TaxTMI 
TaxTMI 
2005 (4) TMI 30
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....s to the assessment year 1990-91. Briefly stated, the facts giving rise to the present reference are as follows: The assessee is a co-operative society engaged in the business of manufacture and sale of sugar. For the year ending March 31, 1990, relevant to the assessment year 1990-91 it filed its return on October 16, 1990, declaring a loss of Rs. 4,00,64,360. In the profit and loss account total sales were shown at Rs. 15,20,83,667 which included an amount of Rs. 2,10,67,677 received as incentive earned from sale of sugar. The assessee gets this incentive by way of additional free sugar quota wherein excise duty is leviable at a reduced rate but the sugar is available for being sold at the market price. The resultant benefit is required to be used for repayment of term loans obtained from financial institutions for setting up the plant and other capital expenses in due time. This incentive scheme is based on the recommendation of the Sampat Committee report. While in the accounts the above receipt on account of incentive was treated as revenue receipt and formed part of the sales, in appeal, filed before the Commissioner of Income-tax (Appeals) on other grounds, an additional ....
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....tive bonus was to be paid in the case only after the verification and approval from the U.P. Co-operative Sugar Factories Federation which had not been obtained and, therefore, the liability for payment of bonus had not crystallized during the relevant previous year. The Commissioner of Income-tax (Appeals) held that the deduction could not be allowed to the assessee to the extent of unpaid incentive bonus and accordingly, confirmed the said disallowance. Feeling aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee preferred appeal before the Tribunal. The Tribunal held that the amount in question was productivity linked bonus relating to the business and has been allowed earlier in the case of the assessee itself. The issue was, therefore, decided in favour of the assessee. On the question of bonus, the Department's view is that the payment being specifically covered under section 36(1)(ii), the provisions of section 37 were not applicable and the unpaid bonus was obviously disallowed in view of clause (c) of section 43B read with section 36(1)(ii) of the Income-tax Act, which permits deduction of bonus only on actual payment basis. We have heard Sri ....
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....ey are trade receipts. The character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade ... that under the notification in question the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It was true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or bringing into ....
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....ntives in the sense that the company will be entitled to these incentives only after it goes into production. The scheme was not to make any payment directly or indirectly for the setting up of the industries. It is only after the industries had been set up and production had been commenced that the incentives were to be given. The second important thing to note is that the manner in which the incentives were given is of no consequence for determination of the question raised in this case. Incentives were given by way of refund of sales tax on raw material, machinery and finished goods. Similarly, subsidy on power was confined to 'power consumed for production'. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operational subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of....