Court treats SIPCOT subsidy as revenue, not capital, for assessment years 1979-80 and 1980-81.

The court determined that the subsidy received from SIPCOT should be treated as a revenue receipt, not a capital receipt, for the assessment years 1979-80 and 1980-81. The subsidy was given in instalments to recoup revenue expenditure, aligning with precedents like V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC). The court distinguished the case from precedents holding subsidies as capital receipts and emphasized that the subsidy directly related to revenue expenditure. No costs were awarded in this decision.

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Issues:
The judgment involves tax case references u/s 256 of the Income-tax Act, 1961, regarding the treatment of amounts received from SIPCOT as revenue or capital receipts for the assessment years 1979-80 and 1980-81.

Treatment of Subsidy as Revenue or Capital Receipt:
The court considered whether the subsidy received from SIPCOT should be treated as revenue or capital receipts. The subsidy was in relation to a revenue expenditure incurred by the assessee in modernizing its plant in a backward area. The assessee argued that since a previous subsidy for fixed capital investment was treated as a capital receipt, this subsidy should also be treated similarly. However, the court noted that the subsidy was given in instalments to recoup the revenue expenditure, making it a revenue receipt as per precedents like V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC).

Comparison with Precedents:
The court distinguished the present case from decisions like Velimalai Rubber Co. Ltd. v. Agrl. ITO [1991] 188 ITR 262 (Mad) and CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181 (Ker), which held subsidies as capital receipts. It also differentiated the case from CIT v. Dusad Industries [1986] 162 ITR 784 (MP), where subsidies were given for setting up industries in a backward area. The court emphasized that the subsidy in question directly related to revenue expenditure, following the rationale in Merinoply and Chemicals Ltd. v. CIT [1994] 209 ITR 508 (Cal).

Interpretation of Subsidy and Revenue Expenditure:
The court rejected the argument that the subsidy was a measure to quantify the revenue expenditure, emphasizing that the subsidy was specifically given to cover the entire corresponding revenue expenditure. It also highlighted that circulars from the Board cannot pre-empt judicial interpretation, as seen in CWT v. V. T. Ramalingam [1993] 201 ITR 839 (Mad).

Conclusion:
The court answered the question in the affirmative, stating that the subsidy received should be treated as a revenue receipt, not a capital receipt. No costs were awarded in this decision.

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