The assessee received excise refund and interest subsidy, etc, announced for the State of J&K pursuant to the New Industrial Policy, which it claimed to be a capital receipt. The assessee also claimed that the same was eligible for a deduction under s 80-IB. The AO, CIT(A) and Tribunal rejected the claim of the assessee, holding the receipts to be revenue in nature on the grounds that the subsidy given for the established industrial units, incentives were available after commercial production had commenced, it was recurring in nature, it was not given for purchasing Capital asset or for purpose of machinery and it was for easy market accessibility and to run the business more profitably. Being aggrieved, the assessee has filed the present appeal.
The issue is whether the refund of the Excise Duty under the subsidy scheme is a capital receipt and was eligible for a deduction under s 80-IB.
The purpose underlying the incentives is the determinative test to determine the nature and intent of the incentives as to whether incentives and subsidies are revenue or capital receipts. If the object of the subsidy scheme is to enable the assessee to run the business more profitably, then the receipt is on the revenue account. On the other hand, if the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit, then the receipt of the subsidy is on the capital account. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given is irrelevant.
The twin objects of the subsidy scheme were (i) Acceleration of industrial development in the State of Jammu and Kashmir, which had been found lagging behind in such development, and (ii) Generation of employment in the State of Jammu and Kashmir. Thus, looking to the purpose of eradication of the social problem of unemployment in the State by acceleration of the industrial development and removing backwardness of the area that lagged behind in Industrial development, which is certainly a purpose in the Public Interest, the incentives provided to the assesses cannot be construed as mere Production and Trade Incentives.
The fact that the incentives were available only after the commencement of commercial production cannot be viewed in isolation, to treat the incentives as production incentives, as held by the Tribunal, for the measure so taken appears to have been intended to ensure that the incentives were made available only to the bona fide Industrial Units so that larger Public Interest of dealing with unemployment in the State was achieved. The other factors which weighed with the Tribunal in determining the incentives as Production Incentives may not be decisive to determine the character of the incentive subsidies in view of the stated objects of the subsidy scheme. Thus, the finding of the Tribunal that the incentives were revenue receipt is accordingly set aside, holding the incentives to be capital receipt in the hands of assesses. The question of whether the subsidy receipts are eligible under s 80-IB is not decided.
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