Subsidy Received Is Part Of Capital Receipt, Cannot Be Adjusted Against Block Of Assets: Delhi HC In Nestle Case
The Delhi High Court while hearing an appeal challenging the order of the Income Tax Appellate Tribunal (Tribunal) has held that the subsidy received is part of the capital receipt and thus cannot be adjusted against the block of assets.
The Division Bench headed by Justice Rajiv Shakdher and Justice Girish Kathpalia has held that “Having regard to the fact that the subsidy received by the respondent/assessee was an incentive given to establish an industrial unit in a backward area and, thus, generate employment for local inhabitants, we cannot but agree with the Tribunal and CIT(A) that the subsidy, indeed, was a capital receipt”.
Further, regarding the calculation of the subsidy, the Court said “Since the subsidy in this case was not intended as a payment to meet, directly or indirectly, a part of the cost of the assets, no adjustment could have been ordered, as was directed by CIT(A). The Tribunal, on this score, in our view, reached the correct conclusion.”
Senior Standing Counsel Abhishek Maratha appeared for the Appellant while Senior Advocate Ajay Vohra appeared on behalf of Nestle India.
During the Assesment Year of 2009-10, Nestle India revised their Return of Income (ROI) from Rs. 728,92,72,770 to Rs 798,95,13,887. The additions increasing the ROI included disallowed license fees, account of interest awarded under Section 244A of the Income Tax Act, account of disallowance of depreciation as well as the subsidy of Rs. 25,00,000 granted by the Government of Goa.
The primary contention deals with the subsidy granted. The Commissioner of Income Tax (Appeals) (CITA) held that the subsidy received is a capital receipt and directed to reduce the amount from the block of assets. The said order was challenged by both the Appellant and the Respondent. The Tribunal declared that the subsidy received is a part of the capital receipt and cannot be adjusted against the block of assets.
The High Court while assessing the findings of the Tribunal agreed with the same and held that “The Tribunal, thus, distinguished between the measure adopted for calculating the quantum of subsidy and the purpose for which the subsidy was granted to the respondent/assessee. we cannot but agree with the Tribunal and CIT(A) that the subsidy, indeed, was a capital receipt.”
For the purpose of adjustment of the subsidy, the Court said “Since the subsidy in this case was not intended as a payment to meet, directly or indirectly, a part of the cost of the assets, no adjustment could have been ordered, as was directed by CIT(A). The Tribunal, on this score, in our view, reached the correct conclusion.”
For the aforesaid reasons, the High Court dismissed the appeal.
Cause Title: Principal Commissioner of Income Tax, Delhi v. Nestle India Ltd.