1960 (3) TMI 8 - SC - Income Tax

Supreme Court affirms denial of tax exemption, clarifies payment as business expense, not subsidy.

The Supreme Court upheld the High Court's decision, denying the association's exemption from the Business Profits Tax Act and determining that the Rs. ... Whether on the above facts and circumstances of this case, the profits of the assessee were exempt from taxation under the Business Profits Tax Act of 1947 ? Whether the sum of ₹ 6,00,000 paid by the Government of Bengal during the chargeable accounting year ending on 31st December, 1946, is in the nature of subsidy and as such exempt from business profits tax under clause (c) of the proviso to section 4 of the Business Profits Tax Act ? Held that:- Neither the letter of the Central Board of Revenue nor the provisions of the Income-tax Act can operate in favour of the contention of the association raised before us and the first question was rightly answered in the negative. In the present case the payments were made for services rendered to Government and that would negative their being a subsidy. Appeal dismissed. Issues:1. Exemption from Business Profits Tax Act for the association.2. Nature of the payment of Rs. 6,00,000 by the Government of Bengal.Exemption from Business Profits Tax Act:The appeal before the Supreme Court concerned an income-tax reference related to the Bengal Textiles Association, a statutory corporation incorporated under Central Ordinance No. 32 of 1945. The association claimed exemption from business profits tax for three accounting periods. The High Court held that the association was not exempt from the Business Profits Tax Act, and the payment of Rs. 6,00,000 by the Government of Bengal was not a subsidy but for the expenses of the association. The High Court analyzed the agreement terms, functions, and business transactions of the association to conclude that the payment was for services rendered. The Supreme Court upheld the High Court's decision, stating that the exemption was inoperative under the Income-tax Act and that the payments were not of a benevolent nature but for business purposes.Nature of Payment by Government of Bengal:Regarding the nature of the Rs. 6,00,000 payment by the Government of Bengal, the association claimed it was a subsidy exempt under the Business Profits Tax Act. The agreement between the Government and the association outlined the obligations and payments, with the Government contributing towards administrative expenses. The High Court determined that the payment was not a subsidy but for services rendered by the association. The Supreme Court agreed with this assessment, emphasizing that the payments were made for the association's business activities and services to the Government, not as benevolent grants. The Court dismissed the appeal, affirming the High Court's decision on the nature of the payment and the association's exemption from the Business Profits Tax Act.In conclusion, the Supreme Court upheld the High Court's decision, ruling against the association's claim for exemption from the Business Profits Tax Act and confirming that the payment by the Government of Bengal was not a subsidy but for the association's business expenses and services rendered.