Subsidy Cannot Be Reduced from Block of Assets Unless It Is Linked to Asset’s Buying Cost: Delhi HC

The assessee-respondent, Jindal Saw Ltd., received a subsidy under the Incentive Scheme 2001 for Economic Development of Kutch District. The subsidy was issued by the Gujarat Government after the earthquake in the Kutch area.

The Income Tax Department argued that since the amount was treated as a revenue receipt in the income tax return (ITR). The Tribunal, however, ruled in favour of the assessee, holding that the subsidy received by the assessee under the excise duty exemption given by the government was a capital receipt, and the same is not subject to taxation under the income tax law.

The Revenue challenged this decision of the tribunal before the Delhi High Court, arguing that if the subsidy received by the assessee is a capital receipt, then it should be reduced from the block of assets on which the assessee claims depreciation.

The Court disagreed with the Revenue’s contentions that the subsidy must be reduced from the block of assets. The court observed that the subsidy was a reimbursement of the excise duty. The Court ruled that unless the subsidy is directly connected with the cost of purchasing an asset, the same cannot be reduced from the block of assets.

Therefore, the court upheld the tribunal’s order and rejected the revenue’s appeal.