The Income Tax Appellate Tribunal’s decision in ITA 1922/DEL/2020 between DCIT, Central Circle-31, New Delhi and Maral Overseas Ltd, addresses the intricate issue of whether interest subsidies under the Technology Upgradation Fund Scheme (TUFS) should be treated as capital or revenue receipts for the assessment year 2015-16.
The appeal follows a similar dispute for the 2014-15 assessment year under ITA 1921/DEL/2020, focusing on the same legal and factual issues regarding the tax treatment of subsidies intended to encourage technological upgrades in the textile industry.
The main legal contention revolves around the classification of the interest subsidies received by Maral Overseas Ltd. The CIT(A) had deleted the additions made by the AO, categorizing the subsidies as capital receipts based on the precedents and the inherent purpose of the subsidy itself, leading to the DCIT’s appeal.
The Tribunal upheld the CIT(A)’s decision, emphasizing that the purpose of the subsidies was crucial in determining their tax treatment. The subsidies were aimed at promoting technological competitiveness in the global market, which aligns with being a capital receipt. Key judicial decisions cited include the rulings from the Rajasthan High Court and the dismissal of related SLPs by the Supreme Court.
This decision reiterates the importance of the ‘purpose test’ for classifying subsidies under tax law. It confirms that the TUFS subsidies received by Maral Overseas Ltd for the assessment year 2015-16 should not be taxed as revenue. The case underscores the nuanced interpretations required in tax law and the impact of government policies on corporate fiscal responsibilities.
Detailed Examination of ITA 1922/DEL/2020: DCIT vs. Maral Overseas Ltd – TUFS as Capital Receipt
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