VAT subsidy before the introduction of Sec 2(24)(viii) is a capital subsidy: ITAT Kolkata


VAT subsidy before the introduction of Sec 2(24)(viii) is a capital subsidy: ITAT Kolkata



M/s. Britannia Industries (ITA No. 2644/Kol/2018)


1.During the year (AY 2014-15), the assessee received incentive amount from State Governments of Bihar and Odisha, towards subsidy.

2.As per the Industrial policy of Government of Bihar and Government of Odisha, assessee was granted incentive in the form of reimbursement of VAT/sales tax.

3.Assessing Officer denied the claim of capital receipt of VAT subsidy at Rs.23,88,62,511/- observing that these are revenue receipts as there is a direct nexus of the VAT subsidy with the revenue generated and, thus made the addition thereto.

4.The ld. CIT(A) dealt with this issue referring to the various judicial pronouncements and held in favour of assessee by placing reliance on the judgment of the Hon’ble Supreme Court in the case of CIT v/s. Chaphalkar Brothers Pune [2018] 400 ITR 279 as well as that of the Hon’ble Jurisdictional High Court in the case of CIT vs Rasoi Limited [2011] 335 ITR 438 (Cal) (HC).

Note: As per Sec 2(24)(xviii) of the Income Tax Act, any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement is an income w.e.f. 1/4/16.

ITAT Kolkata held as below:

1.On going through the above, and judicial precedents referred in the impugned order and after perusal of the Industrial policies of the Governments of Bihar and Odisha, we find that firstly introduction of amendment in Section 2(24)(xviii) of the Act is prospective in nature and applicable from Assessment Year 2016-17 and onward.

2.Secondly, so far as the nature of the subsidy is concerned, the alleged incentive was assured under the Industrial policy for the purpose of encouraging the assessee to set up new industries in the State.

3.We find that the objective contained in the Industrial policy was not to reduce operation costs of the company or facilitate working of existing undertaking.

4.The entrepreneurs with the attraction of such subsidy (VAT Subsidy) plan to establish and commence business operations in such areas and for establishing such business has to make capital expenditure in the form of land, building, plant and machinery and such investments are partly reimbursed by the subsidies granted by the State Governments.

5.Therefore, in our view, the subsidy received in form of VAT reimbursement from the State Governments was towards industrialisation in the State and to generate employment

6.Therefore, the alleged subsidy has been rightly held to be capital receipt by the ld. CIT(A) which thus calls for no interference.

The copy of the order is as under: