COMMISSIONER OF INCOME TAX Vs. KEVENTER AGRO LTD.

JUDGEMENT

(1.) These two matters cover two assessment years 2000-2001 and 2003-2004. The Commissioner (Appeals) held in favour of the assessee in either case and the orders of the Commissioner (Appeals) have been upheld by the Appellate Tribunal in the orders impugned. The order of the Commissioner (Appeals) in the latter case merely followed the order passed by the same Commissioner (Appeals) earlier.

(2.) The two questions involved herein pertain to the deduction on account of interest for obtaining a loan under Section 36(1)(iii) of the Income Tax Act, 1961 and the treatment of a subsidy pursuant to a scheme promulgated by the State Government.

(3.) As to the second legal issue, pertaining to the treatment of the subsidy in the hands of the assessee pursuant to the relevant scheme, the legal issue that has arisen is whether the same has to be regarded as a revenue receipt or a capital receipt. The scheme of the State Government is the same as in the case of ITA 37 of 2018 (Principal Commissioner of Income Tax v. Shyam Steel Industries Limited) which was decided on May 7, 2018 . As would be evident from the judgment and order of May 7, 2018, this Court relied on the Supreme Court judgments reported at 228 ITR 238 (Sahney Steel and Press Works v. Commissioner of Income Tax) and 306 ITR 392 (Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd.) to hold that it is the purpose of the grant under a scheme which is of paramount importance while assessing whether the money received thereunder ought to be treated as a revenue receipt or a capital receipt. In that case, this Court concluded that since the scheme provided for an incentive for enlarging the manufacturing facility or acquiring more equipment, however the money may have been paid or adjusted in terms of the scheme, the same had to be regarded as a capital receipt. The distinction that was made was that a revenue receipt would be when money is received for the day to day running of an assessee but a capital receipt would be one which goes towards funding the capital assets of a company like the enhancement of its manufacturing facility or the acquisition of more advanced equipment and the like.