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Informist, Tuesday, Oct. 15, 2024

 

NEW DELHI – The Supreme Court has issued notices to the government, the Central Board of Direct Taxes, and other parties on a petition by Serum Institute of India Pvt. Ltd. against an amendment to the Income Tax Act, 1961, that made subsidies, grants, cash incentives, duty drawbacks, waivers, concessions or reimbursements provided by the central or state governments taxable. "Issue notice returnable in four weeks. Mr N. Venkataraman, Additional Solicitor General accepts notice. Counter affidavit shall be filed in the meantime," said the Bench of Chief Justice of India D.Y. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra. 

 

In 2015, the Income Tax Act was amended to include subsidies, grants, and cash incentives given by the central or state governments under the definition of "income". Serum Institute of India moved the Bombay High Court in 2021 challenging the amendment, saying that all sorts of subsidies, whether capital or revenue in nature, had been brought within the ambit of the term income and made taxable, even though various courts, including the apex court, have held capital subsidy as non-taxable.

 

In December, the Bombay High Court rejected Serum Institute of India's challenge, following which it moved the apex court in May. The high court had held that the amendment was a perfect example of a legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. The amendment indicates a well-established jurisprudential path, ensuring that the income tax laws remain attuned to economic realities and continue to serve as a vital cog in the nation's fiscal machinery, the high court had said.

 

Under the Maharashtra government's Package Scheme of Incentives-2013, the state provides various incentives to major industries depending on the type of project and the amount of investment. Under the scheme, the benefits include stamp duty concessions, exemption from electricity duty and subsidy on value added tax, central sales tax and state goods and services. In 2018, Serum Institute of India had submitted its application to be eligible under the Maharashtra government's scheme after making an investment of more than 15 bln rupees. The company's operative period for availing the deductions was from Jan. 1, 2015 to Mar. 31, 2045. After getting the state government's approval for being eligible under the scheme, Serum Institute of India said it was entitled to total benefits of 75% of the eligible investment.

 

Serum Institute of India said that the inclusion of subsidies and other things in the definition of income has unintended retrospective application, since at the time of introduction of the scheme by the Maharashtra government, the same was not there in the Income Tax Act. Serum Institute of India said that the government's amendment seeks to tax a capital receipt as "income" which is constitutionally impermissible.  End

 

Reported by Surya Tripathi

Edited by Ashish Shirke

 

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