnishing Ltd. Mumbai-400020 301-B, 3rd Floor, M. Bldg. Palm Court Complex Malad Link RD, Malad West Mumbai. PAN No. AACCM7535R (Appellant) (Respondent) ITA No. 2147/MUM/2015 Assessment Year: 2011-12 DCIT, 9(3)(1) Vs. M/s Dicitex Home Furnishing Mumbai-400020. Ltd. 306, Shop No. 2, Kakad Air Conditioner Market, Kalbadevi Road, Mumbai. PAN No. AACCM7535R (Appellant) (Respondent) Revenue by : Shri. Satya Pal Kumar Assessee by : Shri. Hari Om Tulsian Date of Hearing : 24/08/2016 Date of pronouncement : 23/09/2016 ORDER PER N.K. PRADHAN, A.M above appeals have been filed by Revenue. relevant assessment years are 2011-12 and 2012-13. appeals are directed against order of Commissioner of Income Tax (Appeals)-16, Mumbai, and arise out of assessment completed u/s 143(3) of Income Tax Act 1961, ( Act ). In this batch of appeals, ITA No. 4375/MUM/2015 & ITA No.2147/Mum/2015 2 controversy raised being similar, they were heard analogously and are disposed of by common order. 2. first ground raised by Revenue in this appeal is that ld. CIT(A) erred in deleting addition made by Assessing Officer (AO) on account of interest subsidy amounting to Rs.2,84,21,657/- for A.Y. 2011-12 and Rs.2,48,57,810/- for A.Y. 2012-13 treating same as capital receipt by relying on Supreme Court decision in case of Sahney Steel and Press Works Ltd. vs. CIT 228 ITR 253 (SC), without countering findings of AO in Para 5.5 of assessment order that assessee had received subsidy in form of 5% reduction in rate of interest and interest being revenue expenditure allowable under Act, any subsidy relating to interest is also to be treated as revenue item. 3. nature of business of assessee-company is manufacturing and trading of cloth and yarn. assessee availed Technology Upgradation Fund Scheme (TUFS) formulated by Government of India and received interest subsidy of Rs.2,84,21,657/- during A.Y. 2011-12 and Rs.2,48,57,810/- during A.Y. 2012- 13. same was claimed by assessee as capital receipt by transferring it to capital reserve account of TUF Interest. assessee submitted before AO that TUFS was introduced for purpose of encouraging acquisition of technologically advanced textile machineries by way of extending loans for specified purpose through commercial banks / financial institutions on subsidized rates of interest. AO referred to decision of Hon ble Supreme Court in case of Sahney Steel and Press Works Ltd. (supra) stating that government subsidy received by any, if not reduced from capital assets for depreciation purpose should be treated as revenue subsidy and should be brought to tax. He also relied on above decision stating that subsidy granted to assessee after it started production in form of refund of sale tax, recoupment of power charges and exemption from payment of water charges was revenue receipt. payment of subsidy to assist assessee in carrying on trade or business as distinct from subsidy to help assessee to set up industry or complete project is production incentive or operational subsidy and is not capital subsidy and hence as per AO, it is chargeable to tax as revenue receipt. He also relied upon decision of Hon ble Supreme Court in case of CIT vs. P. J. Chemicals (1994) 210 ITR 830 (SC) ITA No. 4375/MUM/2015 & ITA No.2147/Mum/2015 3 wherein dispute was whether capital subsidy went to reduce actual cost of plant and machinery for purpose of depreciation. He noted that ratio of above decision has since been negatived by inserting Explanation -10 below section 43(1) by Finance (No. 2) Act, 1998 w.e.f. 01.04.1999. AO also found that assessee has transferred Rs.2,84,21,657/- during A.Y. 2011-12 and Rs.2,48,57,810/- during A.Y. 2012-13 from P & L appropriation to credit of capital reserve account and claimed same as deduction from taxable income. As assessee has not reduced above from capital assets for depreciation purpose, AO followed decision in case of Sahney Steel and Press Works Ltd. (supra) and made addition to total income of above amount in respect A. Y.s treating same as revenue receipt instead of capital receipt shown by assessee. 4. ld. CIT(A) having gone through order of AO and submission of assessee during course of appellate proceedings before him observed that issues is directly covered by judgment of Hon ble Punjab & Haryana High Court in case of CIT vs. Sham Lal Bansal (2011) 11 Taxman.com 369 wherein issue was whether subsidy received for payment of loan taken for building and plant machinery under TUF Scheme of Government is capital receipt or revenue receipt. In above decision, their Lordships relied on judgment of Hon ble Supreme Court in case of Ponni Sugar and Chemicals Ltd. (2008) 306 ITR 392 (SC) and held that subject subsidy is capital receipt. ld. CIT(A) followed above decision and allowed appeal filed by assessee before him. 5. Before us, ld. DR supported order passed by AO. Specific reference was made by him to decision in case of Sahney Steel and Press Works Ltd. (supra). 