IT Act – Govt subsidies, duty drawback, incentives, exemptions and waivers given to projects / industry are income – Finance Act of 2015 – Constitutional validity – Judgment of the Bombay High Court

Income Tax Act – Govt subsidies, duty drawback, incentives, exemptions and waivers given to projects / industry are income – Finance Act of 2015 – Constitutional validity – Judgment of the Bombay High Court

The Package Scheme of Incentives 2013 of the Government of Maharashtra on the investments of more than Rs.1500 crores on establishment of ultra mega projects during the admissible period of 1.4.2013 to 21.3.2020.   The operative period for said Scheme is of 30 years from the date of effect of Entitlement Certificate.

The petitioner’s mega ultra mega project was approved for the Incentive Scheme 2013 and the eligibility certificate dated 25.1.2019 was issued.   As per the said eligibility, the petitioner is entitled to incentive / benefit of 75% of eligible investment.

However, by the Finance Act, 2015 and insertion of sub-clause (xviii) to Section 2(24) of IT Act, the incentive / concession / subsidies / duty drawback, waivers, grants, reimbursements, etc; as given by the Central or State Government are treated as “income”.   However, actual cost of asset is not included.

According to the petitioner, refund of sales tax, electricity duty exemption and 50% exemption in stamp duty are also treated as stamp duty.  Prior to the impugned clause, the subsidies, grants or incentives were in the nature of “capital receipts” were excluded from “income”.  In other words, such taxation would nullify the distinction of capital and revenue leading to erosion in benefit or savings.

HELD that when the petitioner applied for subsidy, the amendment was in operation for more than two years.  The petitioner being engaged in business activities is presumed made due diligence of tax implications. The amendment was in pubic knowledge.  Ignorance of the law is no excuse.  The mere fact that tax falls more heavily on the petitioner cannot result in its invalidity.

Judgment dated   4.12.2023 in W.P.No.3735 of 2021 of Serus Institute of India Pvt Ltd Vs. Union of India and others.