CA Saurabh Chokhra
Brief of the case:
- The Hon’ble Supreme Court in the above cited case held that amount received as subvention/grant from parent company by a loss making subsidiary cannot be considered as revenue receipt in the hands of subsidiary company as grant was made by parent company to protect its investment made in subsidiary.
- Therefore, such grant is a capital receipt which is not taxable.
Facts of the case:
- The assessee company received subvention (grant) from its parent company (Germany based) to support assessee company whose business situation gone worse.AO added the same to assessee’s income treating the same as revenue receipt.
- CIT (A) and ITAT reversed the finding of tribunal, however, High court of Karnataka restored the finding of Assessing Officer and held such grant received as taxable.
- Aggrieved assessee is in appeal before Hon’ble Supreme Court.
Question to be decided:
Grant sanctioned by parent company to its loss making subsidiary can be treagted as revnue receipt in the hands of subsidiary?
Held by Hon’ble Supreme Court:
- Hon’ble Supreme Court observed that the High court while deciding the case considered this court’s decision in the case of Ponni Sugar Mills and Sahney Steel wherein this court held 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.
- But in the above cases 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.
- In the present case, 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 made in assessee company.
- Therefore, the payments made by parent company to assessee cannot be treated as revenue receipts. Ruling of the High Court was reversed.