THE COMMISSIONER OF INCOME TAX V. M/S BAL PHARMA LIMITED

ITA/1287/2006

AI Insights

The case involves M/s. Bal Pharma Ltd., a pharmaceutical manufacturer, who received a tax concession subsidy from the State Government. For the assessment year 1998-99, the company sought a deduction for the amount refunded towards the subsidy, which was initially rejected by the Assessing Authority and upheld by the Commissioner of Income Tax. However, the Appellate Tribunal reversed this decision, leading to the State's appeal. The core legal issue was whether the subsidy refund received by the assessee constitutes taxable income. The High Court, referencing the Supreme Court's decision in M/s.Sahney Steel, concluded that the subsidy is taxable as it is a benefit received in the course of carrying on the business.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 729258 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 16-07-2012
• Assessment Year: misc
• Other Referred Cases: Kalpana Palace vs. CIT (191 CTR 466), M/s.Sahney Steel and Press Works Ltd. Vs. Commissioner of Income- Tax (1997) 228 ITR 0253
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MADHUSUDHAN
• Assessee Lawyers: G KAMALADHAR
• Keywords: Substantial questions of law; Taxable income; Tax concession subsidy; Refund of subsidy
• Section: 260-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 16TH DAY OF JULY, 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR I.T.A. No. 1287 OF 2006 BETWEEN:- 1. The Commissioner of Income-Tax, Central Office, C.R. Building, Queens Road, Bangalore. 2. The Joint Commissioner of Income-Tax (Asst), Special Range – 2, C.R. Building, Queens Road, Bangalore. Appellants (By Sri G.Kamaladhar, Advocate) AND:- M/s.Bal Pharma Ltd., No.21/22, Bommasandra Industrial Area, Anekal Taluk, Hosur Road, Bangalore. Respondent (By Sri Madhusudhan, Advocate for M/s.LEX NEXUS) 2 This I.T.A. is filed u/s.260-A of I.T. Act, 1961 arising out of order dated 26-04-2006 passed in ITA No.842/Bang/2004 for the Assessment Year 1998-99, praying that this Hon’ble Court may be pleased to: (i) formulate the substantial questions of law stated therein and (ii) allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.842/Bang/2004 dated 26-04- 2006 and confirm the order passed by the Appellate Commissioner confirming the order passed by the Joint Commissioner of Income Tax(Asst), Special Range-2, Bangalore, in the interest of justice and equity. This appeal is coming on for hearing this day, SREEDHAR RAO, J., delivered the following: J U D G M E N T The assessee is a manufacturer in pharmaceutical items. The assessee was given incentive of tax concession subsidy by the State Government. The assessee had paid the tax and taken refund of the tax subsidy. The assessee for the assessment year 1998-99, sought deduction of the amount refunded towards subsidy. The Assessing Authority rejected his claim and held that the refund amount received is taxable. 2. The Commissioner of Income Tax upheld the order of the Assessing Authority. The Appellate Tribunal has set aside the order of Commissioner of Income Tax and held 3 that the refund of subsidy amount does not constitute income and not taxable. In the appeal, the Tribunal has relied upon the decision of the ALLAHABAD HIGH COURT IN THE CASE OF KALPANA PALACE VS. CIT (191 CTR 466). The State aggrieved by the said order has filed this appeal. This court framed the following substantial questions of law for consideration: “Whether the grant (subsidy) received by the assessee by setting up the assets after it was purchased and the subsidy was utilized to enhance the assessee’s fund position or cash flow cannot be treated as the revenue receipt as held by the Apex Court in the case of M/s.Sahney Steel 228 ITR 253?” 3. The Supreme Court in the case of M/s.Sahney Steel and Press Works Ltd. Vs. Commissioner of Income- Tax reported in (1997) 228 ITR 0253 has held that “if the subsidies were received year after year by refund of Sales Tax is a benefit received in the course of carrying on the assessee’s business. It was a benefit incidental to its business. The subsidy was not intended to be a contribution 4 towards capital outlay of the industry.” Therefore, it is held that the subsidy received by the assessee would be taxable. The Assessing Authority relying upon the decision of the Supreme Court has held that the subsidy amount was taxable. The Assessing Authority ignoring the decision of the Supreme Court has held that the subsidy was not taxable. The view taken by the Assessing Tribunal is contrary to law. Therefore, the question of law is answered in favour of the Revenue. The appeal is allowed. Sd/- JUDGE Sd/- JUDGE NM* "