Subvention received by Indian subsidiary from its parent company towards recoupment of losses is a non–taxable capital receipt
Global Tax Update:January 2017/India
Taxpayer was incurring losses and had received subvention from its German parent company towards recoupment of losses. (Global Tax Update:January 2017/India)
Tax authorities treated the aforesaid receipts as taxable revenue receipts. Such treatment was also upheld by the jurisdictional High Court.
On further appeal, Supreme Court held that voluntary payments made by the parent company to its loss making Indian company should be treated as payments made to protect capital investment in the Indian company. Such a sum cannot be treated as a revenue receipt and should not be taxed.