2000 (10) TMI 10 - HC - Income Tax

Purchase-tax subsidy for sugarcane purchases: whether capital or revenue receipt; held taxable business income, petitions dismissed

The dominant issue was whether a purchase-tax subsidy received from the State Government was a capital receipt excludable from total income or a taxable ... Income - Capital or Revenue Receipt - received purchase-tax subsidy from the State Government - Whether the purchase-tax subsidy received by the assessee, which was returned as part of total income had to be excluded treating it as a capital receipt and the CIT held that it was a revenue receipt - HELD THAT:- The fact that the payments made might have been utilised for the purchase of capital equipments is not relevant as there is no embargo imposed on the sugar factory not to utilise the subsidy received for business purposes. The subsidy, in other words, is granted to tide over the teething trouble that the sugar factory may face soon after the commencement of production and it is not for the setting up of the factory. The fact that the sugar factory is eligible to get the subsidy for a period of five years from the date of commencement of production clearly indicates that the payment of subsidy is linked to the production of sugar in the factory. It is further strengthened by the fact that the measure of payment of subsidy is also closely interlined with the purchase of sugarcane by the sugar factory which shows that the subsidy Was granted for the continuous running of its business and it is not granted for the setting up of the sugar factory. Hence, Not able to accept the submission of the learned counsel for the petitioner that the object of grant of subsidy was for setting up of sugar factory. Though the CIT may not be correct in his view that the subsidy granted is the reimbursement of the purchase-tax as he referred to s. 41(1) of the IT Act, yet, while considering the scheme under which the subsidy was granted, it is clear that it is a production-oriented subsidy and not for the establishment of the factory. Though, agree with, learned counsel that the reasonings given by the CIT may not be quite accurate, a fair reading of the scheme clearly shows that the ultimate conclusion arrived at by the CIT that the subsidy amount is a revenue receipt is sustainable in law and since his ultimate conclusion is correct, it is not necessary to remit the same to him to arrive at the same conclusion by a different process of reasonings. I, therefore, hold that the subsidy received by the petitioner was rightly held by the CIT as revenue receipt. Both the writ petitions fail and are dismissed. However, in the circumstances there will be no order as to costs. Issues involved: Challenge to order passed by CIT u/s 264 of the Income-tax Act for assessment of income for asst. yrs. 1986-87 and 1987-88 regarding treatment of purchase-tax subsidy as revenue or capital receipt.Summary:The petitioner challenged the CIT's order regarding the treatment of purchase-tax subsidy received as part of total income for asst. yrs. 1986-87 and 1987-88. The CIT considered the subsidy as a revenue receipt, leading to the petitioner filing writ petitions. The petitioner contended that the subsidy should be treated as a capital receipt, citing a Government Order recommending relief for new sugar factories. The CIT dismissed the revision, prompting the petitioner to file writ petitions.The petitioner argued that the subsidy was for setting up sugar factories and should not be considered a revenue receipt simply because it equaled the purchase-tax on cane. Reference was made to a Supreme Court decision supporting the view that such subsidies are not taxable as revenue. The respondents, however, claimed the subsidy was granted post-production and was not for establishing the industries, supporting the CIT's stance that it was a revenue receipt.Upon review, the Court found that the subsidy was provided to assist sugar factories post-production, not for their establishment, to help manage initial operational challenges. The Court agreed with the Supreme Court precedent that subsidies post-production are revenue receipts. It was noted that the subsidy was not tied to specific capital items or conditions, allowing its use for various purposes. The Court upheld the CIT's decision that the subsidy was a revenue receipt, dismissing the writ petitions.In conclusion, the Court upheld the CIT's decision that the subsidy received was rightly treated as a revenue receipt, based on the scheme's production-oriented nature. The writ petitions were dismissed, with no costs awarded.