Nirma Limited Vs DCIT (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT) Ahmedabad recently decided multiple appeals in the case of Nirma Limited vs. Deputy Commissioner of Income Tax (DCIT), covering assessment years 2015–16 and 2016–17. The dispute involved recurring issues such as taxability of sales tax subsidy, allowability of depreciation on intangibles and goodwill, treatment of product registration expenses, eligibility of deduction under Section 80IA, and corporate guarantee commission. The Tribunal largely followed its earlier orders in Nirma’s own case and relied upon binding judicial precedents of the Supreme Court and the Gujarat High Court to resolve the issues.
1. Sales Tax Subsidy – Capital vs. Revenue Receipt
Nirma received sales tax subsidy of ₹7.22 crore from the Government of Gujarat under its Backward Area Development Scheme. The Assessing Officer (AO) treated it as a revenue receipt linked to sales and raw material purchases, while the company claimed it was a capital receipt.
The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the claim, holding that the subsidy was granted to promote industrialisation in backward areas and not to supplement trading receipts. The CIT(A) relied on:
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CIT v. Ponni Sugars & Chemicals Ltd. (306 ITR 392, SC) – the “purpose test” for determining subsidy character.
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CIT v. Chaphalkar Brothers (2017) 88 taxmann.com 178 (SC) – incentives for industrial growth treated as capital receipt.
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Gujarat High Court order (Tax Appeal No. 226/2010, 08.06.2016) – upholding ITAT’s order in Nirma’s favour.
The ITAT confirmed that since the scheme’s object was capital in nature, the subsidy cannot be taxed.
