1989 (4) TMI 73 - HC - Income Tax

Replanting subsidy from Rubber Board held capital receipt, not taxable revenue under Income-tax Act, 1961

HC held that the replanting subsidy received by assessees from the Rubber Board under the 1967 Replanting Subsidy Scheme constitutes a capital receipt, ... Replanting Subsidy - Nature of payment of subsidy - capital receipt or a revenue receipt - Whether replanting subsidy received from the Rubber Board under the Replanting Subsidy Scheme of 1967 by the assessees during the relevant periods of assessment is a revenue receipt taxable under the Income-tax Act, 1961 - HELD THAT:- It can be fairly concluded that the object of the scheme is 'replanting' and the subsidy is being paid for replanting high-yielding variety of rubber plants which the Rubber Board and the Government thought necessary for the development of the rubber industry, public purpose of vital public interest. The payment of subsidy can be justified only if it promotes a public interest. From the statutory provisions referred to by us and the provisions of the scheme, we feel that the confessed object and purpose of the whole scheme is a public purpose intended and geared to have a more high-yielding variety of rubber plants. It is to encourage the growers to plant good varieties of, rubber plants which would ultimately result in the augmentation of a national asset of the country. The line of demarcation between capital expenditure and revenue expenditure is very thin. The problem finally turns on the question of distinction between capital expenditure and revenue expenditure or, in other words, whether the amount of subsidy received is a capital receipt or revenue receipt. The importance of the distinction is obvious. For the present purpose, it lies in the fact that the taxpayer can exclude it if the amount received as subsidy is a capital receipt from his total taxable income. In this case, the facts relevant for investigation are the provisions under which the subsidy is granted. These provisions have to be discerned from the provisions of the Rubber Act and the Rubber Board Replanting Subsidy Scheme framed by the Rubber Board. The scheme provided for the grant of subsidy for replanting an area of 10,000 acres in 1967. The scheme is definitely only for one purpose, viz., replanting. It is not for the purpose of upkeeping or maintaining mature or immature plants. The chief purpose is replanting rubber trees. This fact is made clear by saying that the subsidy will be granted for replanting low-yielding unselected rubber planted in or prior to 1956. Further, it is made clear that subsidy will not be given for budding immature unselected plants but will be restricted to replanting. Really, the question referred for a decision by the Income-tax Appellate Tribunal is a mixed question of law and fact because the question of law can be decided only on the basis of the particular nature and character of the subsidy. We feel that this is not a very good reason to hold that the subsidy granted for 'replanting rubber' is an includible income since it has not been excluded under section 10 of the Act. It has to be noted that a percentage of income from the profits earned from the business of growing and manufacturing tea in India, is an income under the Income-tax Act. But the profits earned by the business of growing rubber is not an income under the Income-tax Act. Now, it has to be noted that section 10(31) has been inserted by the Finance Act, 1988, with effect from April 1, 1989, to exclude the amount of subsidy received from the Rubber Board from the computation of the total income of the assessee. It is difficult for us to say that the subsidy given to the rubber growers for replanting is not for a beneficial purpose. We feel certain that it is for the definite purpose to encourage rubber growers to undertake replanting of old and uneconomic plantations and for that the Board is offering them assistance under its replanting subsidy scheme. This economic assistance is offered by the Board under stringent conditions for implementing scheme designed to achieve development of the rubber plantation industry on efficient and economic lines. It is done to promote public interest. We find it difficult to hold that the replantation subsidy given to the rubber growers is to 'swell' the profits of the assessees. In this view, with great respect, we are unable to concur with the Division Bench decision reported in CIT v. Malayalam Plantations Ltd. [1987 (3) TMI 52 - KERALA HIGH COURT]. In the result, we hold that the replantation subsidy paid to the assessee is not a revenue receipt and cannot be included in the computation of the profits or income of the assessee. Accordingly, we answer the question in the negative and against the Revenue. Issues Involved:1. Whether the replanting subsidy received from the Rubber Board is a revenue receipt taxable under the Income-tax Act, 1961.2. Whether income-tax on capital gains is exigible on the trees comprised in the rubber estate sold.Summary:Issue 1: Taxability of Replanting SubsidyThe primary issue is whether the replanting subsidy received from the Rubber Board under the Replanting Subsidy Scheme of 1967 is a revenue receipt taxable under the Income-tax Act, 1961. The Income-tax Officer initially held that the subsidy was not agricultural income but taxable as it recouped business expenditure. The Appellate Assistant Commissioner disagreed, viewing it as a capital receipt not taxable. The Income-tax Appellate Tribunal supported this view, stating the subsidy was reimbursement for replanting expenses, thus not taxable.The court examined the subsidy scheme and relevant sections of the Rubber Act, 1947, particularly sections 8 and 9A, which outline the duties and funds of the Rubber Board. The subsidy aimed to promote public interest by encouraging the replanting of high-yielding rubber varieties, thereby enhancing the national asset. The court distinguished this case from the precedent set in V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC), noting that the subsidy in question was for replanting, not for maintaining plantations or producing rubber.The court referenced several cases to determine the nature of the subsidy, including Seaham Harbour Dock Co. v. Crook [1931] 16 TC 333 and Bengal Textiles Association v. CIT [1960] 39 ITR 723, concluding that subsidies for public purposes, like replanting, are not taxable income. The court emphasized that the subsidy was intended to create a new asset (high-yield rubber trees) and not to swell the profits of the assessees.Ultimately, the court held that the replanting subsidy is not a revenue receipt and cannot be included in the computation of the assessee's taxable income, answering the question in the negative and against the Revenue.Issue 2: Capital Gains on Rubber TreesThe court addressed whether income-tax on capital gains is exigible on the trees comprised in the rubber estate sold. Referring to the precedent set in CIT v. Alanickal Co. Ltd. [1986] 158 ITR 630 (Ker), the court answered this question in the negative and against the Revenue.Additional References:In Income-tax Reference No. 328 of 1982, the court answered both questions (regarding capital gains and subsidy) in the negative and against the Revenue, consistent with the decisions in ITRs Nos. 217 and 218 of 1980.In Income-tax Reference No. 8 of 1984, the question referred was also answered in the negative and against the Revenue, following the same rationale.Conclusion:The court directed the parties to bear their respective costs and forwarded a copy of the judgment to the Income-tax Appellate Tribunal, Cochin Bench.