1992-VIL-153-ITAT-ALH
Equivalent Citation: ITD 042, 436, TTJ 045, 034,
Income Tax Appellate Tribunal ALLAHABAD
IT APPEAL NOS. 2117 AND 2118 (ALL.) OF 1990
Date: 31.03.1992
UP. STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : L. N. AGGARWAL., DR. O. N. TRIPATHI.
JUDGMENT
Per Dr. O.N. Tripathi, Accountant Member--These two appeals filed by the assessee against the order of the CIT (Appeals) for the assessment years 1979-80 and 1980-81 respectively are taken together for the sake of convenience since they relate to the same assessee and common issues are involved.
2. In ITA No. 2117 (All.)/1990, the following grounds have been taken by the assessee :--
" 1. That the appellate order is contrary to law & facts.
2. That on the facts and circumstances of the case learned CIT (A) has erred in treating the subsidy received to the appellant from Government of India under a specific scheme Janta Cloth Scheme of the Government as revenue receipt.
3. That the learned CIT (A) has erred in rejecting the claim of exemption under section 10(17B) in respect of subsidy received to the appellant from Government.
4. That the learned CIT(A) has erred in rejecting the claim for exemption under section 10(2) and 10(23BB) of the Income-tax.
5. That the learned CIT(A) has erred in sustaining the disallowance of shortage of silk yam amounting to Rs. 67,934.
6. That the appellant craves leave to add, to amend, to alter or to withdraw any of the grounds of appeal before or at the time of hearing of the appeal. "
In ITA No. 2118(A)/1990 similar grounds have been taken except the ground No. 5.
3. The learned counsel for the assessee and the learned Departmental Representative were heard and the material placed before us was perused by us. In this connection, a Paper Book containing 33 pages was filed. On behalf of the appellant, references were made to various case laws in the course of submissions made before us. The learned counsel for the assessee referred to the Scheme of the Ministry of Textiles formulated in the letter dated 9th July, 1985 read out page 15 of the Paper Book, pages 24 and 25 of the Paper Book, especially paragraphs 2, 4 page 26 of the Paper Book, especially part IV which lays down the process for payment of subsidy, page 32 of the Paper Book, which is the letter dated 16-8-1989 written by Ministry of Textiles, office of the Development Commissioner of Handlooms, Udyog Bhavan, New Delhi, addressed to the Director of Handlooms and Textiles, Govt. of Uttar Pradesh, Kanpur, referred to Shri Ambica Mills Ltd. (No.1) v. Textile Labour Association AIR 1973 SC 1081, especially paragraphs 12 and 19 thereof, referred to Bengal Textiles Association v. CIT [1960] 39 ITR 723 (SC) and attempted to distinguish this case from the assessee's case, referred to Gadia Wires v. CIT [1989] 178 ITR 596 (MP), CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181 (Ker.) (FB), Handicrafts & Handloom Export Corpn. of India v. CIT [1983] 140 ITR 532 (Delhi), CIT v. Plastichem [1988] 174 ITR 546 (MP), CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 (Cal.), and a few other cases for his argument that subsidy received by the assessee, was not taxable. The learned counsel for the assessee argued that we have to decide whether it was a bounty and if the answer is in the affirmative then it was not taxable under the Income-tax Act--as was argued by the learned counsel for the assessee. He also referred to the dictionary meaning of the word "subsidy" for establishing the proposition that subsidy was nothing but a financial capital assistance to make good the erosion of capital. Secondly it was argued that it was benevolent and beneficial for public and, therefore, also it was not taxable. Board's circular was also referred to get the support for the argument that subsidy was not taxable. Lastly, and alternatively it was argued that to the extent of losses at least the subsidy could, at most be adjusted and the balance sheet should be allowed to be adjusted later on in subsequent years.
4. The learned Departmental Representative for the department referred to paper placed by the learned counsel for the assessee at page 32 of the Paper Book, which is dated 16th August, 1979 and on which the learned counsel placed reliance for his thesis. Further page 3 of the assessment order was read by the Ld. Departmental Representative and reliance was placed by him on the cases--CIT v. Indian Textile Engineers (P.) Ltd. [1983] 141 ITR 69 (Bom.), CIT v. Wheel & Rim Co. of India Ltd. [1977] 107 ITR 168 (Mad.), CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747 (All.). Agra Chain Mfg. Co. v. CIT [1978] 114 ITR 840 (All.) and Ratna Sugar Mills Co. Ltd. v. CIT [1958] 33 ITR 644 (All.) in favour of his argument that subsidy was taxable and that the orders of the departmental Authorities did not merit intervention from us.
