The Income Tax Appellate Tribunal, Chennai, ruled that the subsidy received by way of output tax is ‘capital receipt’ therefore Hyundai is entitled to Income Tax Exemption.
The bench of Aby T Varkey, Judicial Member And S. R. Raghunatha, Accountant Member noted that the assessee company has entered into a MOU with Government of Tamilnadu for setting up / Expansion of its manufacturing facility. As per the said MOU incentive was granted for the purpose of setting up of Phase II manufacturing facility by way of refund of Output VAT under the state policy. After the completion of the project, a final eligibility certificate was issued by SIPCOT and accordingly quantified the subsidy receivable in the form of IPS.
It was further noted that during the A.Y. 2013- 14, the assessee has accrued an Investment Promotion Subsidy (‘IPS’) based on the sales made and credited to P&L account under ‘Other Operating Revenue’.
The bench observed that during scrutiny assessment proceedings, the Assessee submitted an additional claim that the incentive in the form of Investment Promotion Subsidy (IPS) was received for the purpose of setting up / expansion of Phase II manufacturing facility and as such IPS should be treated as a capital receipt not chargeable to tax. In the draft assessment order, the Assessing Officer (‘AO’) did not entertain the claim of the Assessee.
The tribunal said that the Tribunal in assessee’s own case held that the IPS received from Govt. of Tamilnadu by way of Output Tax as capital receipt not chargeable to tax.
The assessee, M/s.Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea.
The assessee company has filed its return of income for assessment year 2013-14 admitting total income under normal provisions of the Income Tax Act, 1961, and book profit u/s.115JB of the Act.
The assessee had entered into various international transactions with its Associated Enterprises (AEs) and international transactions were duly reported in Form 3CEB filed in accordance with provisions of Indian Transfer Pricing Regulations contained in section 92, 92A to 92F of the Income Tax Act, 1961.
The case was taken up for scrutiny and during the course of assessment proceedings, a reference was made to JCIT (Transfer Pricing) for determination of Arm’s Length Price (ALP) of international transactions of the assessee with its AEs.
The TPO vide its order suggested certain transfer pricing adjustments towards downward adjustment to the value of imports and upward adjustment for brand development services. The Assessing Officer, in pursuant to directions of the TPO, has passed draft assessment order u/s.143(3) r.w.s.144C(1) of the Income Tax Act, 1961 and made transfer pricing adjustments as suggested by the TPO.
The Assessing Officer had also proposed certain Corporate Tax adjustments including disallowances u/s.14A, r.w.r.8D of IT Rules, 1962, disallowance of subsidy received towards capital expenditure, disallowance of Focus Marketing Scheme expenses, and disallowance of bonus / performance reward u/s.43B(c) of the Income Tax Act, 1961.
The Assessing Officer, in pursuant to the directions of the DRP has passed final assessment order incorporating directions of the DRP. The issues carried upto Tribunal and the Tribunal remanded the file to AO with certain directions in its order.
In the Order giving effect passed by the AO and subsequently rectified U/s.154 of the Act, pursuant to the order of the Tribunal rejected the claim of the assessee that subsidy received from Govt. as capital receipt and taxed it as revenue receipt.
Authorized Representatives of the assessee submitted that, during the A.Y. 2013-14, the assessee has accrued an Investment Promotion Subsidy (‘IPS’) based on the sales made and credited to P&L account under ‘Other Operating Revenue’. In the draft assessment order, the Assessing Officer (‘AO’) did not entertain the claim of the Assessee.
The tribunal held that the IPS received by way of Output tax for the A Y 2013-14 is capital receipt not chargeable to tax.
Case Details
Case Name: M/s. Hyundai Motor India Limited v/s Deputy Commissioner of Income Tax
Citation: ITA No.: 608/Chny/2024
Date of Decision: 21/08/2024
