Income Tax Appellate Tribunal - Chennai
M/S Hyundai Motor India Limited, ... vs Acit, Ito, National E-Assessment ... on 4 June, 2024
आयकर अपीलीय अिधकरण 'डी'' ायपीठ चे ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, CHENNAI माननीय ी मनोज कुमार अ वाल ,लेखा सद एवं माननीय ी मनु कुमार िग र, ाियक सद के सम ।
BEFORE HON'BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON'BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ IT(TP)A No.49/Chny/2022 & आयकरअपील सं./ ITA No.26/Chny/2023 (िनधारणवष / Assessment Years: 2017-2018 & 2019-20) M/s. Hyundai Motor India Limited, Vs. The Assistant Commissioner of Plot No.H-1, Income Tax, SIPCOT Industrial Park, Non Corporate Circle, Irrungattukottai, Chennai.
Sriperumbudur Taluk, Kancheepuram Dist.
[PAN: AAACH 2364M]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Shri. Ashik Shah, C.A.
यथ क ओर से /Respondent by : Shri. A. Sasikumar, IRS, CIT.
सुनवाई क तार ख/Date of Hearing : 27.05.2024
घोषणा क तार ख /Date of Pronouncement : 04.06.2024
आदे श / O R D E R
PER MANU KUMAR GIRI (Judicial Member)
Captioned appeals by assessee Hyundai Motor India Limited ('HMIL'/ 'Appellant' in short) for Assessment Years ('AYs' in short) 2017-18 and 2019-20 arises out of final assessment orders dated 25.07.2022 and 20.01.2023 passed by Ld. Assessing Officer, Assessing Unit (AO) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of 2 IT(TP)A No.49/2022 & ITA No.26/2023 the Act pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru ('DRP' in short) u/s 144C(5) of the Act dated 17.06.2022 and 15.12.2022 for AYs 2017-18 and 2019-20 respectively. Since the assessee carried out certain international transactions with its Associated Enterprises ('AE' in short), the same were referred to Ld. Transfer Pricing Officer ('TPO' in short) DC/ACIT(TP)-1(1), Chennai for determination of Arm's Length Price ('ALP' in short). The Ld. TPO passed an orders u/s 92CA(3) on 28.01.2021 and 27.01.2022 for AYs 2017-18 and 2019-20 respectively proposing certain Transfer Pricing (TP) adjustment.
Incorporating the same, a draft assessment orders were passed on 22.09.2021 and 03.03.2022 for AYs 2017-18 and 2019-20 respectively which were subjected to assessee's objections before Ld.DRP. Pursuant to the directions of Ld.DRP, final assessment orders were passed against which the assessee is in further appeal before us.
2. Grounds of appeal in ITA No.IT(TP) No.49/Chny/2022 for AY 2017-18 are as under:
''1. Common Grounds 1.1. The lower authorities have erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law and has been completed without adequate inquiries and as such is liable to be quashed.
1.2. The lower authorities have finalized their order with improper adjustments to the reported taxable profits of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, analysis of the economic circumstances experienced by the Appellant, selection of comparable companies, computation of profit margins of the Appellant and 3 IT(TP)A No.49/2022 & ITA No.26/2023 comparable companies, usage of appropriate adjustments, and consideration of the information, arguments and evidence provided by the Appellant.
2. Disallowance under section 14A of the Act 2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing a sum of INR 1,37,52,050 under section 14A of the Act by applying provisions of Rule 8D of the Income tax Rules, 1962 ("Rules").
2.2. The lower authorities have, in the facts and circumstances of the case and in law, erred in applying the provisions of under section 14A of the Act read with Rule 8D of the Rules, without sufficient satisfaction on record and without considering that the Appellant has not received any income that is exempt during the current year.
2.3. The lower authorities have failed to note that the issue is covered in Appellant's favor vide order of this Hon'ble Tribunal for the AYs 2009-10 to 2011- 12 and AYs 2013-14 to 2016-17, wherein the disallowance under section 14A was directed to be restricted to the amount of exempt income.
3. Disallowance of depreciation on capital subsidy 3.1. The lower authorities, in the facts and circumstances of the case and in law, ought to have appreciated that the subsidy was a capital receipt not chargeable to tax and that it cannot also be adjusted against the cost of fixed assets in computing the depreciation allowable to the Appellant.
3.2. The lower authorities ought to have followed the order of this Hon'ble Tribunal for the AY 2013-14 to AY 2016-17, wherein the disallowance was directed to be deleted on the basis that the capital subsidy was a capital receipt.
4. Tax Treatment of Incentives received under the Merchandise Exports from India Scheme (MEIS) / Focus Market Scheme 4.1. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the export incentives granted for the purpose of given for exploring new markets across the globe resulting in expansion of market is a capital receipt and hence, cannot be treated as income under the provisions of Income tax Act applicable for the subject year.
4.2. The lower authorities ought to have appreciated that if the object of assistance was to enable the Appellant to expand the existing business, then the receipt is on the capital account based on the settled principles of the Supreme Court.
4.3. The lower authorities failed to appreciate that mechanism for determination of the quantum of incentive of the same is only for administration purposes and cannot be the basis for deciding the tax treatment of its receipt.
5. Tax Treatment of Output VAT Incentives 4 IT(TP)A No.49/2022 & ITA No.26/2023 5.1. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the output VAT incentive (Investment Promotion subsidy) granted for the purpose of setting up/expansion of its manufacturing facility is a capital receipt and hence, cannot be treated as income under the provisions of Income tax Act applicable for the subject year.
5.2. The lower authorities failed to note that the object of the subsidy was not to enhance the operational profitability of Appellant or to fund the cost of fixed assets and thus, cannot be treated as income of the Appellant.
5.3. The lower authorities have failed to note that the eligible amount of incentives under the Investment Promotion Subsidy was also quantified based on the investment in assets and thus, it cannot be a revenue receipt to be subjected to tax.
5.4. The lower authorities ought to have noted that the output VAT incentive is restricted to the eligible investment made by the Appellant as per the final eligibility certificate issued on April 17, 2014 and accordingly, taxability of incentives received based on such eligibility certificate ought to be based on the provisions existing on such date.
5.5. The lower authorities ought to have appreciated that if the object of assistance was to enable the Appellant to set up a new unit or expand the existing unit, then the receipt is on the capital account based on the settled principles of the Supreme Court.
5.6. The lower authorities failed to appreciate that mechanism for determination of the quantum of disbursement of the same by way of refund of taxes is only for administration purposes and cannot be the basis for deciding the tax treatment of its receipt.
5.7. Notwithstanding the above, the lower authorities ought to have appreciated that the output VAT incentive is taxable on receipt basis as settled by this Hon'ble ITAT in the context of receipt of export incentives for AY 2007-08 in ITA 2157/Mds/2011.
5.8. Notwithstanding the above, the lower authorities have failed to note that the output VAT Incentive is taxable on receipt basis as per the provisions of Section 145B(3) of the Act and accordingly, there is no income taxable in the subject year.
6. Adjustment for Brand development services 6.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment towards brand building activity amounting to INR 237,58,10,000.
6.2. The lower authorities have, in the facts and circumstances of the case and in law, while acknowledging that the facts and circumstances are similar to the previous years, erred in not following the binding order of this Hon'ble Tribunal in the Appellant's own case from AY 2007-08 to AY 2011-12 wherein similar adjustment towards brand adjustment has been deleted. It is also to be noted that 5 IT(TP)A No.49/2022 & ITA No.26/2023 the impugned adjustment was deleted by this Hon'ble ITAT for the AY 2013-14 to AY 2016-17.