5. We have heard the rival submissions and we have given our anxious consideration to the controversy raised before us, namely, whether the subsidy received by the appellant-company was taxable under the Income-tax Act or not. We would like to put it on record that in the entire plethora of case laws cited before us, there is no direct bearing of the decided cases on the issue before us. Our task would have been extremely easy had there been any direct case law on the subject. When we use the word "direct", we mean to say that there is no case law, which can be said to be on all fours with the facts of the assessee's case. If any assessee had received the assistance under the Scheme formulated by the Govt. of India, Ministry of Textiles under their letter dated 9th July, 1985 and if such assistance had been adjudicated upon by either a High Court or Supreme Court we would not have had to delve deeper in the matter and we would have followed the ratio of the Hon'ble Supreme Court or even a High Court. In the Board's circular No. 142 dated August 1, 1974, the only clarification is that the amount of subsidy received under "10% Central outright grant of Subsidy Scheme, 1971 " for Industrial Units to be set up in certain selected backward districts has to be treated as capital receipt in the hands of the recipient. We cannot take the help of the clarification of this circular for the obvious reason, because in that case of 10% Central Outright grant, the payment was primarily given for the growth of industries and not for supplementing their profits. The English Case law relied upon by the learned counsel for the assessee in Seaham Harbour Dock Co. v. Crook (H.M. Inspector of Taxes) [1931] 16 TC 333 (HL) a copy of which has been placed on record and appears at pages 1 to 22 of the Paper Book, the judicial pronouncement was against the Crown because the sums there were not received in respect of trade and it had been found factually that the assistance was for contributing to the cost of construction of new docks. Therefore, the amount was held as capital receipt. Similarly, in the case of Shiv Ambika Mills Ltd. (No. 1) the point at issue was the interpretation of the subsidy found in item 6(g) of the Second Schedule to the Payment of Bonus Act. The question of taxability of the subsidy under the Income-tax Act was not considered. The learned counsel drew our pointed attention to the discussion of the words "subsidy" at page 1084 of the order of the Supreme Court in Shiv Ambica Mills Ltd. (No. 1)'s case where subsidy has been held to be a grant of funds to assist the establishment or support of an enterprise deemed advantageous to the public etc. Then, the learned counsel for the assessee referred to the dictionary meaning of the word "subsidy" as given in Webster's Dictionary, Shorter Oxford English Dictionary, and specifically in Chambers Twentieth Century Dictionary, where "subsidy" has been defined to be "assistance, aid in money ..... a grant of public money in aid of some enterprise etc., or to keep down the price of a commodity." There is no difficulty in understanding the meaning of the word "subsidy". The real difficulty starts after the dictionary meaning of the word "subsidy" has been properly understood. To resolve this difficulty, we have to address ourselves to the following two questions :-----
(i) Whether the subsidy has been received by the assessee in the capacity of a trader or not;
(ii) Whether the subsidy has been received on capital account or on revenue account.
The reply to these two queries can be seen in the paper filed by the learned counsel for the assessee at page 32 (DO No. FVH/1(22)/89-P & S/Misc. dated 16th August, 1989). This letter explicitly states that "the subsidy is paid to compensate for the difference between the cost price and the consumer price fixed by this office on the actual quantum of deliveries of janta cloth produced by the implementing agencies. The scheme under which the subsidy was received, which appears at page 22 and which has been incorporated particularly in the orders of the Departmental authorities is that the Janta Cloth Scheme was introduced with the twin objectives of providing sustained employment to the unemployed and underemployed handloom weavers and at the same time providing cheaper cloth to the weaker sections of the population. The sum and substance of this scheme is that the Janta cloth has to be sold at a particular rate to be fixed and for loss of profits on account of such fixed rate of sale, subsidy, will be available to the assessee. It has been held by Judicial Courts that if subsidy is given to recoup expenditure, it will take the same colour and will be deemed to be revenue receipt in the hands of the assessee. It is the purpose for which it is given which is material and that is the determining factor. Thus, subsidy given to meet managerial and rental expenses is of revenue nature as has been held in the case of Ludhiana Central Co-operative Consumers' Stores Ltd. v. CIT [1980] 122 ITR 942 (Punj. & Har.). Conversely, if the subsidy is given for the purpose of acquiring capital assets, it will fall beyond the purview of the tax net, because then it will be capital receipt. In the case of the assessee, it cannot be said that the subsidy was received before the conmencement of business. In the case of Ratna Sugar Mills Co. Ltd. an amount was paid in the form of subsidy, specifically with the object of compensation the assessee for the loss of certain profits which were caused by new Legislation to pay additional wages to the workmen. Similiar is the situation here that for compensating the appellant for selling the goods at a particular rate, subsidy is being received. Therefore, the reply to the two queries raised above is in favour of the department and against the assessee. The assessee has received the amount in the capacity as a trader and secondly the subsidy has been received as a compensation for loss of profit or for loss on the cost of production, because the Janta cloth has to be sold at a particular price fixed by the Govt. In the case of V.S.S.V. Meenakshi Achi v. CIT [1966] 60 ITR 253, the Hon'ble Supreme Court held that the assessee-owner of a rubber estate in Malaya received certain amount in order to encourage planting or replanting of rubber trees and it was held that the receipt was of revenue nature. In view of this discussion, we find that on a proper appraisal of the scheme of the orders of Departmental authorities about taxability of the subsidy as a revenue receipt calls for no interference from us and contentions to the contrary are rejected. "
6. The alternative plea taken by the learned counsel namely, that to the extent of losses only, the subsidy should be taxed and the balance should be allowed to be carried forward to be adjusted later on in subsequent years has to be summarily rejected, because it is a trite law that an amount like this cannot be partly treated as on revenue account and partly on capital account. The amount has to be given one treatment either it is on capital account or on revenue account. There is no doubt about this as can be seen from the guidelines of the Scheme. We have held above that the entire amount is on revenue account. Therefore, this alternative plea has no legs to stand and the same is not accepted by us.
7. and 8. [These paras are not reproduced here as they involve minor issues.
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