Capital receipt or revenue receipt
This query is : Resolved
02 August 2013
Sir a client of ours has received a subsidy due to modernization and expansion of its project in form of refund of VAT and Octroi. Kindly state whether the said subsidy can be treated as capital receipt.
02 August 2013
Can you state any case law, because as per decided case laws that i have gone through it suggests that if subsidy is due to or for expansion it is a capital receipt.
02 August 2013
Can you state any case law, because as per decided case laws that i have gone through it suggests that if subsidy is due to or for expansion it is a capital receipt.
02 August 2013
Can you state any case law, because as per decided case laws that i have gone through it suggests that if subsidy is due to or for expansion it is a capital receipt.
02 August 2013
In the case of Sahney Steel and Press Works Limited V CIT–1997 (SC)
The Supreme Court held that the subsidy given in such a case is on revenue account because it was given by way of assistance in carrying on trade or business.
.
It was not for acquiring the capital asset.
.
The subsidies if are granted year after year only after setting up the new industry and only after commencement of production
are revenue in nature as purpose of subsidy could only be as an assistance for the purpose of carrying on the business of the assessee.
.
In the case of Sahney Steel and Press Works Limited V CIT–1997 (SC)
The Supreme Court held that the subsidy given in such a case is on revenue account because it was given by way of assistance in carrying on trade or business.
.
It was not for acquiring the capital asset.
.
The subsidies if are granted year after year only after setting up the new industry and only after commencement of production
are revenue in nature as purpose of subsidy could only be as an assistance for the purpose of carrying on the business of the assessee.
.
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02 August 2013
Sir,
The Opening paragraph of Issue Letter reads as follows :
for making investments towards their expansion projects at _______
will it still be treated as revenue receipt??
The Opening paragraph of Issue Letter reads as follows :
for making investments towards their expansion projects at _______
will it still be treated as revenue receipt??
02 August 2013
Refer page 4 of the below mentioned link.
It is capital receipt.
Citation: CIT v.Rasoi Ltd.(2011)335 ITR 348 (Cal.)
Sahney Steel & Press Works Ltd. v.CIT (1997)228 ITR 253
http://www.icai.org/post.html?post_id=6743
It is capital receipt.
Citation: CIT v.Rasoi Ltd.(2011)335 ITR 348 (Cal.)
Sahney Steel & Press Works Ltd. v.CIT (1997)228 ITR 253
http://www.icai.org/post.html?post_id=6743
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02 August 2013
Sir I have gone through this but however i Have confusion. Kindly specify
02 August 2013
what confusion you have kindly mention it clearly?
02 August 2013
whether it is revenue or capital receipt
02 August 2013
whether it is revenue or capital receipt
02 August 2013
just mention the facts , terms and other condition etc of such subsidy in brief in your case then it will be more easy to comment.
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02 August 2013
As you have observed that the decisions of courts are on the case to case basis as facts and circumstances have remained different in each of the cases.
.
It is very clear that the subsidy does not finance or assist directly to the project cost.
.
As the unit has been modernised or expanded
the subsidy has become due. It means the subsidy rewarded was to promote the business and not to assist the project.
.
The amounts of octroi or vat which are being refunded were claimed earlier as expense. As per IT law such receipts are taxable.
.
Behind refunding these duties or taxes, the intention of increased profitability (by reducing the tax burden) must have been remained the key focus area. Reduction in taxes results into profit so the nature of the subsidy remains of a revenue type.
.
Alternatively the subsidy could have been provided by direct funding on or after the project completion, which is not the case.
.
So, any thing concrete can only prove that the subsidy is a capital receipt, otherwise, the manner in which it is being disbursed, brings it very near to conclude it as a revenue receipt.
.
.
It is very clear that the subsidy does not finance or assist directly to the project cost.
.
As the unit has been modernised or expanded
the subsidy has become due. It means the subsidy rewarded was to promote the business and not to assist the project.
.
The amounts of octroi or vat which are being refunded were claimed earlier as expense. As per IT law such receipts are taxable.
.
Behind refunding these duties or taxes, the intention of increased profitability (by reducing the tax burden) must have been remained the key focus area. Reduction in taxes results into profit so the nature of the subsidy remains of a revenue type.
.
Alternatively the subsidy could have been provided by direct funding on or after the project completion, which is not the case.
.
So, any thing concrete can only prove that the subsidy is a capital receipt, otherwise, the manner in which it is being disbursed, brings it very near to conclude it as a revenue receipt.
.
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02 August 2013
If the objective of the subsidy is to enable an assessee to run the business more profitably, then receipt is always a revenue receipt.
On the other hand if the objective of subsidy is assistance is to enable the assessee to set up new unit or to expand an existing unit the receipt would be capital receipt.Therefore nature and object of subsidy decides whether it is capital or revenue subsidy and not the form or mechanism.
On the other hand if the objective of subsidy is assistance is to enable the assessee to set up new unit or to expand an existing unit the receipt would be capital receipt.Therefore nature and object of subsidy decides whether it is capital or revenue subsidy and not the form or mechanism.
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