6.3. The lower authorities have, in the facts and circumstances of the case and in law, exceeded their jurisdiction and erred in making the adjustment towards a fee for a purported brand development service alleged to be provided by the Appellant to its AE, without first establishing that there was any international transaction in this regard between the Appellant and its AE, which can be subject to section 92 of the Act.
6.4. The lower authorities have, in the facts and circumstances of the case and in law, erred in arbitrarily attributing 50% of the Appellant's AMP expenses to the brand building activity, without establishing the existence of an agreement between HMIL and the AE for the provision of AMP services.
6.5. The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment for AMP expenses, without appreciating that such adjustment cannot be made to a full-fledged manufacturer.
\6.6. The lower authorities have erred in imputing an adjustment under section 92 of the Act towards brand development fees, when it is acknowledged by the TPO himself that the advertisement and marketing expenditure incurred by the Appellant as a proportion of its sales is not excessive as compared to the similar levels of expenditure incurred by comparable companies.
6.7. The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment for AMP expenses, without appreciating that such adjustment cannot be made to a full-fledged manufacturer.
7. Short credit of Tax deducted at source 7.1. The Ld. AO has erred in giving credit for TDS to the extent of INR 34,63,20,885, whereas the actual amount of TDS claimed by the Appellant in its return is INR 37,74,69,138.
The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal'.
3. Grounds of appeal in ITA No.IT(TP) No.26/Chny/2023 for AY 2019-20 are as under:
''1. Common Grounds 6 IT(TP)A No.49/2022 & ITA No.26/2023 1.1. The lower authorities have erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law and has been completed without adequate inquiries and as such is liable to be quashed.
1.2. The lower authorities have finalized their order with improper adjustments to the reported taxable profits of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, analysis of the economic circumstances experienced by the Appellant, selection of comparable companies, computation of profit margins of the Appellant and comparable companies, usage of appropriate adjustments, and consideration of the information, arguments and evidence provided by the Appellant.
2. Disallowance under Section 14A of the Act 2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in disallowing a sum of INR 1,37,00,000 under Section 14A of the Act by applying provisions of Rule 8D of the Income tax Rules, 1962 ("the Rules").
2.2. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate the fact that the Appellant had suo-moto added back the exempt dividend income to the total taxable income and thus, any further disallowance under Section 14A of the Act is not warranted.
2.3. The lower authorities have, in the facts and circumstances of the case and in law, erred in applying the provisions of under Section 14A of the Act read with Rule 8D of the Rules, without sufficient satisfaction on record and without considering that the Appellant has not claimed any income to be exempt while filing the return of income for the subject year.
2.4. The lower authorities have failed to note that the issue is covered in Appellant's favor vide order of this Hon'ble Tribunal for the AYS 2009-10 to 2011- 12 and AYs 2013-14 to 2016-17, wherein the disallowance under Section 14A of the Act was directed to be restricted to the amount of exempt income.
3. Disallowance of depreciation on capital subsidy 3.1. The lower authorities, in the facts and circumstances of the case and in law, ought to have appreciated that the subsidy was a capital receipt not chargeable to tax and that it cannot also be adjusted against the cost of fixed assets in computing the depreciation allowable to the Appellant.
3.2. The lower authorities ought to have followed the order of this Hon'ble Tribunal for the AY 2013-14 to AY 2016-17, wherein the disallowance was directed to be deleted on the basis that the capital subsidy was a capital receipt.
4. Tax Treatment of Investment Promotion Subsidy 7 IT(TP)A No.49/2022 & ITA No.26/2023
4.1. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the Investment Promotion Subsidy (output SGST incentive) granted for the purpose of setting up/expansion of its manufacturing facility is a capital receipt and hence, cannot be treated as income under the provisions of Income tax Act applicable for the subject year.
4.2. The lower authorities failed to note that the object of the subsidy was not to enhance the operational profitability of Appellant or to fund the cost of fixed assets and thus, cannot be treated as income of the Appellant.
4.3. The lower authorities have failed to note that the eligible amount of incentives under the Investment Promotion Subsidy was also quantified based on the investment in assets and thus, it cannot be a revenue receipt to be subjected to tax.
4.4. The lower authorities ought to have noted that the Investment Promotion Subsidy is restricted to the eligible investment made by the Appellant as per the final eligibility certificate issued on April 17, 2014 and accordingly, taxability of subsidy received based on such eligibility certificate ought to be based on the provisions existing on such date.
4.5. The lower authorities ought to have appreciated that if the object of assistance was to enable the Appellant to set up a new unit or expand the existing unit, then the receipt is on the capital account based on the settled principles of the Supreme Court.
4.6. The lower authorities failed to appreciate that the quantum of the subsidy to be granted and its disbursement by way of refund of amount equivalent to the taxes paid is only a mechanism which has been evolved for administrative convenience and cannot be the basis for deciding the tax treatment of its receipt. It is submitted that the taxes are paid to the Commercial Taxes Department, Government of Tamilnadu and received later as "Investment Promotion Subsidy" from SIPCOT, a nodal agency under the aegis of Industries Department, Government of Tamilnadu.
4.7. Notwithstanding the above, the lower authorities ought to have appreciated that the output SGST incentive is taxable on receipt basis as settled by this Hon'ble ITAT in the context of receipt of export incentives for AY 2007-08 in ITA 2157/MDS/2011 and as per the provisions of Section 145B(3) of the Act, and accordingly, there not chargeable to tax on accrual basis.
4.8. Without prejudice to the above grounds that the incentives are not taxable, the lower authorities have erred in adding the Investment Promotion Subsidy of INR 163,31,91,399 credited in the books of accounts without appreciating that the subsidy of INR 104,35,12,262 received by the Appellant has already been offered to tax during the subject year and thus, resulting in a double addition of the Subsidy.
5. Adjustment for Brand development services 8 IT(TP)A No.49/2022 & ITA No.26/2023 5.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment towards brand building activity amounting to INR 233,55,30,000.
5.2. The lower authorities have, in the facts and circumstances of the case and in law, while acknowledging that the facts and circumstances are similar to the previous years, erred in not following the binding order of this Hon'ble Tribunal in the Appellant's own case from AY 2007-08 to AY 2011-12 wherein similar adjustment towards brand adjustment has been deleted. It is also to be noted that the impugned adjustment was deleted by this Hon'ble ITAT for the AY 2013-14 to AY 2016-17.
5.3. The lower authorities have, in the facts and circumstances of the case and in law, exceeded their jurisdiction and erred in making the adjustment towards a fee for a purported brand development service alleged to be provided by the Appellant to its AE, without first establishing that there was any international transaction in this regard between the Appellant and its AE, which can be subject to Section 92 of the Act.
5.4. The lower authorities have, in the facts and circumstances of the case and in law, erred in arbitrarily attributing 50% of the Appellant's AMP expenses to the brand building activity, without establishing the existence of an agreement between HMIL and the AE for the provision of AMP services.
5.5. The lower authorities have, in the facts and circumstances of the case and in law, erred in making an adjustment for AMP expenses, without appreciating that such adjustment cannot be made to a full-fledged manufacturer.
5.6. The lower authorities have erred in imputing an adjustment under Section 92 of the Act towards brand development fees, when it is acknowledged by the TPO himself that the advertisement and marketing expenditure incurred by the Appellant as a proportion of its sales is not excessive as compared to the similar levels of expenditure incurred by comparable companies.
Treatment of Incentives received under the Merchandise Exports from India Scheme (MEIS) / Focus Market Scheme as Capital Receipt 6.1. The lower authorities have, in the facts and circumstances of the case and in law, failed to appreciate that the export incentives granted for the purpose of given for exploring new markets across the globe resulting in expansion of market is a capital receipt and hence, cannot be treated as income under the provisions of Income tax Act applicable for the subject year.
6.2. The lower authorities ought to have appreciated that if the object of assistance was to enable the Appellant to expand the existing business, then the receipt is on the capital account based on the settled principles of the Supreme Court.
6.3. The lower authorities failed to appreciate that mechanism for determination of the quantum of incentive of the same is only for administration purposes and cannot be the basis for deciding the tax treatment of its receipt.
9 IT(TP)A No.49/2022 & ITA No.26/20237. Miscellaneous 7.1. The Ld. AO has erred in levying interest under Section 234D of the Act. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal''.
4. The Ld. AR, at the outset, placed on record, issue-wise chart and submitted that substantial issues have already been adjudicated by the Tribunal in earlier years and therefore, facts being identical, the adjudication of earlier years may be followed. The same could not be controverted by Ld. CIT-DR. Having heard rival submissions and perused the case records. Concisely, according to statement of facts, the appellant is a wholly owned subsidiary of Hyundai Motor Company, South Korea ('HMC') and is largest car exporter and the second largest car manufacturer in India. During the AYs 2017-18 and 2019-20, the assessee had entered into international transactions with its AEs. Since the value of transactions of the appellant were Rs.92,04,57,40,377/- and Rs.104,98,85,86,189/- for AYs 2017-18 and 2019-20 respectively hence a reference u/s 92CA(3) of the Income Tax Act, 1961 ( 'the Act' in short) were made to the TPO for the determination of ALP. During the course of hearing the assessee also placed on record latest decisions of Tribunal in assessee's own case in IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018-19 and ITA No.3192/Chny/2017 dated 01.09.2021 for AY 2013-14.
5. G.No.2: Disallowance u/s 14A for AYs 2017-18 & 2019-20 10 IT(TP)A No.49/2022 & ITA No.26/2023 5.1 The assessee during the AYs 2017-18 and 2019-20 earned income from mutual funds in the form of dividend amounting to Rs.1,24,507/- and Rs.1,68,576/-
respectively which are exempt from tax however, there were no exempt income claimed by the appellant in its returns of income filed. The appellant had suo-moto offered the amount of dividend earned from the mutual funds to tax, thus making a disallowance under section 14A restricted to the exempt income earned from mutual funds. However, the Assessing officer ('AO' in short) invoked provisions of the Rule 8D of the Income Tax Rules, 1962 r.w. section 14A of the Act and made disallowance under limb (ii) of Rule 8D amounting to Rs.1.37 crores in both AYs 2017-18 and 2019-20. The Ld. DRP confirmed the same. Aggrieved, the assessee is in further appeal before us.
5.2 We have heard both the parties, perused materials available on record and gone through citations, orders of the authorities below. We find that this issue stood covered by earlier decisions of the Tribunal in assessee's own cases wherein the disallowance has been restricted to the extent of exempt income earned by the assessee. The latest decisions of Coordinate bench in assessee's own cases in IT(TP)A No.51/Chny/2021 dated 27.09.2023 for AY 2012-13; IT(TP)A No.53/Chny/ 2022 dated 09.02.2024 for AY 2018-19 and ITA No.3192/Chny/2017 dated 01.09.2021 for AY 2013-14 has expressed similar views. It is well settled principles of law that disallowances u/s.14A cannot exceed amount of exempt income. The Hon'ble Supreme Court in the case of Pr.CIT Vs State Bank of Patiala (99 taxmann.com 286), while dismissing SLP filed by the Revenue against order of the 11 IT(TP)A No.49/2022 & ITA No.26/2023 Hon'ble Punjab & Haryana High Court in the case of Pr.CIT Vs State Bank of Patiala, held that disallowance u/s.14A could be restricted to amount of exempt income only. The Hon'ble Jurisdictional High Court of Madras in the case of Marg Ltd Vs. CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under Rule 8D r.w. Section 14A can never exceed exempt income earned by the assessee during particular assessment year. In this case, admittedly, exempt income for impugned assessment years 2017-18 and 2019-20 were Rs.1,24,507/- and Rs.1,68,576/-, whereas the Assessing Officer has determined disallowance u/s.14A at Rs.1.37 crores in both the years contrary to settled principle of law. Therefore, taking consistent view in the matters and also by following the decisions of Hon'ble Supreme Court and Hon'ble Madras High Court, we direct Ld. AO to restrict the disallowance to the extent of exempt income earned by the assessee in AYs 2017-18 and 2019-20. If no exempt income is earned, no such disallowance is called for. The corresponding grounds in AYs 2017-18 and 2019-20 stands allowed for statistical purposes.
6. G.No.3: Disallowance of depreciation on capital subsidy for AYs 2017- 18 & 2019-20 6.1 During the financial year 2002-03 relevant to Assessment Year 2003-04, the State Industrial Promotion Corporation of Tamil Nadu ('SIPCOT' in short) had granted subsidiary of Rs.1 Crore to encourage and recognize huge investments made for setting up of mega project viz., passenger car manufacturing unit in 12 IT(TP)A No.49/2022 & ITA No.26/2023 Irungattukottai. The assessee has treated subsidy received from SIPCOT as capital receipt and did not reduce the same from cost of assets, as it was not directly or indirectly used to purchase any asset. The Assessing Officer has held that capital subsidy received from SIPCOT being utilized by the assessee for capital expenditure, same ought to have been reduced from the cost of asset added in that year by contending that subsidy was directly or indirectly used to purchase of asset and as per explanation (10) to section 43 the same needs to be deducted from cost of assets and consequently, reworked depreciation by reducing amount of subsidiary and disallowed a sum of Rs.1,05,897/- and Rs.76,510/- for AYs 2017-18 and 2019-20 respectively.The Ld. DRP confirmed the same against which the assessee is in further appeal before us.
6.2 We find that this issue is covered in favor of the assessee by the orders of Tribunal in assessee's own cases for AYs 2013-14 to 2016-17. In para 9.3 of latest order IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016-17, the Bench followed decision in earlier years and allowed this claim of the assessee. Similar view has been expressed in latest decisions of assessee's own case in IT(TP)A No.51/Chny/2021 dated 27.09.2023 for AY 2012-13, (para 14) and in ITA 3192/Chny/2017 dated 01.09.2021 and IT(TP)A No.53/Chny/2022 dated 27.09.2023 for AY 2018-19. Taking consistent view in the matter, the corresponding grounds raised by the assessee in AYs 2017-18 and 2019-20 are allowed.
13 IT(TP)A No.49/2022 & ITA No.26/20237. G.No.4 in AY 2017-18 and G.No.6 in AY 2019-20: Nature of Export Incentive under Focus Market Scheme / Merchandise Exports from India Scheme (MEIS).
7.1 The assessee made a claim of export incentives received under the MEIS Scheme and contended that the same would be in the nature of capital receipt and cannot be included in the taxable income. However, Ld. AO rejected the claim of the appellant and added the amount credited in the Profit and Loss Account to the taxable income. The Ld.DRP justified the order of the AO with respect to the taxability of the said subsidy, however, in AY 2017-18 restricted the taxable amount of subsidy to the amount received during the subject year and in AY 2019-20 Ld.DRP directed the deletion of the amount added by the AO as per Profit and Loss account. Aggrieved, the assessee is in further appeal before us.
7.2 We find that this issue is covered against the assessee by the order of Tribunal in assessee's own cases for AYs 2013-14 to 2016-17. In para 13.3 of latest order of Coordinate bench in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016-17, the Bench followed decision in earlier years and dismissed this claim of the assessee. Similar view has been expressed by the Coordinate bench in latest decisions in IT(TP)A No.51/Chny/2021dated 27.09.2023 for AY 2012-13, ITA No.3192/Chny/2017 for AY 2013-14 and IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018-19. Following rule of consistency in the matter, the corresponding grounds raised by the assessee are dismissed accordingly.
14 IT(TP)A No.49/2022 & ITA No.26/20238. G.No.5 of AY 2017-18 & G.No.4 of AY 2019-20: Investment Promotion Subsidy 8.1 At the outset Ld. AR would submit that this issue is covered against the assessee by the Co-ordinate bench order in appellant's own case for AY 2018-19 in IT(TP)A 53/Chny/2022 dated 09.02.2024. The Co-ordinate bench order held as under:-
"7. Gr.No.6: Nature of Investment Promotion subsidy The assessee accrued a VAT incentive (investment promotion subsidy) of Rs.104,34,88,382/- and Rs.1,63,31,91,399/- from SIPCOT, Govt. of Tamil Nadu in the respective FYs 2016-17 & 2018-19. The assessee obtained final eligibility certificate from SIPCOT under the scheme on 17.04.2014. However, the said amount was not offered to tax on the ground that the subsidy is released by appropriate authority only on submission of proof of commodity taxation in the form of VAT among others under TN VAT Act, 2006. Till that obligation is discharged, the same would not accrue to the assessee. The Authorised authority on verification of discharge of applicable tax would issue a certificate which would entitle the assessee to claim the said subsidy subject to satisfaction of all the conditions and terms specified in the Memorandum of Understanding (MOU). The assessee submitted that appropriate authority was entitled to withhold the release of the incentives if some of the conditions were not fulfilled. However, Ld. ld. Assessing Officer brought the same to tax on the ground that the subsidy had already accrued to the assessee. The Ld. DRP confirmed the same against which the assessee is in further appeal before us.
8.Submissions on behalf of Assessee 8.1The Ld. AR made elaborate submissions, oral as well as written, for the pleadings that the subsidy would be capital in nature and therefore, the same is not assessable to tax at all. In the written submissions, it has been contended that Investment Promotion Subsidy (IPS) as received from Govt. of Tamil Nadu in the form of refund of output SGST is a capital receipt not chargeable to tax. The Ld. AR has submitted that the assessee is engaged in manufacturing and trading of motor vehicles and components. During this year, the aforesaid subsidy has accrued to the assessee based on sales made. The same has been credited to Profit & Loss account under 'Other Operating 15 IT(TP)A No.49/2022 & ITA No.26/2023 Revenue' and treated as revenue receipt. Since the subsidy was not received during this year, the same was excluded from total income.
8.2 The Ld. AR further submitted that the IPS was received for the purpose of setting up / expansion of manufacturing facility and therefore, the same would be capital in nature. However, Ld. AO, by virtue of the amendment made to section 2(24)(xviii) of the Act with effect from 01.04.2016, held that any subsidy / assistance by whatever name called shall be treated as income chargeable to tax except where it has been considered for determination of actual cost of assets in terms of Explanation-10 to Section 43(1) of the Act.
8.3 The Ld. AR submitted that the Government of Tamil Nadu ('GoTN') formulated an Ultra Mega Integrated Automobile Projects ('UMIAP') Policy on 26.02.2007 to bring out an exclusive policy for encouraging the setting up of major integrated automobile projects in Tamil Nadu. The UMIAP policy would cover automobile projects, either new or expansion, that will have Engine Plant, press shop, Body shop, Transmission line, Assembly line, Paint Shop, etc either on its own or in consortium / joint venture mode in the same location with an investment of not less than INR 4,000 Crores to be made in seven years from the date of Memorandum of Understanding (MoU) with the Government or any other date specified by the Government. The UMIAP was formulated by the GoTN since the erstwhile incentive package provided by the GoTN was not attractive due to which major automobile companies opted for cities in other States for housing their manufacturing facility rather than investing in Tamil Nadu. Since this trend would have led to Tamil Nadu losing its pre-eminent position in automobile and auto-component manufacture forever, the GoTN brought an exclusive policy in the name of UMIAP Policy for encouraging the setting up of major integrated automobile projects in Tamil Nadu. The policy takes note of the fact that Tamil Nadu could not be successful in attracting large integrated automobile projects into Tamil Nadu after 1996. The announcement made in the New Industrial Policy 2003 has also not attracted any major auto projects. All these would have serious and long-term adverse impact on Tamil Nadu's capability in attracting investments, generating and sustaining employment and achieving economic growth. Therefore, the Government felt it necessary to bring out an exclusive Policy for encouraging the setting up of major integrated automobile projects in Tamil Nadu which has led to formulation of the said scheme which would attract major investment over a period of 7 years. The proposed investment includes investment in eligible fixed assets and Investment in 16 IT(TP)A No.49/2022 & ITA No.26/2023 intangibles, which form an integral part of manufacturing process. Considering various benefits accruing to State of Tamil Nadu in the form of increase in State Gross domestic Product, enhancing brand equity of Chennai, Ancillary development and Enhancement in employment potential, the policy envisages grant of subsidy to the eligible assessee. In order to avail this incentive, the assessee entered into a MoU with the GoTN on 22.01.2008 for expansion of its existing plant and to establish a new engine and transmission plant near the existing plant. The MoU envisages various obligations, support and incentives. The assessee was, inter-alia, obligated to make investment of over Rs. 4000 Crores over a period of 7 years, creation of incremental plant capacity of 3.30 Lacs vehicles per annum. The GoTN would give support by way of infrastructure support in the form of power, road, drainage, sewage and water, system of fast-track clearances and a system of effective monitoring of all clearances and various issues and extending the fiscal incentives as applicable under relevant Government orders and as agreed in the MoU.
8.4 The aforesaid fiscal incentive has been provided in the form of Investment Promotion subsidy ('IPS'). The same envisages refund of input VAT and gross output VAT (without set off) for a period of 21 years from the date of commencement of production or to the extent of 115% of the eligible investment whichever is earlier. The refund shall be limited to 92% (i.e., 80% of 115%) of the eligible investment made within a period of 7 years. The scheme also enables soft loan against Central Sales Tax (without setoff) repayable after a period of 14 years along with nominal interest. As per UMIAP, the IPS comprised of infrastructure support, exemption from entry tax, Octroi, Works contract tax and other state levies, flexibility in labour recruitments / operations and single window facilitation / clearances.
8.5 Pursuant to aforesaid MoU, the assessee made desired investment and received its final eligibility certificate from SIPCOT on 17.04.2014. The same provide that the assessee has fulfilled the investment conditions for setting up the Phase II manufacturing facility and accordingly, granted IPS arising from the UMIAP. Accordingly, the Appellant was sanctioned, inter-alia, refund of output gross VAT (now SGST) and input VAT paid by the Assessee. As such the IPS was quantified and the right to receive the same accrued as on 17.04.2014. The Ld. AR submitted that the purpose of the scheme was to promote investments in the state of Tamil Nadu i.e., setting up / expansion of new manufacturing facility in Tamil Nadu. The assessee has made the desired investment and fulfilled all the conditions. The right to receive the 17 IT(TP)A No.49/2022 & ITA No.26/2023 IPS legally vested in favor of the assessee on 17.04.2014 upon issuance of eligibility certificate.
8.6 The Ld. AR further submitted that prior to the amendment to the definition of income under section 2(24) with effect from 01.04.2016, taxation of subsidy was governed by the guiding principles laid down by Apex Court. In this regard, the Supreme Court has held that "purpose test" must be adopted to determine the character of a subsidy. Further, the Supreme Court has also held that if the purpose of the subsidy is for encouraging investment, it is a capital receipt not chargeable to tax. On the other hand, if the subsidy if given for meeting any expenses, it is a revenue receipt chargeable to tax. After the amendment, the moot question is whether the principles laid down by Supreme Court would still prevail or whether the subsequent amendment has the effect of overruling those decisions.
8.7 The Ld. AR submitted that nature of amendment to income definition u/s 2(24)(xviii) was not a substantive amendment and no corresponding amendment was made in the charging provisions u/s 28. It has been submitted that the provisions of Sec.2 of the Act define various terms and phrases used in the Act and it is merely a definition provision and does not deal with the charge of income tax. As per Section 14 of the Act, the charge of income tax and computation of total income is governed under the respective heads of income. Section 2(24) of the Act was amended vide Finance Act, 2015 w.e.f. 01.04.2016 (i.e., from AY 2016-17) to include 'subsidies' within the definition of income vide insertion of clause (xviii). However, amendment was not made in the charging section i.e., Section 28 of the Act to tax the same as 'profits and gains of business or profession'. Merely because the said clause has been included in the definition provision, it will not mean that it is automatically taxable in the absence of any change in the charging provisions of Section 28 of the Act. Therefore, this aforesaid amendment to Sec. 2(24) of the Act is not a substantive amendment since the definition is a mere explanation of a particular term or phrase used in the Act and not a charging section by itself. If the provisions of Sec.2 are considered to be charging provisions, then the provisions of section 28 of the Act dealing with the charging provisions for profits and gains from business would lose its relevance. The definition in section 2(24) has to be read along with the charging provisions u/s 28 of the Act to determine whether the incomes as per the definition section will be chargeable to tax as per the charging provisions. Wherever the legislature intended to tax any particular item of income or receipt, it has been very clearly included within the charging 18 IT(TP)A No.49/2022 & ITA No.26/2023 provisions of Sec.28 of the Act. The Ld. AR cited the example of taxation of non- compete fee received by an assessee which was brought to tax as per Clause (va) of Section 28 of the Act. Correspondingly, the said item was also included within the definition of income by way of insertion of Clause (xii) to section 2(24) of the Act. 8.8 The Ld. AR further submitted that merely because an amendment has been introduced in the definition Section without any corresponding amendment / change in the charging provisions, it will not mean that the amendment is a substantive amendment intended to bring a new income / receipt within the taxation net without there being any change in the charging provisions. For instance, "dividend" has been included within the definition of income as per section 2(24)(ii) of the Act. However, this would not automatically mean that all dividend incomes are chargeable to tax as certain categories of dividend income enjoyed an exemption. Therefore, chargeability or otherwise of an item of income/receipt is always governed under the respective charging provisions of the Act and not by the definition as per Section 2 of the Act. The Ld. AR further submitted that even prior to introduction of Clause (xviii) in section 2(24) of the Act, subsidies which were revenue in nature were being chargeable to tax. Therefore, it cannot be said that all subsidies are being covered within the tax net only post amendment. If this position is accepted, i.e., all subsidies are taxable only post amendment to section 2(24), then it would mean that even revenue subsidies prior to insertion of the term 'subsidies' in income definition will not be chargeable to tax. Since revenue subsidies even prior to the amendment were always chargeable to tax under section 28, the above interpretation that all subsidies are covered within the tax net post amendment is not consistent with the position of law. Since there is no change in the charging provisions under section 28 of the Act, the principles laid by the Apex Court and other High Courts would still hold the field in order to interpret whether a particular receipt is capital or revenue in nature even post amendment to section 2(24) of the Act. The Ld. AR thus submitted that the taxability of subsidies is dependent on whether it is revenue or capital in nature and the determination of this is based on the "Purpose test" as laid down by several judicial precedents including the Apex Court. Considering the purpose test, these receipts should be treated as capital receipt not chargeable to tax.
8.9 The Ld. AR submitted that the purpose and objective of amendment was only to align with Income Computation and Disclosure Standards (ICDS) provisions. The above amendment was introduced directly in the Finance Act 2015 w.e.f. AY 2016-17 19 IT(TP)A No.49/2022 & ITA No.26/2023 (later amended to be effective from AY 2017-18). It was submitted that the ICDS was notified by the Government on 31.03.2015 u/s 145 of the Act and the same were made applicable from AY 2017-18. Accordingly, the legislature intended to do corresponding consequential / supplementary amendment to the definition section in the Act. Therefore, the intention behind amendment to section 2(24) of the Act was only to align with the then newly introduced provisions of ICDS notified under section 145 of the Act. The objective / intention of the legislature in relation to introduction of this clause could be understood from the Explanatory Notes issued vide Circular No.19/2015 [F.NO.142/14/2015-TPL] dated 27.11.2015 which read as "Alignment of provisions relating to taxation of Government Grants with the provisions of Income Computation and Disclosure Standards (ICDS)'. The above Explanatory Note explicitly states that the objective of insertion of clause (xviii) of section 2(24) of the Act was to align with ICDS. The Ld. AR submitted that the provisions of ICDSs were introduced only to aid in computation of income and for disclosure purposes and it is not a substantive law. ICDS by itself is not a taxing statute, i.e., it does not deal with the taxability or otherwise of income / expenditure under the Act. It merely lays down the principles for recognition / treatment of those items which have already been dealt with under the Act. The taxability or otherwise of income / expenditure is governed by the provisions of the Income Tax Act read with the law laid down by the Supreme Court as may be applicable. Thus, the amendment to section 2(24) by way of insertion of clause (xviii) was only to align with the provisions of ICDS as per the stated purpose. The intention was not to tax all kinds of subsidies so as to include the non-taxable capital subsidy. Further, the amendment does not state that it is made to nullify the interpretation of law as laid down by the Supreme Court in various decisions including Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368; CIT vs. Ponni Sugars and Chemicals Ltd. [2008] (174 Taxman 87) etc. as also by other High Courts and Tribunals. Therefore, it was to be held that the intention of the amendment was not to make a substantive amendment to bring a new item of income within the charging provisions of section 28 of the Act. The intention was only to align the definition of income under section 2(24)(xviii) of the Act with the provisions of ICDS.
8.10 The Ld. AR cited instance of insertion of Explanation-10 to section 43(1) of the Act vide Finance Bill 1998. The Explanation-10 to section 43(1) of the Act states that where a portion of the cost of an asset acquired by an assessee has been met directly or indirectly by the Central Government or State Government or any authority 20 IT(TP)A No.49/2022 & ITA No.26/2023 established under any Law or by any other person, in the form of subsidy or grant or reimbursement, then in a case where the subsidy is directly relatable to the asset, such subsidy shall not be included in the actual cost of the asset. Since this is a substantive amendment, this has been introduced in the Finance Bill 1998 itself and not directly in the Finance Act 1998. Wherever a new substantive amendment was made, it was undertaken through a Finance Bill along with a Memorandum i.e., when any substantive amendment is introduced, the intention is clearly set out in the Memorandum to the respective Finance Bill mentioning that the amendment is proposed in view of judgments of various Courts, since the Finance Bill and the Memorandum are tabled in the Parliament for discussions. The Ld. AR also drew analogy from various other amendments made in the Finance Act, 2015 which are not substantive in nature. It was the plea of Ld. AR that only non-substantive amendments are made via the Finance Act directly since it does not require any deliberations/discussions in the Houses of Parliament. In the above background, Ld. AR submitted that IPS granted to the assessee do not fall within the provisions of ICDS VII since the same deal with treatment of different kinds of Government grants and IPS so received by the assessee would not fall within the categories as mentioned therein. The Ld. AR pleaded that ICDS VII deals only with revenue subsidies i.e., government grants in the nature of revenue receipts and capital subsidies which are granted for meeting the cost of assets. The provisions of ICDS VII would not cover non-taxable capital subsidies. The impugned incentive was not given to offset the cost of any particular asset and is merely issued with an objective of accelerating the industrial development. Though, for the purpose of determining the amount of subsidy to be given, cost of eligible investment was taken as the basis, the IPS was not specifically intended to subsidize the cost of the assets. Therefore, since the amendment to section 2(24) was made only to align with the provisions of ICDS, it is clear that said amendment shall not include non-taxable capital subsidies. Nevertheless, the preamble of ICDS VII provides that the provisions of the Act shall prevail in case of any conflict between ICDS and the provisions of the Act. The same would reaffirm the position that the amendment to section 2(24) of the Act was made only to align with ICDS, which by itself is not a substantive law, and it cannot be interpreted to mean that all forms of subsidies are henceforth taxable post the amendment.
