IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.472 of 2010 (O&M) Date of decision: 17.1.2011 Commissioner of Income Tax. -----Appellant. Vs. Sh. Sham Lal Bansal. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Rajesh Katoch, Standing counsel for the Revenue. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, Chandigarh dated 22.9.2009 in I.T.A. No.639/Chandil/2009 proposing to raise following substantial question of law:- “Whether in the facts and circumstances of the case, the Hon’ble ITAT is justified in law in holding that the subsidy received by the assessee amounting to Rs.60,90,000/- under the Technology Up-gradation Fund Scheme (TUFS) of Ministry of Textiles, Government of India is capital in nature whereas the Assessing Officer has rightly held the receipt of subsidy as revenue in nature applying the ratio of the decision of Hon’ble Supreme Court in the case of M/s Sawhney Steels and Press Works Ltd. & Others Vs. CIT reported at 228 ITR 253.” I.T.A. No.472 of 2010 2. The assessee is engaged in manufacture and sale of woolen garments. It received subsidy for repayment of loan taken for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (TUFS) of Ministry of Textiles, Government of India. The assessee claimed the said subsidy to be capital receipt but the Assessing Officer did not accept the same and added back the same to the income of the assessee holding the same to be revenue receipt. On appeal, the CIT(A) upheld the plea of the assessee, which view has been affirmed by the Tribunal with the following observations:- “Having regard to the aforesaid, in our view, it is quite clear that the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. 10. Considered in the aforesaid light, in our view, the facts of the instant case are on all fours comparable to those considered by the Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra) and therefore, a natural corollary is that the nature of the subsidy in question is capital. Therefore, both on the issue of the objective of the scheme and on the utilization of the funds received as subsidy, the subsidy is to be viewed as capital in nature having regard to the judgment of the Hon’ble Supreme Court in the case of Ponni Sugars & Chemical Ltd. (supra). 2 I.T.A. No.472 of 2010 11. Reliance placed by the Revenue on the case of Sawhney Steels and Press Works Ltd. & others (supra), in our view, is not appropriate having regard to the aforesaid features of the scheme, which are not in dispute. Moreover, in the case of Sawhney Steels and Press Works Ltd. & others (supra), it was found as a fact that the subsidy was given to meet recurring expenditure and was not for acquiring a capital asset. Whereas in the instant case, admittedly, there is no provision in the scheme to grant subsidy to meet any recurring expenditure and neither such a case has been set up by the Department. The only objections of the Department are that the subsidy has been given after commencement of production and, secondly that it was for repayment of loans. Both these factors do not distract from the nature of the subsidy being treated as capital, as explained by the Hon’ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra).” 3. We have heard learned counsel for the appellant. 4. Learned counsel for the revenue submitted that the subsidy was not given at the time of setting up of the industry but after commencement of production for repayment of loan. In such situation, the amount should have been treated as revenue receipt, as per judgment of the Hon’ble Supreme Court in Sahney Steel & Press Works Ltd. & Ors. v. CIT (1997) 228 ITR 253, 5. We are unable to accept the submission. 3 I.T.A. No.472 of 2010 6. The purpose of scheme under which the subsidy is given, has been discussed by the Tribunal. To sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry. Under the scheme, there were two options, either to reimburse the interest charged on the lending agency on purchase of technology upgradation or to give capital subsidy on the investment in compatible machinery. In the present case, the assessee has taken term loans for technology upgradation and subsidy was released under agreement dated 12.7.2005 with Small Industry Development Bank of India. The relevant clause of the agreement under which the subsidy was given is as under:- “Para8. to prevent mis-utilization of capital subsidy and to provide an incentive for repayment, the capital subsidy will be treated as a non interest bearing term loan by the Bank/Fis. The repayment schedule of the term loan however will be worked out excluding the subsidy amount and subsidy will be adjusted against the term loan account of the beneficiary after a lock in period of three years on a pro-rate basis in terms of release of capital subsidy. There is no apparent or real financial loss to a borrower since the countervailing concession is extended to the loan amount.” 7. In view of above, the view taken in Sahney Steel & Press Works Ltd. & Ors., could not be applied in the present 4 I.T.A. No.472 of 2010 case, as in said case the subsidy was given for running the business. For determining whether subsidy payment was ‘revenue receipt’ or ‘capital receipt’, character of receipt in the hands of the assessee had to be determined with respect to the purpose for which subsidy is given by applying the purpose test, as held in Sahney Steel & Press Works Ltd. & Ors. itself and reiterated in later judgment in CIT v. Ponni Sugars & Chemicals Ltd. & ors. (2008) 306 ITR 392, referred to in the impugned order of the Tribunal. 8. In view of above, since the matter is covered by judgment of the Hon’ble Supreme Court in Ponni Sugars & Chemicals Ltd. & ors. against the revenue, no substantial question of law arises. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE January 17, 2011 ( AJAY KUMAR MITTAL ) ashwani JUDGE 5