Commissioner of Income Tax vs Siya Ram Garg (Huf)

Adarsh Kumar Goel, J.—This appeal has been preferred by the Revenue u/s 260A of the IT Act, 1961 (for short, "the Act") against the order of the Tribunal, New Delhi, dt. 16th Oct., 2009 in ITA No. 4403/Del/2007 claiming following substantial questions of law :

(i) Whether on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 12,16,090 by treating the agro based subsidy received by the Assessee as tax-free capital receipt, ignoring direct decisions of the Hon''ble apex Court in the cases of M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of Income Tax, Andhra Pradesh-I, Hyderabad, and Commissioner of Income Tax Vs. Rajaram Maize Products, as also Commissioner of Income Tax-I Vs. Abhishek Industries Ltd.,

(ii) Whether on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 7,16,511 on account of excess payment made to sister concern on account of purchases within the meaning of provisions of Section 40A(2) of the IT Act ?

The Assessee is engaged in manufacture of yarn. It received subsidy of Rs. 12,16,090 from Haryana Government and claimed to be exempt from tax on the ground that the same was capital receipt. The AO disallowed the claim of the Assessee by holding that subsidy was granted on 27th Jan., 1995 while operations of the Assessee commenced on 16th Nov., 1994.

Reliance has been placed on judgment of the Hon''ble Supreme Court in M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of Income Tax, Andhra Pradesh-I, Hyderabad, and judgment of this Court in Commissioner of Income Tax-I Vs. Abhishek Industries Ltd., . The CIT(A) allowed the appeal of the Assessee holding that the subsidy was for setting up of industrial unit in backward area of Haryana and same has to be treated as capital receipt. The Tribunal affirmed the said view as follows :

Having heard the parties and having perused the material on record, we find that the subsidy in question has indeed been given for setting up an agro based industrial unit in a backward area in the State of Haryana. The subsidy is determined with regard to capital investment. In Ponni Sugars & Chemicals (supra) relied upon by the Department, it has been held that the test to determine as to whether incentive subsidy received by the sugar mills was a capital receipt or a revenue receipt, is that the character of the receipt in the hands of the Assessee is to be determined with respect to the purpose for which the subsidy is given; that the point of time at which the subsidy is paid, the source of the subsidy and even the form thereof are immaterial; that the main eligibility condition is that the incentive must be utilized; that if the object of the subsidy was to enable the Assessee to set up a new unit, the subsidy was capital in nature.

Ponni Sugars & Chemicals (supra), therefore, aids the Assessee rather than the Department. Admittedly, the subsidy granted to the present Assessee has been granted for setting up of agro based industrial unit in a backward area in the State of Haryana. This fact situation is squarely covered by Ponni Sugars & Chemicals (supra).

Apropos Sahney Steel & Press Works Ltd. v. CIT (supra) and CIT v. Rajaram Maize Products (supra), these decisions also do not take anything away from the case of the Assessee, as has been observed by the learned CIT(A) in as much as therein, the issue was as to what is a revenue subsidy which is taxable. It was held, inter alia, that subsidy granted for setting up of industry is not of revenue nature. That being so, there is no force in the allegation of the Department that the learned CIT(A) ignored Sahney Steel & Press Works Ltd. v. CIT (supra) and CIT v. Rajaram Maize Products (supra).

We have heard learned Counsel for the Appellant.

It is clear from the findings recorded by the CIT(A), as affirmed by the Tribunal that the subsidy was given for setting up of industrial unit in backward area of Haryana and was to be determined with reference to capital investment. In such a situation, the plea of the Assessee was supported by the view taken by the Hon''ble Supreme Court in Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd., which has been followed by the Tribunal and the view taken in Sahney Steel & Press Works Ltd. (supra) and Abhishek Industries Ltd. (supra) was distinguishable.

As regards question (ii), the AO made addition u/s 40A(2) of the Act on the ground that the Assessee had paid higher rate to its sister concern while purchasing cotton and waste. The CIT(A) upheld the plea of the Assessee that the payment was not higher than the normal rate. It was held that the goods purchased at lesser rate were of inferior quality. The Tribunal affirmed the said finding as under :

On this issue, we find that indeed, the details filed by the Assessee showed that its sister concerns were being taxed at the same rate at which the Assessee was being taxed, proving that there was no reason for the Assessee to show higher rate purchases made by the Assessee from its sister concerns. The Assessee''s sister concern had offered their income from such sales, which fact has not been disputed. Therefore, the AO erred in invoking the provisions of Section 40A(2) of the Act and the learned CIT(A) has correctly deleted the disallowance.

The above finding being a finding of fact and not being perverse, we do not find any ground to interfere with the same.

No substantial question of law arises.

The appeal is dismissed.