1976 (7) TMI 53 - HC - Income Tax

Court ruling: Deductibility of Rs. 12,790.30 allowed, exemption denied, costs to be borne

The court ruled in favor of the assessee regarding the deductibility of Rs. 12,790.30 under section 10(2)(xv) of the Indian Income-tax Act, 1922. However, ... Assessment Year, Business Income, Capital Receipt Issues Involved:1. Deductibility of Rs. 12,790.30 under section 10(2)(xv) of the Indian Income-tax Act, 1922.2. Exemption of Rs. 2,03,903 under section 4(3)(vii) of the Indian Income-tax Act, 1922.3. Taxability of Rs. 2,03,903 in the assessment year 1955-56.Issue-wise Detailed Analysis:1. Deductibility of Rs. 12,790.30 under section 10(2)(xv):The court addressed whether the sum of Rs. 12,790.30 incurred by the assessee for securing loans from the Industrial Finance Corporation was allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. Both counsel for the assessee and the revenue agreed that, in light of the Supreme Court decision in India Cements Ltd. v. Commissioner of Income-tax [1966] 60 ITR 52 (SC), this question should be answered in the negative and in favor of the assessee. Consequently, the court answered question No. 1 in the negative and in favor of the assessee.2. Exemption of Rs. 2,03,903 under section 4(3)(vii):The court examined whether Rs. 2,03,903 received by the assessee as a subsidy was exempt under section 4(3)(vii) of the Indian Income-tax Act, 1922. The assessee argued that the subsidy was a capital receipt intended to relieve unemployment due to the closure of their business and was thus not a trade receipt. The revenue countered that the subsidy was a revenue receipt intended to enable the assessee to carry on its business profitably.The court noted that the subsidy was granted to compensate for the loss of profits due to the inability to compete with imported soda ash prices. The court referred to the House of Lords decision in Ostime (H. M. Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261, which established that subsidies from public funds to assist in carrying on a business are trading receipts. The court concluded that the subsidy was a revenue receipt and not of a casual and non-recurring nature. Therefore, question No. 2 was answered in the negative and in favor of the revenue.3. Taxability of Rs. 2,03,903 in the assessment year 1955-56:The court considered whether the sum of Rs. 2,03,903 should be taxed in the assessment year 1955-56. The assessee argued that the sum related to sales in earlier years and should be assessed in those respective years. The revenue contended that the right to the subsidy accrued only when the government was satisfied with the selling prices and agreed to pay the subsidy.The court found that the right to receive the subsidy accrued not merely upon the sale of soda ash but when the government was satisfied with the selling prices. The court noted that the amount was paid after an amicable agreement between the government and the assessee in August 1954. Consequently, the right to receive the subsidy accrued in the financial year 1954-55, making it taxable in the assessment year 1955-56. Thus, question No. 3 was answered in the affirmative, and the assessee was liable for the tax in the assessment year 1955-56.Conclusion:The court ruled in favor of the assessee for the first issue, while the second and third issues were decided in favor of the revenue. The assessee was ordered to pay the costs of the reference.