6. Before us, ld. Counsel of assessee relied on order of ld. CIT(A). Specific reference was made by him to decision in case of (i) CIT vs. Sham Lal Bansal (supra) (ii) M/s SVG Fashions Ltd. vs. DCIT-4(3), ITAT, Mumbai E Bench (ITA No.8565/M/2010 & ITA No. 296/M/2012 dated 23/12/2005) and (iii) Gloster Jute Mills Ltd vs. ACIT (2014) 33 ITR (Tribunal) 322 (Kol). ITA No. 4375/MUM/2015 & ITA No.2147/Mum/2015 4 7. We have considered rival submissions and perused relevant material on record. We begin with scheme as formulated by Textile Ministry, Government of India for benefit of textile industry in India. salient feature of scheme especially to character of incentive/subsidy of TUFS is to be inferred from its Objective as stated at preamble which is produced below: In light of foregoing, it has been felt necessary to make operational focussed and time-bound Technology Upgradation Fund Scheme (TUFS) which would provide focal point for modernisation efforts through technology upgradation in industry. main feature of TUF Scheme would be 5% reimbursement on interest actually charged by identified financial institutions on sanctioned projects. 7.1 Now we shall turn to decision relied on by ld. DR. In Sahney Steel and Press Works Ltd. (supra), following has been held: payments in nature of subsidies were made only after industries have been set up. Payments were not made for purpose of setting up of industries. payments were to be made only if and when assessee commenced its production. said payments were made for period of five years calculated from date of commencement of production in assessee s factory. subsidies were operational subsidies and not capital subsidies. Therefore, such subsidies could only be treated as assistance given for purpose of carrying on of business of assessee and same were of revenue character. 7.2 We then turn to decisions relied on by ld. Counsel of assessee. In case of Sham Lal Bansal (supra), assessee was engaged in manufacture and sale of woollen garments. He received subsidy for payment of loan taken for building and plant and machinery under Credit Linked Capital subsidy Scheme under TUFS of Ministry of Textile and claimed same as capital receipt. AO, however, treated same as revenue receipt and added to income of assessee. On appeal, Commissioner (Appeals) upheld plea of assessee and same was confirmed by Tribunal observing that objective of subsidy scheme was to enhance technology apparatus of assessee by assisting in acquiring machinery and subsidy so received was utilized for repayment of loans taken by assessee to set up new unit, as was intention of subsidy. Hon ble High Court held following: ITA No. 4375/MUM/2015 & ITA No.2147/Mum/2015 5 To sustain and improve competitiveness and overall long term viability of textile industry, concerned Ministry of Textile adopted TUFS scheme, envisaging technology upgradation of industry. Under scheme there were two options, either to reimburse interest charged by lending agency on purchase of technology upgradation or to give capital subsidy on investment in compatible machinery. In instant case, assessee had taken term loans for technology upgradation and subsidy was released under agreement with Small Industry Development Bank of India. [Para 6] For determining whether subsidy payment was revenue receipt or capital receipt, character of receipt in hands of assessee has to be determined with respect to purpose for which subsidy is given by applying purpose test. [Para 7] matter was covered by judgment of Supreme Court in CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392 /174 Taxman 87 against revenue and, therefore, no substantial question of law arose. 7.3 In Ponni Sugars and Chemicals Ltd. (supra) ,it was held that test is character of receipt in hands of assessee, so that where object of subsidy is to enable to assessee to run business more profitably, it would be taxable, but where it is to enable assessee to set up new unit or expand its existing unit it should not be taxable. 7.4 In M/s SVG Fashions Ltd. (supra), issue before ITAT E Bench Mumbai, was whether interest subsidy granted under TUF Scheme was revenue or capital in nature. Tribunal followed judgment in Ponni Sugars and Chemicals Ltd. (supra) and directed AO to treat subsidy as capital in nature. We may mention here that similar TUF Scheme is in dispute in instant appeal. 7.5 In Gloster Jute Mills Ltd. (supra), assessee received subsidy from Central Government under TUF Scheme by way of interest refund. In computing assessable income, assessee deducted amount on ground that subsidy was capital in nature. AO held that subsidy was revenue in nature and had to be added to total income of assessee as revenue receipt. ITA No. 4375/MUM/2015 & ITA No.2147/Mum/2015 6 Commissioner (Appeals) confirmed this. On appeal, ITAT held that in order to sustain competitiveness in domestic as well as international market and over all long-term viability of industry, Ministry adopted TUF Scheme envisaging technology upgradation of industry and therefore subsidy received in that regard was capital in nature. 8. present factual matrix is to be tested on anvil of above enunciation of law. In light of decision in case of Sham Lal Bansal, M/s SVG Fashions Ltd. and Gloster Jute Mills Ltd. referred here-in-above and facts being similar, we uphold order passed by ld. CIT(A) for A.Y. 2011-12 and A.Y. 2012-13. 9. In result, appeal filed by Revenue for above two assessment years are dismissed. Order pronounced in open court 23/09/2016 Sd/- Sd/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 23/09/2016 AKV(On Tour) Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai DCIT-9(3)(1), Mumbai v. Dicitex Home Furnishing Ltd