The New Delhi Income Tax Appellate Tribunal (ITAT) ruled that the excise duty subsidy and interest subsidy received with the objective of creating avenues for perpetual employment, and to eradicate the social problem of unemployment by accelerating industrial development, are capital receipts.
On the transfer pricing front, the Appellate Tribunal also clarified that where the manufacturing unit of the appellant (taxpayer) was located in a backward area of Himachal Pradesh, and the main incentives granted to the appellant were waiver of excise duty and the CST, then the operating profit margin shall be computed without considering the excise duty, sales tax and income tax.
The Division Bench comprising Vimal Kumar (Judicial Member) and M. Balaganesh (Accountant Member) observed that the excise duty exemption as a capital receipt while computing total income of normal provisions of the Act has been claimed by availing excise duty exemption during the year after the 10th year.
The Bench referred to the Central Excise Notification No. 49-50/2003-CE to observe that the same had been issued to intensify and accelerate the growth of industries in the specified backward areas in the State of Himachal Pradesh/Uttaranchal.
Accordingly, the Bench concluded that the Excise Duty subsidy, interest subsidy received with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the state by accelerating industrial development, is a capital receipt.
Briefly, the appellant (taxpayer), a wholesaler and trader of UPS and transformers, had availed an excise duty incentive under the Central Excise Notification No. 49-50/2003-CE, dated June 10, 2003, since the same was situated in the specified backward area. The purpose behind the introduction of the notification No. 49-50/2003 was to intensify and accelerate the growth of industries in the specified backward areas in the State of Himachal Pradesh/Uttaranchal.
Since the excise duty exemption/incentive had been granted for setting up of manufacturing unit in a backward area, the appellant claimed that the excise duty subsidy and interest subsidy received with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the State by accelerated industrial development, were capital receipts.
Departmental Notifications/ Circulars Relied On:
Central Excise Notification No. 49-50/2003-CE
Cases Relied On:
Shree Balaji Alloys vs. CIT [333 ITR 335 (Jammu & Kashmir)]
DCIT vs. P.C. Jeweller Ltd. [2025] 175 taxmann.com 281 (Delhi – Trib.)
Appearances:
S.S. Nagar and Basant Maheshwari, CAs for the Appellant/ Taxpayer
Chetan P.S. Rao, CIT DR for the Respondent/ Revenue
