1981 (10) TMI 96 - AT - Income Tax

Tribunal rules grant to Tamil Nadu Tourism Dev Corp capital, not taxable as revenue income.

Tamil Nadu Tourism Development Corporation Ltd. Versus Income Tax Officer.

The Tribunal ruled in favor of the assessee, Tamil Nadu Tourism Development Corporation Ltd., determining that the Rs. 5 lakhs grant received was a ... Capital Or Revenue Receipt Issues Involved:1. Taxability of the Rs. 5 lakhs grant received by the assessee.2. Nature of the grant: whether it is a capital receipt or revenue receipt.Issue-Wise Detailed Analysis:1. Taxability of the Rs. 5 lakhs Grant Received by the Assessee:The core issue in this appeal is whether the Rs. 5 lakhs grant received by the Tamil Nadu Tourism Development Corporation Ltd. (assessee) should be treated as taxable income. The Income Tax Officer (ITO) added this amount to the assessee's income, considering it a revenue receipt. The Commissioner (Appeals) upheld this addition, leading to the present appeal.The ITO argued that the grant was initially intended to cover the assessee's business expenditure for organizing the Pongal Tourist Fair, 1974. The ITO noted that the grant was not utilized for acquiring any capital assets and was meant to meet the assessee's expenditure, thereby constituting a revenue receipt.2. Nature of the Grant: Capital Receipt or Revenue Receipt:The assessee contended that the Rs. 5 lakhs was a capital receipt, not a revenue receipt. The grant was initially a refundable advance, later converted into a non-refundable grant by the Government of Tamil Nadu. The assessee argued that this conversion indicated the grant's nature as a capital fund for setting up a permanent exhibition wing, as per G.O.Ms. No. 1070 dated 28-3-1974.The first Government Order (G.O.) dated 10-7-1973 sanctioned Rs. 10 lakhs for the Pongal Tourist Festival, with Rs. 5 lakhs as an advance. This amount was to be refunded after the fair, retaining any profits. The second G.O. dated 30-11-1973 reiterated this arrangement, while the final G.O. dated 28-3-1974 converted the refundable advance into a grant for setting up a permanent exhibition wing.The Commissioner (Appeals) held that the initial intention of the grant, as per the first G.O., was to cover business expenditure, making it a revenue receipt. However, the assessee argued that the subsequent G.O.s changed the nature of the grant to a capital receipt.Tribunal's Analysis and Decision:The Tribunal carefully reviewed the facts, G.O.s, balance sheet, and directors' report. It found that the initial grant was meant for the Pongal Festival celebration, not the assessee's business expenditure. The subsequent G.O. dated 30-11-1973 introduced the idea of a Tourist Trade Fair, and the grant was used as a refundable advance for this purpose. The final G.O. dated 28-3-1974 converted this advance into a capital fund for setting up a permanent exhibition wing.The Tribunal concluded that the Rs. 5 lakhs was a capital receipt, not a revenue receipt. It held that a loan or advance for meeting expenses does not become income, and the waiver of repayment by the Government did not convert the loan into a revenue receipt. The Tribunal also referred to relevant case law, including the Supreme Court's decision in CIT v. Groz-Beckert Saboo Ltd., which supported the assessee's position.Conclusion:The Tribunal allowed the appeal, deleting the addition of Rs. 5 lakhs from the assessee's income. It held that the amount was a capital fund and not taxable as revenue receipt.Relief Granted:The appeal was allowed, and Rs. 5 lakhs was reduced from the assessee's income.