IT: Where assessee, an Indian company, received subvention from its parent company in Germany in a situation where it was making losses, subvention was not revenue receipt
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[2017] 77 taxmann.com 22 (SC)
SUPREME COURT OF INDIA
Siemens Public Communication Network (P.) Ltd.
v.
Commissioner of Income-tax, Bangalore*
RANJAN GOGOI AND N.V. Ramana, JJ.
Civil Appeal Nos. 11934, 11936 & 11937 of 2016†
DECEMBER 7, 2016
Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as (Subvention receipt) - Assessment years 1999-2000 to 2001-02 - Assessee, an Indian company, received subvention from its parent company in Germany in a situation where it was making losses - High Court held that subvention received by assessee was revenue receipt - Whether subvention received by assessee was not revenue receipt - Held, yes [Paras 4 and 5] [In favour of assessee]
FACTS
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During the assessment years 1999-2000 to 2001-02, the assessee, an Indian company, received subvention from its parent company in Germany in a situation where it was making losses. |
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The Assessing Officer treated the subvention received by the assessee as revenue receipt. |
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The High Court by making a reference to two decisions of the Supreme Court rendered in the cases of Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368 and CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87 (SC), wherein it had been held that unless the grant-in-aid received by an assessee was utilized for acquisition of an asset, the same must be understood to be in the nature of a revenue receipt, held that subvention was revenue receipt and accordingly upheld the order of the Assessing Officer. |
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On appeal to Supreme Court: |
HELD
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The view taken by the High Court tends to overlook the fact that in the cases of Sahney Steel & Press Works Ltd. (supra) and Ponni Sugars & Chemicals Ltd. (supra) the subsidies received were in the nature of grant-in-aid from public funds and not by way of voluntary contribution by the parent company as in the instant case. The above apart, the voluntary payments made by the parent company to its loss making Indian company can also be understood to be payments made in order to protect the capital investment of the assessee-company. If that is so, the payments made to the assessee-company by the parent company for the assessment years in question cannot be held to be revenue receipt. The Court also finds such a view in a recent pronouncement in CIT v. Handicrafts & Handlooms Export Corpn. of India Ltd. [2014] 49 taxmann.com 488/226 Taxman 178 (Mag.) (Delhi) with which the Court is in respectful agreement. [Para 3] |
CASE REVIEW
CIT v. Siemens Public Communication Networks Ltd. [2014] 41 taxmann.com 139 (Karnataka) (para 4) set aside.
CASES REFERRED TO
Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368 (SC) (para 3), CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87 (SC) (para 3) and CIT v. Handicrafts & Handlooms Export Corpn. of India Ltd [2014] 49 taxmann.com 488/226 Taxman 178 (Mag.) (Delhi) (para 3).
Tarun Gulati, Rony O. John, Neil Hildreth, Shashi Mathews, Kishore Kunal, Anupam Mishra, Ms. Rachana Yadav and R. Chandrachud, Advs. for the Petitioner. Yashank Adhyaru, Sr. Adv., Ms. Sadhna Sandhu and Mrs. Anil Katiyar, Advs. for the Respondent.
ORDER
1. Leave granted in all the Special Leave Petitions.
2. The Assessment Years in question are 1999-2000, 2000-2001 and 2001-2002. The point involved in the present appeals is short and precise. The subvention received by the Assessee - Company from its parent Company in Germany in a situation where the Assessee - Company was making losses has been treated to be a revenue receipt by the Assessing Officer. Though the First Appellate Authority [Commissioner of Income Tax (Appeals)] and the learned Income Tax Appellate Tribunal ("Tribunal" for short) has reversed the said finding, the High Court, by the orders under challenge, has restored the view taken by the Assessing Officer. Aggrieved the Assessee has filed the present appeals.
3. The question of law that was presented before the High Court, namely, whether subvention was capital or revenue receipt, was sought to be answered by the High Court by making a reference to two decisions of this Court in Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368 and CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87. The view expressed by this Court that unless the grant-in-aid received by an Assessee is utilized for acquisition of an asset, the same must be understood to be in the nature of a revenue receipt was held by the High Court to be a principle of law applicable to all situations. The aforesaid view tends to overlook the fact that in both Ponni Sugars& Chemicals Ltd.'s case (supra) and Sahney Steel & Press works Ltd. (supra) the subsidies received were in the nature of grant-in-aid from public funds and not by way of voluntary contribution by the parent Company as in the present cases. The above apart, the voluntary payments made by the parent Company to its loss making Indian company can also be understood to be payments made in order to protect the capital investment of the Assessee Company. If that is so, we will have no hesitation to hold that the payments made to the Assessee Company by the parent Company for Assessment Years in question cannot be held to be revenue receipts. We also find such a view in a recent pronouncement in CIT v. Handicrafts & Handlooms Export Corpn. of India Ltd. [2014] 49 taxmann.com 488/226 Taxman 178 (Mag.) (Delhi) with which we are in respectful agreement.
4. For the aforesaid reasons, we allow the present appeals; set aside the order of the High Court and answer the liability of the Assessee for the Assessment Years in question in the above manner.
s.k.j.
*In favour of assessee.
†Arising out of order of High Court in CIT v. Siemens Public Communication Networks Ltd. [2014] 41 taxmann.com 139 (Karnataka).