I.T.A. Nos. 687 and 766/Kol./2010, (Assessment Year: 2005-2006). Case: 1. Deputy Commissioner of Income Tax, 2. Gloster Jute Mills Ltd. Vs 1. Gloster Jute Mills Ltd., 2. Additional Commissioner of Income Tax. ITAT (Income Tax Appellate Tribunal)

Case NumberI.T.A. Nos. 687 and 766/Kol./2010, (Assessment Year: 2005-2006)
CounselFor Revenue by: Imlimeren Jamir, JCIT, Sr. D.R. and For Assessee by: Soumen Adak and Harish Agarwal, A.Rs.
JudgesMahavir Singh, Member (J) and Shamim Yahya, Member (A)
IssueIncome Tax Act
Judgement DateJuly 02, 2014
CourtITAT (Income Tax Appellate Tribunal)


Shamim Yahya, Member (A), (ITAT Kolkata 'B' Bench)

ITA No. 687/Kol/2010

  1. This appeal by the assessee emanates out of the order of ld. Commissioner of Income Tax (Appeals)-XIII, Kolkata dated 29.01.2010 for the assessment year 2005-06.

  2. Ground of appeal reads as under:-

    That on the facts and in the circumstances of the case, ld. CIT(A) was not justified rather grossly erred in holding interest subsidy of Rs. 77,18,242/- received under the Technology Upgradation Fund Scheme (TUFS) as revenue receipt.

  3. In this case the assessee is a Public Limited Company engaged in manufacturing of Jute & jute allied products and generation of power. During the assessment proceedings the Assessing Officer noted that under the "Technology Upgradation Fund Scheme" (in short TUFS), the assessee received subsidy from Central Government of Rs. 77,18,242/- on account of 'interest refund'. Though the assessee debited the P & L a/c. with the net amount of interest, after adjustment of the abovementioned subsidy of Rs. 77,18,242/-. In computing the assessable income the assessee deducted the said amount on the plea that the subsidy was capital in nature.

  4. The Assessing Officer did not agree with the above proposition and rejected the assessee's claim that subsidy under TUFS should be treated as a scheme of capital subsidy. He opined that the subsidy was revenue in nature and had to be added in the total income of the assessee as a revenue receipt.

  5. Upon assessee's appeal, in this regard ld. CIT(Appeal) affirmed the Assessing Officer's action holding as under:-

    I have considered the above submissions of the A/Rs of the assessee. First of all, I agree with the AO that the assessee cannot claim the interest refund under TUFS to be capital in nature just on the ground that there was an offer to choose between TUFS & CLCS which appears to be a scheme of capital subsidy. First of all this equality between the two schemes is not applicable in the case of the assessee because the assessee was not eligible for CLCS as it was not a small scale industry. Secondly, even if the assessee was eligible for CLCS the nature of the subsidy has to be decided on the basis of the actual scheme under which the assessee received.

    Now, if we consider the nature of the TUFS we find that under this scheme if the eligible industry invests in certain specified plants & machinery, factory building, captive power plant etc. using funds borrowed from certain banks/financial institutions, then out of the interest paid on such borrowed funds, 5% is refunded by the Govt. Thus it can be seen that the objective of this scheme may be to encourage the eligible industries to invest in upgradation of technology but the assistance/incentive given does not have any direct relation with the cost of acquisition of such plant & machinery etc. Rather, the subsidy/incentive/assistance given in the form of sharing/reimbursing 5% of the interest which is paid on the funds borrowed for acquiring the plant and machinery ec. Thus, it can be seen that the subsidy given has a very remote connection with the cost of acquisition of plant & machinery. Therefore, it cannot be said that through this subsidy Govt. has met a part of the cost of plant & machinery used for upgrading the technology. Rather, the Govt. has met a part of the interest paid by the assessee which is very much a revenue expenditure and is debited by the assessee in the P & L a/c. as...

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