DCIT Vs Welspun Living Limited (ITAT Mumbai)
ITAT Mumbai: Sales-Tax & TUF Subsidies Held Capital in Nature – 14A Disallowance Restricted to Investments Yielding Exempt Income
Tribunal dismissed Revenue’s appeals for both years, upholding CIT(A)’s findings on three key issues — sales-tax incentive, TUF subsidy, & section 14A disallowance.
Sales-Tax Incentive – Capital Receipt:
Welspun had set up an industrial unit at Anjar, Kutch post the 2001 earthquake & received excise & VAT incentives under the Kutch Rehabilitation Scheme. AO taxed ₹93.37 cr as revenue receipt, citing Sahney Steel (228 ITR 253). Relying on earlier rulings in Welspun Steel Ltd. & PCIT v. Welspun Steel Ltd. (Bom HC, 2019), ITAT held the incentive was capital in nature, since the purpose was to promote investment & employment in a disaster-hit area — not to supplement trading profits.
Technology Upgradation Fund (TUF) Subsidy – Capital Receipt:
A ₹47.75 cr interest subsidy received under the Government’s TUF Scheme was held capital, following PCIT v. Nitin Spinners Ltd. (Raj HC 2020) & CIT v. Sham Lal Bansal (P&H HC). The scheme’s purpose test showed the assistance was for modernization of plant & machinery, not revenue operations.
Section 14A & MAT Computation:
AO’s disallowance of ₹1.30 cr under Rule 8D was partly deleted as the company had ample own funds (CIT v. Reliance Utilities, HDFC Bank). CIT(A)’s direction to consider only investments yielding exempt income was upheld per Vireet Investments (P) Ltd. (SB).