8.11 Another plea was that if the decisions were sought to be nullified, the said intention is clearly manifested while bringing the amendment. No such expression was expressed 21 IT(TP)A No.49/2022 & ITA No.26/2023 while bringing out aforesaid amendment. The last argument was that the amended provisions of Section 2(24)(xviii) of the Act is not applicable for the IPS since the vested right to receive the subsidy was established on 17.04.2014 i.e., prior 01.04.2016. The vested rights to an assessee cannot be diluted by a subsequent amendment. The amendment would apply only to Schemes granted on or after the date of amendment i.e., 01.04.2016 and it cannot have a retrospective effect on Schemes granted/vested prior to the date of amendment. Without prejudice, Ld. AR submitted that the subsidy should be taxed only in the year of receipt.
8.12 Submissions on behalf of revenue The Ld. CIT-DR, on the other hand, submitted that the amendment was very clear and the income would include any type of subsidies, irrespective of nature or purpose. The amendment does not leave any scope of any other interpretation. The Ld. CIT-DR also submitted that the subsidy has been credited in the Profit & Loss Account as revenue item. However, the same not offered to tax in the computation of income simply on the plea that the right to receive the same did not accrue to the assessee in this year. The Ld. CIT-DR pleaded that this subsidy has already accrued to the assessee and therefore, rightly been brought to tax by lower authorities.
Our findings and Adjudication
9. From the facts, it emerges that the assessee has received investment promotion subsidy from State Government for Rs.98.85 Crores and received final eligibility certificate from SIPCOT under the scheme on 17.04.2014. However, the assessee did not offer the same to tax on the ground that subsidy is released by appropriate authority only on submission of proof of commodity taxation in the form of VAT among others under TN VAT Act, 2006. Till that obligation is discharged, the same would not accrue to the assessee. It was the submission of the assessee that as per Memorandum of Understanding (MOU), the appropriate authority was entitled to withhold the release of the incentives if some of the conditions were not fulfilled. However, Ld. AO brought the same to tax on the ground that the subsidy had already accrued to the assessee. The action of Ld. AO was upheld by Ld. DRP against which the assessee is in further appeal before us. From the submissions of Ld. AR, it becomes undisputed fact that this subsidy has already accrued to the assessee and the assessee is eligible to claim the same under the scheme. During assessment proceedings, the only plea raised by the assessee was that the same did not accrue to the assessee and therefore, not offered to tax. However, from the facts, it becomes crystal clear that the assessee has become eligible for the said 22 IT(TP)A No.49/2022 & ITA No.26/2023 subsidy on 17.04.2014 i.e., the date on which eligibility certificate was received by the assessee. We concur with the stand of Ld. AO, in this regard.
10. The prime argument of Ld. AR is that the aforesaid subsidy being capital in nature would not be taxable at all notwithstanding the fact that the definition of income as provided in Sec. 2(24) has been amended by Finance Act, 2015 with effect from 01.04.2016 wherein sub-clause (xviii) has been inserted in the definition of income. The Ld. AR has submitted that the 'purpose test' as laid down by Hon'ble Supreme Court in various decisions should still be a guiding factor to determine the taxability of the same and the amendment would not have impact on the same. The first submission of Ld. AR is that the corresponding amendment has not been in the charging Section 28 of the Act dealing with computation of Profits and Gains of Business or Profession. The Ld. AR has also submitted that the amendment in Sec. 2(24) is not substantive amendment since the definition of income is mere explanation of a particular item or phrase used in the Act and not a charging section by itself. If the provisions of Sec.2 are considered to be charging provisions, the provisions of Sec.28 dealing with charging provisions of Profits and Gains would lose its relevance. The definition of Sec.2(24) has to be read along with the charging provisions of Section to determine whether the income as per the definition section would be chargeable to tax as per the charging provisions. The Ld. AR has cited the example of 'non-compete fees which was brought to tax as per clause (va) of Sec.28 of the Act and correspondingly, the same was included in the definition of income by way of insertion of clause (xii) of Sec.2(24) of the Act.
11. To evaluate the arguments of Ld. AR, it would be useful to consider the amended definition of income w.e.f. 01.04.2016 which read as under: -
2(24) Income includes....
xxxx xxxx (xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43"
The expression 'income' as defined in Sec. 2(24) stares with the words "income includes" and thus, it is an inclusive definition of the income. The same is not exhaustive one and leaves room for further extension of the scope of the term. This is as per the 23 IT(TP)A No.49/2022 & ITA No.26/2023 decision of Hon'ble Apex Court in the case of CIT vs. G.R. Karthikeyan (68 Taxman
145) wherein it has been observed by Hon'ble Court as under: -
6. It is not easy to define income. The definition in the Act is an inclusive one.
As said by Lord Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513 (PC) "income . . . is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation". In Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237, the Privy Council pointed out that "anything that can properly be described as income is taxable under the Act unless expressly exempted". This Court had to deal with the ambit of the expression 'income' in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758. The Indian Income-tax and Excess Profits Tax (Amendment) Act, 1947 had inserted section 12B in the Indian Income-tax Act, 1922. Section 12B imposed a tax on capital gains. The validity of the said Amendment was questioned on the ground that tax on capital gains is not a tax on 'income' within the meaning of entry 54 of List-I, nor is it a tax on the capital value of the assets of individuals and companies within the meaning of entry-55, of Iist-1 of the Seventh Schedule to the Government of India Act, 1935. The Bombay High Court repelled the attack. The matter was brought to this Court. After rejecting the argument on behalf of the assessee that the word 'income' has acquired, by legislative practice, a restricted meaning - and after affirming that the entries in the Seventh Schedule should receive the most liberal construction - the Court observed thus:
"What, then, is the ordinary, natural and grammatical meaning of the word 'income'? According to the dictionary, it means 'a thing that comes in'. (See Oxford Dictionary, Vol. V, p. 162; Stroud, Vol. II, pp. 14-16). In the United States of America and in Australia both of which also are English speaking countries the word 'income' is understood in a wide sense so as to include a capital gain. Reference may be made to - 'Eisner v. Macomber', [1919] 252 US 189 (K); - 'Merchants' Loan and Trust Co. v. Smietankd, [1920] 255 US 509 (L) and - 'United States of America v. Stewart', [1940] 311 US 60 (M) and - 'Resch v. Federal Commissioner of Taxation', [1943] 66 CLR 198 (N). In each of these cases very wide meaning was ascribed to the word 'income' as its natural meaning. The relevant observations of learned Judges deciding those cases which have been quoted in the judgment of Tendolkar, J. quite clearly indicate that such wide meaning was put upon the word 'income' not because of any particular legislative practice either in the United States or in the Commonwealth of Australia but because such was the normal concept and connotation of the ordinary English word 'income'. Its natural meaning embraces any profit or gain which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made . . . The argument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and grammatical meaning to the ordinary English word 'income'. As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power." [Emphasis supplied] (p. 764) Since the definition of income in section 2(24) is an inclusive one, its ambit, in our opinion, should be the same as that of the word income occurring in entry 82 of List I 24 IT(TP)A No.49/2022 & ITA No.26/2023 of the Seventh Schedule to the Constitution (corresponding to entry 54 of List-I of the Seventh Schedule to the Government of India Act).
