Income-Subsidy–VAT reimbursement–Whether capital receipt or revenue receipt– Applicability of section 2(24)(xviii)
Pr. CIT v. Deepak Vegpro (P) Ltd.
Decision: In assessee’s favour.
Subsidy in the form of VAT reimbursement to 80% was provided to assessee-company in terms of Industrial Incentive Policy of Bihar. AO sought to impose tax on said subsidy by treating the same as revenue receipt under section 2(24)(xviii). Assessee contended that as the quantum of subsidy was linked to capital invested and also the disbursement thereof was linked to VAT collected and deposited on goods actually produced and sold, subsidy was thus on capital account, not liable to tax.
Any subsidy given by the Central Government or State Government or any authority, etc., for any purpose, except where it is taken into account for determination of the actual cost of the asset under Explanation 10 to section 43(1), has become chargeable to tax. Even if a subsidy is given to attract industrial investment or expansion, which is otherwise a capital receipt under the pre-amended era, shall henceforth be treated as income chargeable to tax, except where it has been taken into account for determining the actual cost of assets in terms of Explanation 10 to section 43(1). However, as the amendment came into effect from 1-4-2016 and was prospective in its application, section 2(24)(xviii) would have no operation and the subsidy would be treated as capital receipt.