Mumbai ITAT: Interest Subsidy via TUFS Not Liable Under Income Tax

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has recently ruled that the interest subsidy provided through the Technology Upgradation Fund Scheme is not liable to be taxed as income.

According to the bench comprising Kuldip Singh (Judicial Member) and Prashant Maharishi (Accountant Member), even though the interest subsidy received under the technology upgradation fund scheme is recorded as a net deduction against interest costs in the books of account, it possesses a capital nature.

The taxpayer in question is a business entity with multiple operations across the country, encompassing the production of clothing, insulators, fertilisers, and more. The taxpayer filed its income tax return, disclosing the total income in compliance with the provisions of the Income Tax Act, 1961 and the book profit under Section 115JB.

The computation of total income and book profit followed the standard methodologies. Subsequently, the filed income tax return was selected for scrutiny. As per the statutory requirements, the Assessing Officer issued an assessment order under Section 143(3), determining the taxpayer’s total income, while the book profit remained unchanged.

The crucial issue at hand was whether the subsidy received by the taxpayer under the technology upgradation fund should be classified as a capital receipt exempt from taxation or a revenue receipt subject to tax.

The assessing officer considered it as a revenue receipt. However, in an appeal before the Commissioner of Income Tax (CIT), it was established that the subsidy obtained by the appellant company through the technology upgradation fund scheme was, indeed, a capital receipt.

The appellant contended that the subsidy did not pertain to the acquisition of any capital assets. Rather, it fell into the category of revenue, as its purpose was to offset the competitive disadvantage faced by the business entity.

After consideration, the tribunal concluded that the subsidy received under the technology upgradation fund scheme should be treated as a capital payment and not subject to taxable revenue.