7. In Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315 (SC) the challenge was to the validity of section 23(2) of the Act which provided that where the property consists of house in the occupation of the owner for the purpose of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one-half of the amount so determined or Rs.1,800, whichever is less. The contention of the assessee was that he was not deriving any monetary benefit by residing in his own house and, therefore, no tax can be levied on him on the ground that he is deriving income from that house. It was contended that the word income means realisation of monetary benefit and that in the absence of any such realisation by the assessee, the inclusion of any amount by way of notional income under section 23(2) in the chargeable income was impermissible and outside the scope of entry 82 of List-I of the Seventh Schedule to the Constitution. The said contention was rejected affirming that the expression 'income' is of the widest amplitude and that it includes not merely what is received or what comes in by exploiting the use of the property but also that which can be converted into income. Sub-clause (ix) of section 2(24) refers to lotteries, crossword puzzles, races including horse races, card games, other games of any sort and gambling or betting of any form or nature whatsoever. All crossword puzzles are not of a gambling nature. Some are; some are not. See State of Bombay v. R.M.D. Chamarbaugwala AIR 1957 SC 699. Even in card games there are some games which are games of skill without an element of gamble [See State of Andhra Pradesh v. K. Satyanarayan 1968 (2) SCR 515]. The words 'other games of any sort' are of wide amplitude. Their meaning is not confined to games of a gambling nature alone. It, thus, appears that sub-clause (ix) is not confined to mere gambling or betting activities. But, says the High Court, the meaning of all the aforesaid words is controlled by the word 'winnings' occurring at the inception of the sub-clause. The High Court says, relying upon certain material, that the expression 'winnings' has come to acquire a particular meaning, viz., receipts from activities of a gambling or betting nature alone. Assuming that the High Court is right in its interpretation of the expression winnings, does it follow that merely because winnings from gambling/betting activities are included within the ambit of income, the monies received from non-gambling and non-betting activities are not so included? What is the implication flowing from insertion of clause (ix)? If the monies which are not earned - in the true sense of the word -constitute income, why do monies earned by skill and toil not constitute income? Would it not look odd, if one is to say that monies received from games and races of gambling nature represent income but not those received from games and races of non-gambling nature? The rally in question was a contest, if not a race. The respondent-assessee entered the contest to win it and to win the first prize. What he got was a 'return' for his skill and endurance. Then why is it not income - which expression must be construed in its widest sense. Further, even if a receipt does not fall within sub-clause (ix), or for that matter, any of the sub- clauses in section 2(24), it may yet constitute income. To say otherwise, would mean reading the several clauses in section 2(24) as exhaustive of the meaning of 'income' when the statute expressly says that it is inclusive. It would be a wrong approach to try to place a given receipt under one or the other sub-clauses in section 2(24) and if it does not fall under any of the sub-clauses, to say that it does not constitute income. Even if a receipt does not fall within the ambit of any of the sub- clauses in section 2(24), it may still be income if it partakes of the nature of the income. The idea behind providing inclusive definition in section 2(24) is not to limit its meaning but to widen its net. This Court has repeatedly said that the word 'income' is of widest amplitude, and that it must be given its natural and grammatical meaning. Judging from the above standpoint, the receipt concerned herein is also 25 IT(TP)A No.49/2022 & ITA No.26/2023 income. Maybe it is casual in nature but it is income nevertheless. That even the casual income is 'income' is evident from section 10(3). Section 10 seeks to exempt certain 'incomes' from being included in the 'total income'. A casual receipt-which should mean, in the context, casual income -is liable to be included in the total income, if it is in excess of Rs.1,000, by virtue of clause (3) of section 10. Even though it is a clause exempting a particular receipt/income to a limited extent, it is yet relevant to the meaning of the expression 'income'. In our respectful opinion, the High Court, having found that the receipt in question does not fall within sub-clause
(ix) of section 2(24), erred in concluding that it does not constitute income. The High Court has read the several sub clauses in section 2(24) as exhaustive of the definition of income when in fact it is not so. In this connection it is relevant to notice the finding of the Tribunal. It found that the receipt in question was casual in nature but - it opined - it was nevertheless not an income receipt and fell outside the provision of section 10(3). We have found it difficult to follow the logic behind the argument.
It was thus observed by Hon'ble Court that it was difficult to define income in any precise general formula. Anything that could properly be described as income is taxable under the Act unless expressly exempted. Even if a receipt does not fall within the ambit of any of the sub-clauses in section 2(24), it may still be income if it partakes the nature of the income. The idea behind providing inclusive definition in section 2(24) was not to limit its meaning but to widen its net. The Hon'ble Court further held that the expression 'income' is of the widest amplitude and that it includes not merely what is received or what comes in by exploiting the use of the property but also that which can be converted into income. The word 'income' is of widest amplitude, and that it must be given its natural and grammatical meaning. We also observe that Income Tax is tax on income. Once a receipt is held to be the income, the natural consequences thereof would follow and the same would be taxable in the hands of the assessee unless exempted in any of the provisions under the Act. Consequently, the argument that the change in definition of 'income' was not substantive one does not find favor with us. The intention of legislature was specifically to include such receipt as the income of the assessee. The amendment was not merely to align with ICDS provisions. Further, the manner in which the amendment has been introduced by legislatures would wholly be irrelevant.
12. Proceeding further, we find that the provisions of Sec.5 provide the scope of total income. It provides that subject to the provisions of this Act, total income of a person who is resident would include all income from whatever sources derived which is received or deemed to be received in India or income which accrue or arise or deemed to accrue or arise in India. The heads of income has been carved out in Section 14 of the Act. The provisions of Sec.14 provide for heads of income under which such income would be assessable. These provisions provide that save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified in five distinct heads of income i.e., Salaries, Income from House Property, Profits and Gains of business or profession, capital gains or income from other sources. In other words, once an item has been found to be covered within the meaning of 'income', the same shall have necessarily to be classified in distinct heads of income and computations of tax would be made accordingly. Since the definition of income is an inclusive one, it is not necessary as well as not practical that each item of income is sclearly and distinctly spelt out in charging provisions of distinct heads of income. We also find that the provisions of Sec.28 specify the income which shall be chargeable to Income Tax under the heads 'Profits and Gains of business or Profession'. The sub-clause (i) provides that profits and gains of business or 26 IT(TP)A No.49/2022 & ITA No.26/2023 profession which was being carried on by the assessee at any time during the previous year shall be chargeable to tax under the head 'Profits and Gains of Business or Profession'. From the scheme of the Act, it could be seen that the definition of income as provided in Sec. 2(24)(xviii) is of widest amplitude and it is an inclusive definition and not an exhaustive definition. The scope of total income includes all types of income that is received or that accrues or arises to the assessee. The income has to be divided into five distinct heads one of which is 'Profits and Gains of Business or Profession'. In our considered opinion, when the definition of income is not exhaustive one, it is not necessary that to tax the income, corresponding amendment should have been made in Sec.28 of the Act. The argument that the amendment is not a substantive amendment is not correct and we do not concur with this argument.
