Government subsidy as revenue receipt accrues only when the right to receive it is finally crystallised.

Borrowing costs incurred to obtain and secure loans for business purposes were treated as revenue expenditure and allowed as business expenditure. A Government subsidy given to support profitable trading operations in competition with imported goods was characterised as a revenue receipt, not a capital receipt or a casual and non-recurring receipt exempt from tax. The right to receive the subsidy accrued only when Government satisfaction was reached and the amount was finally settled by mutual agreement, so the income was assessable in the accounting year in which that settlement was crystallised. The subsidy was therefore taxable in the relevant assessment year.

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Issues: (i) whether expenditure incurred in obtaining and securing loans was allowable as business expenditure; (ii) whether subsidy received from the Government was a capital receipt or a casual and non-recurring receipt exempt from tax; (iii) when the right to receive the subsidy accrued for purposes of assessment.

Issue (i): whether expenditure incurred in obtaining and securing loans was allowable as business expenditure

Analysis: The expenditure was considered in the light of the governing principle that borrowing for business purposes is connected with the carrying on of the business and not with the acquisition of a capital asset. The parties accepted that the matter stood covered by binding authority.

Conclusion: The expenditure was allowable and the issue was answered in favour of the assessee.

Issue (ii): whether subsidy received from the Government was a capital receipt or a casual and non-recurring receipt exempt from tax

Analysis: The subsidy was granted to enable the assessee to carry on the soda ash business profitably in competition with imported goods and to make good the difference between the fair selling price and the landed cost of imports. A payment of this character, made from public funds to assist trading operations, is a revenue receipt. Its limited duration did not make it casual or non-recurring in nature, because the payment was linked to production and sale under the Government resolution and operated as a supplementary trade receipt.

Conclusion: The subsidy was neither a capital receipt nor a casual and non-recurring receipt, and the issue was answered in favour of the revenue.

Issue (iii): when the right to receive the subsidy accrued for purposes of assessment

Analysis: Under the Government resolution, the right to subsidy arose only when the Government was satisfied that soda ash had been sold at the fair selling price and the amount was fixed by mutual settlement. The amount claimed earlier was not accepted in full, and the operative right to receive the finally settled sum arose only when the amicable settlement was reached in the relevant accounting year. Actual receipt in that year confirmed the accrual in that year.

Conclusion: The subsidy accrued in the accounting year relevant to the assessment year 1955-56, and the issue was answered in favour of the revenue.

Final Conclusion: The reference was answered partly for the assessee and partly for the revenue, with the subsidy held taxable in the assessment year 1955-56.

Ratio Decidendi: A Government subsidy granted to support profitable trading operations is a revenue receipt, and where the right to receive a subsidy depends on Government satisfaction and subsequent settlement, the income accrues only when that enforceable right is finally crystallised.

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