Siemens Public Communications Network Ltd vs. CIT (Supreme Court)

S. 4: Law laid down in Sahney Steel 228 ITR 253 (SC) and Ponni Sugars 306 ITR 392 (SC) regarding the taxability of subsidies as a revenue receipt does not apply to voluntary subsidies (subvention) paid by a holding company to its loss making subsidiary. The said subsidy is to protect the capital investment of the holding company and is a capital receipt in the hands of the recipient

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., Hyderabad versus Commissioner of Income Tax, A.P.-I, Hyderabad [(1997) 7 SCC 764]/ 228 ITR 253 and Commissioner of Income Tax, Madras versus Ponni Sugars and Chemicals Limited [(2008) 9 SCC 337]/ 306 ITR 392 (SC). 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 (supra) and Sahney Steel (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 receipt

Siemens Public Communications Network Ltd vs. CIT (Supreme Court)

 

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