13. It could also be observed that even before this amendment, the subsidy was not specifically spelt out in Sec.28 yet the subsidies which were of revenue in nature were always brought to tax under the head 'Profits and Gains of Business or Profession' and capital receipts were held to be non-taxable considering the 'purpose test' as laid down by Hon'ble Supreme Court in various case laws. The revenue subsidies were so brought to tax under the head 'Profits and Gains of Business or Profession' on the reasoning that subsidies primarily arose to the assessee while conducting its business and the same was to be treated as per the provisions as applicable to computation of Income under the head 'Profits and Gains of Business or Profession'. The subsidies, in our opinion, in all such cases were covered under the provisions of Sec. 28 (i) itself i.e., the 'profits and gains of any business or profession which was carried on by the assessee at any time during the year'. This being the case, the logical conclusion that would follow would be that after amendment of the definition of 'income, there was no separate requirement of bringing corresponding amendment to Sec.28 since clause (i) was wide enough or in fact, was already governing the treatment of such subsidies. Therefore, the argument of Ld. AR that there should be corresponding amendment in the charging provisions before an item could be brought to tax is not acceptable. These arguments stand rejected.
14. Upon perusal of amendment, we find that the effect of amendment made in Sec.2(24) by Finance Act 2015 w.e.f. 01.04.2016 by way of insertion of Clause (xviii) would be that income would include any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43. The effect of the amendment, in our considered opinion, was that various concessions etc. provided by specified authorities either in cash or in kind by whatever name called will be included within the meaning of term 'income' and consequently, the same would be taxable under the Act. The phrase by whatever name called captures the essence of the amendment as brought out by the legislatures and the same in crystal clear terms expresses the intention of the legislatures. In our opinion, the distinction being hitherto created by judicial decisions between capital receipts and revenue receipts was done away by this amendment and the earlier case laws holding the field would cease to apply after the amendment. The intention of legislature was to bring to tax all kinds of subsidies irrespective of their nature, manner of receipt and the agency from which it was received. The only exception provided is that in case the said concessions were taken into account to determine the actual cost of an asset in terms of Explanation 10 to clause (1) to Section 43, the same would not be separately taxable since in such a case, the quantum of depreciation would be reduced. In all the other cases, irrespective of nomenclature or the manner in which the same are given, such concessions would always form part of income of 27 IT(TP)A No.49/2022 & ITA No.26/2023 the assessee notwithstanding the 'purpose' or objective of the scheme or whether the same was in capital field or in revenue field. This amendment has, thus, taken away the distinction between capital receipts and revenue receipts or the 'purpose test' as laid down by Hon'ble Apex Court in various decisions. The amended definition provide that all sorts of assistance received by an assessee from the specified persons, irrespective of its nature as capital or revenue, shall be taxable as income of the assessee unless the same falls in the exclusion category. In such a situation, the relevant case laws as cited by Ld. AR in support of the argument that 'purpose test' must be followed are to be disregarded and it was to be held that those case laws would have no application after the aforesaid amendment. We concur with the stand of Ld. CIT-DR, in this regard.
15. In view of the foregoing, the amount of subsidies as received by the assessee has rightly been brought to tax by Ld. AO in the assessment order. Ground No.6 and all its sub-grounds as raised by the assessee, stand dismissed'.
Since similar facts exists in present AYs 2017-18 and 2019-20, therefore, following the earlier decision of the Co-ordinate bench order, we upheld that the amount of subsidies as received by the appellant has rightly been brought to tax by Ld.AO in the assessment orders. Hence, Ground No.5 and its sub-grounds of IT(TP)A 49/Chny/2022 for AY 2017-18 & G.No.4 and its sub-grounds of IT(TP)A No.26/Chny /2023 for AY 2019-20 as raised by the assessee, stand dismissed.
9. G.No.6 and its sub-grounds for AY 2017-18 and G.No.5 and its sub-
grounds for AY 2019-20: Transfer Pricing (TP) Adjustment made towards Brand development services 9.1 Brief facts for AY 2017-18 and AY 2019-20 are that the Transfer Pricing Officer ('TPO' in short) made an adjustments in relation to brand building receivable from its AEs towards the enhancement of brand building. This issue was considered by the Ld.DRP. The objections raised by the assessee were dismissed by Ld.DRP in the light of earlier DRP orders for AYs 2009-10 to 2016-17 and 2018-19. Ld.DRP held that all the facts and circumstances being and no reason to disagree with the 28 IT(TP)A No.49/2022 & ITA No.26/2023 earlier decisions of the panel. Consequently Ld.DRP upheld that the determination of ALP of the brand value of 'Hyundai' by the TPO is justified. Finally, 50% of the AMP expenses with markup of 6.09% and 6.67% were held TP adjustment which resulted into and adjustment of Rs.237,58,10,000/- and Rs.233,55,30,000/-
respectively for AYs 2017-18 and 2019-20 are justified.
9.2 At the threshold, Ld.AR cited order of the Coordinate bench, in IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018-19 and stated that the issue is covered in favor of assessee. Ld. DR did not controvert the same. As is discernible from the orders of Ld.DRP itself, this issue stood covered in appellant's favor in all earlier years. The Coordinate bench, in IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018-19 has followed the earlier years orders and held as under:
''3.3 As is evident from the orders of Ld. TPO itself, this issue stood covered in assessee's favor in all the earlier years. The bench, in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016-17 chose to follow earlier view of the Tribunal and held as under: -
7.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee's own case for the assessment year 2015-16 in IT(TP) No.10/CHNY/2020, dated 17.09.2021, wherein the Tribunal following the earlier decision in assessee's own case for assessment year 2013-14 in ITA No.3192/Chny/2017, dated 01.09.2021, held that learned TPO as well as learned DRP were erred in making transfer pricing adjustments towards brand services by adopting Spearman's Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made towards brand development services. Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment.
Similar view has been taken in latest decision in IT(TP)A No.51/Chny/2021 dated 27.09.2023 for AY 2012-13. Taking consistent view in the matter, we direct Ld. AO to delete impugned TP adjustment. The corresponding grounds raised by the assessee stand allowed''.29 IT(TP)A No.49/2022 & ITA No.26/2023
We have gone through order cited supra and concurred with the view taken by the Coordinate bench in IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018-19 and direct Ld.AO to delete impugned TP adjustments for AYs 2017-18 and 2019-20.
The corresponding grounds raised by the appellant stand allowed.
10. G.No.7 for AY 2017-18: Short credit of TDS 10.1 The appellant, in Form 6 filed for the AY 2017-18 has shown TDS of Rs.37,75,55,650/- in its computation of total income/loss statement, however, the Ld.AO in final assessment order (Computation Sheet) has failed to consider the TDS of Rs.3.11 Crores [Rs.37,75,55,650/- less Rs.34,63,20,885/-] claimed in the return of income. As stated by the Ld.AR, party wise details of the unmatched TDS credit was filed by the assessee in response to the intimation notice issued u/s 143(1) of the Act and also filed the copy of the TDS certificates in Form 16A before AO.
10.2 In the light of above submissions of Ld.AR, we direct Ld.AO to consider credit of balance TDS of Rs.3.11 Crores and allow the same as per law. Therefore, this ground is allowed for statistical purpose.
11. G.No.1 and its sub-grounds in both appeals are general in nature and G.No.7 for AY 2019-20 regarding interest u/s 234D is consequential hence does not require specific adjudication. Hence, the same are treated as infructuous.
Conclusion
12. These appeals filed by the assessee for assessment years 2017-2018 and 2019-2020 are partly allowed in above terms of our order.
30 IT(TP)A No.49/2022 & ITA No.26/2023Order pronounced in open court on 4th day of June, 2024 at Chennai.
Sd/- Sd/-
(मनोज कुमार अ वाल) (मनु कुमार िग र)
(MANOJ KUMAR AGGARWAL) (MANU KUMAR GIRI)
ले खा सद / ACCOUNTANT MEMBER ाियक सद / JUDICIAL MEMBER
चे ई Chennai:
िदनां क Dated : 04-06-2024
KV
आदे श क त ल प अ े षत /Copy to :
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT, Chennai/Coimbatore/Madurai/Salem.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF
31 IT(TP)A No.49/2022 & ITA No.26/2023