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Issues: Whether the grants received from the Central Government by Steel Authority of India Ltd., a 100 per cent government company, to enable the company to function, constituted capital receipts or revenue receipts for the purposes of income-tax.
Analysis: The court examined the nature and purpose of the grants paid to the assessee at incorporation and during its initial years and considered whether those payments augmented the assessee's profit and loss account or were made to enable the company to function as a 100 per cent government company. The court distinguished grants that facilitate acquisition of capital assets or are given for trading purposes (which may constitute taxable income as held in Sahney Steel and Press Works Ltd. v. CIT) from grants paid as assistance by the shareholder-state to enable a government company to commence and carry on its functions. The court rejected the contention that the doctrine of lifting the corporate veil should apply to treat such intra-governmental transfers as income, noting that if applied generally public sector undertakings would be exempt from tax. The court accepted the Tribunal's reasoning that where grants are effectively payments from the government-shareholder to its wholly owned company to enable functioning, they are to be treated as payments from self to self and not as trading or revenue receipts.
Conclusion: The grants received by the assessee in the relevant assessment years were not the assessee's taxable income and are to be treated as capital/non-revenue receipts; the review application seeking recall of the earlier order is dismissed (decision in favour of the assessee).
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