HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Income Tax Appeal No. 31/2019 Pr. Commissioner Of Income Tax, Ajmer, Ajmer Appellant Versus M/s Nitin Spinners Ltd., 16-17 K.M. Stone, Chittor Road, Hamirgarh, Bhilwara (Rajasthan) Respondent For Appellant(s) : Mr. Kamal Kishore Bissa For Respondent(s) : HON'BLE CHIEF JUSTICE S. RAVINDRA BHAT HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI Judgment 19/09/2019 1. Revenue s grievance in this appeal under Section 260A of Income Tax Act, 1961 is that amount claimed as capital receipts, by assessee are taxable and have to be treated as income. These involved first subsidy of 7,08,60,525/- (towards Technology Upgradation Fund); second subsidy of 1,67,84,009/- (under Focus Market Scheme); and third subsidy of 26,52,890/- (under Electricity Duty Subsidy). assessee claimed all these to be capital receipts. 2. assessee is textile manufacturer. For relevant year i.e. 2013-2014, it received Technology Upgradation Fund, pursuant to scheme drawn by Union Textile Ministry. payment of invasion of amounts by deferred repayment of interest, as it were. Under para 8 of Technology Upgradation Fund programme (the amounts which were released under agreement dated 12.07.2005) amounts were to be treated as (2 of 4) [ITA-31/2019] non-interest bearing term loans by Bank and repayment was to be worked out excluding subsidy amount and subsidy to be adjusted against term loan account of beneficiary after lock in period of three years. agreement pertinently provided as follows: Para8. to prevent mis-utilization of capital subsidy and to provide incentive for repayment, capital subsidy will be treated as non interest bearing term loan by Bank/Fis. repayment schedule of term loan however will be worked out excluding subsidy amount and subsidy will be adjusted against term loan account of beneficiary after lock in period of three years on pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to borrower since countervailing concession is extended to loan amount. 3. AO disallowed amount and sought to tax it under ground that subsidy was taxable income as it fell into Revenue stream. CIT(A) granted partial relief; ITAT allowed assessee s appeal and rejected Revenue s appeal. 4. It is argued on behalf of Revenue that ITAT s approach is incorrect given that till production actually took place receipts in hands of assessee had to be treated as revenue. 5. In its order, ITAT took note of several previous Bench ruling as well as judgment of Punjab and Haryana High Court in Commissioner of Income Tax vs. Shyam Lal Bansal [200 Taxman 14 (P&H) HC]. In Shyam Lal Bansal (supra) Punjab and Haryana High Court observed as follows: 6. purpose of scheme under which subsidy is given, has been discussed by Tribunal. To sustain and prove 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 on lending agency (3 of 4) [ITA-31/2019] on purchase of technology upgradation or to give capital subsidy on investment in compatible machinery. In present case, assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12.7.2005 with Small Industry Development Bank of India. relevant clause of agreement under which subsidy was given is as under:- Para8. to prevent mis-utilization of capital subsidy and to provide incentive for repayment, capital subsidy will be treated as non interest bearing term loan by Bank/Fis. repayment schedule of term loan however will be worked out excluding subsidy amount and subsidy will be adjusted against term loan account of beneficiary after lock in period of three years on pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to borrower since countervailing concession is extended to loan amount. 7. In view of above, view taken in Sahney Steel & Press Works Ltd. & Ors., could not be applied in present case, as in said case subsidy was given for running business. For determining whether subsidy payment was revenue receipt or capital receipt , character of receipt in hands of assessee had to be determined with respect to purpose for which subsidy is given by applying purpose test, as held in Sahney Steel & Press Works Ltd. & Ors. itself and reiterated in later judgment in CIT vs. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 306 ITR 392, referred to in impugned order of Tribunal. 6. This Court notices that Punjab and Haryana High Court took into account previous binding ruling of Supreme Court in Commissioner of Income Tax vs. Ponni Sugars & Chemicals Ltd. & Ors. [(2008) 306 ITR 392] and Sahney Steel & Press Works Ltd. & Ors. vs. Commissioner of Income Tax [(1997) 94 Taxman 368]. In these circumstances, Court is of opinion that amount was received as capital stream and therefore, not taxable. 7. similar view was taken by Calcutta High Court in CIT vs. Gloster Jute Mills Ltd. [(2018) ITL 3046 (CAL)(HC)]. (4 of 4) [ITA-31/2019] 8. As far as question with regard to Focus Marketing Scheme was concerned, apparently Central Government gave subsidy to enhance indian export potential in international market. It was not granted to meet cost of expenditure to meet competition of Indian textile market. ITAT took note of judgment in Ponni Sugars & Chemicals Ltd.(supra) and held that amount was not export incentive, but rather capital receipt and therefore, not taxable. This Court is of opinion that there is no infirmity with reason. 9. As far as electricity subsidy is concerned, third ground i.e. electricity subsidy under Rajasthan Investment Promotion Scheme was held to be capital receipt by CIT(A). It was held that this was granted in larger public interest and it was linked to capital interest, similar scheme was that amounts received in similar scheme have to be capital receipt by Division Bench of this Court in Commissioner of Income Tax, Ajmer vs. Shree Cement [D.B. Income Tax Appeal No.204/2010, decided on 22.08.2017]. This Court notices that ratio of rulings in Ponni Sugars & Chemicals Ltd.(supra) and Sahney Steel & Press Works Ltd. & Ors. (supra), applied. Consequently, we find no infirmity with approach of ITAT on this aspect as well. 10. For above reasons, no question of law arises for consideration. 11. appeal is therefore dismissed. (DR. PUSHPENDRA SINGH BHATI),J (S. RAVINDRA BHAT),CJ 47-MohitTak/ Pr. Commissioner Of Income-tax, Ajmer v. Nitin Spinners Ltd