Exemption cannot be extended by administrative letter, and business expense payments are not subsidy under tax law.

An administrative assurance confined to income-tax, super-tax and excess profits tax could not extend exemption to business profits tax, especially after the statutory exemption power had been curtailed; the exemption claim therefore failed. A payment made under a business arrangement to meet administrative expenses and secure services was not a subsidy, because a subsidy is a bounty or benevolent grant rather than consideration for services or reimbursement of business costs; the amount was accordingly taxable. The legal position stated is that exemption cannot be enlarged beyond its terms by administrative letter, and commercial payments for expenses or services do not fall within a subsidy exemption.

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Issues: (i) Whether the assessee was entitled to exemption from business profits tax on the strength of the Government letter and the statutory power of exemption under the Income-tax Act; (ii) Whether the sum of Rs. 6,00,000 paid by the Government was a subsidy within clause (c) of the proviso to section 4 of the Business Profits Tax Act.

Issue (i): Whether the assessee was entitled to exemption from business profits tax on the strength of the Government letter and the statutory power of exemption under the Income-tax Act.

Analysis: The exemption relied upon was confined by the letter to income-tax, super-tax and excess profits tax, and the statutory power of exemption under section 60(3) had become restricted after the commencement of the Indian Income-tax (Amendment) Act, 1939. As a result, neither the administrative letter nor the statutory provision could support the claim to exemption from business profits tax.

Conclusion: The claim to exemption failed and the answer was against the assessee.

Issue (ii): Whether the sum of Rs. 6,00,000 paid by the Government was a subsidy within clause (c) of the proviso to section 4 of the Business Profits Tax Act.

Analysis: The payment was made under the agreement to meet administrative expenses incurred in carrying on the business and to secure services rendered in the course of the trading arrangement. A subsidy connotes a gift or benevolent grant, not a payment made as consideration for services or to defray business expenses. On its true nature, the amount was not a bounty or subsidy.

Conclusion: The amount was not subsidy and was taxable under the Business Profits Tax Act; the answer was against the assessee.

Final Conclusion: The questions actually decided were answered adversely to the assessee, and the appeal was dismissed with costs.

Ratio Decidendi: A payment made under a commercial or statutory arrangement to meet business expenses or as consideration for services rendered is not a subsidy within the taxing statute; and an exemption confined by law to specified taxes cannot be extended to a different tax by administrative assurance alone.

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