The term “Income” is defined in section 2(24). The said definition is an inclusive one. Therefore, the term “income” not only includes those receipts which are stated in section 2(24) but also includes such things / receipts which the term embraces according to its natural and general meaning. Income is embedded in receipts which a person receives or is entitled to. Receipts are of two types – capital receipt and revenue receipt. A revenue receipt is taxable as income unless it is expressly exempt under the Act. A capital receipt is generally exempt from tax, unless it is expressly taxable under any provision of the Act. [Cadell Wvg. Mill Co (P) Ltd v CIT [2001] 249 ITR 265 (Bom) affirmed by the Supreme Court in CIT Vs. D.P. Sandu Bros. Chembur P. Ltd 273 ITR 1]
Many a times, assessee receives amount from shareholder as voluntary contribution towards recoupment of losses. The issue that arises for consideration is whether such subvention receipt is revenue receipt or capital receipt.
In the case of Siemens Public Communication Networks P Ltd v CIT (2017) 390 ITR 1, 77 taxmann.com 22 (SC), the Supreme Court held that voluntary contribution 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 SC held, the payments made to the Assessee Company by the parent Company for Assessment Years in question cannot be held to be revenue receipts.
In the case of ACIT v Deutsche Post Home Finance Ltd (2012) 24 Taxmann.com 341, the assessee received amount from parent towards subvention receipt. It was paid unconditionally for recoupment of losses. Held that same is capital receipt and not taxable.
In the case of PCIT v. State Fisheries Development Corporation Ltd. (2018) 94 taxmann.com 466 (Cal HC), the HC held that Government grant-in-aid to a company wholly-owned by Government, facing acute cash crunch, to keep company floating is capital receipt even though large part of funds were applied by company for salary and provident funds. SLP dismissed against High Court ruling – [2019] 102 taxmann.com 221 (SC).
In the case of Handicrafts and Handlooms Exports Corporation of India Ltd [TS-440-HC-2013(DEL)], 360 ITR 30, the HC held that grant received from parent company, to recoup losses of subsidiary not taxable as income. The HC held that such grant is not a trading receipt, but could be categorized as gift or capital grant.
Scooters India Ltd v CIT 399 IR 559 (All) – Grant received from government is not taxable. Held that it is also not covered under definition of subsidy. Held that VRS compensation paid out of grant is deductible.
In the case of CIT v Kerala Financial Corporation [1972] 84 ITR 30 (KER.) while issuing shares of assessee, State Government guaranteed payment of annual dividend at rated 3.5 per cent to shareholder. State Government paid certain amount as subvention to make up guaranteed dividend to shareholders. Held that same is not taxable.
Other decisions taking a view that such receipts are capital in nature are as follows:
- DCIT v Lurgi India Co. Ltd [2008] 114 ITD 1 (Delhi)
- MesseDusseldorf India Pvt Ltd TS-83-ITAT-2014(DEL)-TP
- Nalco Water India Limited [TS-892-ITAT-2019(PUN)-TP]