Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2008 Supreme(SC) 1384

2008(7) Supreme 59
SUPREME COURT OF INDIA
S.H. Kapadia and B. Sudershan Reddy, JJ.
Commissioner of Income Tax, Madras — Appellant(s)
versus
Ponni Sugars & Chemicals Ltd. — Respondent(s)
Civil Appeal No. 5694 of 2008
(arising out of S.L.P.(C) No. 7926/04)
with
Civil Appeal No. 5695-5715 of 2008
Decided on : 16-09-2008

Advocates appeared:
P.V. Shetty, Harish Chandra, S. Ganesh, R.F. Nariman, P.H. Parekh, S.K. Bagaria, Sr. Advs., Rahul Kaushik, Sanjeev Bhardwaj, K.B. Sandeep, B.V. Balaram Das, Ms. Radha Rangaswamy, Shashi M. Kapila, Kush Chaturbedi, Vikas Mehta, E.R. Kumar, Arjun Garg, Shakun Sharma, Ms. Rukmini Bobde (for Parekh & Co.), K.K. Mani, C.K.R. Lenin Sekar, R.K. pandey, C.N. Sree Kumar, Dushyant Parashar, P.R. Nayak, Pankaj Gupta, Aarohi Bhalla, Shekhar Raj Sharma, Ms. Sujata Kurdukar, S.U.K. Sagar, Ms. Bina Madhavam, Manish, Ms. Ashima Chalia (for M/s. Lawyers Knit & Co.) and Mrs. Manik Karanjawala, Advocates.

IMPORTANT POINT
The nature of the subsidy receipts depends upon the stipulations about its utilization.

Headnote:(a) Sugar Incentives – Based on Price and Duty differentials – If the subsidy was given by way of assistance in carrying on of trade or business, it was revenue receipt. (Para 14)
        (1997) 228 ITR 253 – Relied upon.
        (b) Sugar subsidy – Assessee being obliged to utilize the receipt only for repayment of term loans undertaken by it for setting up new units/expansion of existing business, the receipts are capital receipts. (Paras 16 and 17)
        (1931) 16 TC 333 – Relied upon.
        (c) Income Tax Act, 1961 – Section 80 P(2) – In order to earn exemption under Section 80 P(2) a co-operative society must prove that it had engaged itself in carrying on any of the several businesses referred to in sub-section (2), i.e., the business of banking or providing credit facilities to its members – Tribunal was required to examine the Memorandum of Association, the Articles of Association, the Return of Income filed with the Department, the status of business indicated in such Returns etc. – This exercise had not been undertaken at all – Matter remitted back to Tribunal for de novo consideration. (Paras 18 and 19)
        (d) Trading Receipt – Whether the area development funds collected by sugar mills would be trading receipts – Matter remitted back to Tribunal. (Para 21)
        (2000) 245 ITR 498 – Cited with approval.
       Facts of the case :
        1. These appeals raise the following two questions :
        (i) Whether the incentive subsidy received by the assessee is a capital receipt not includible in the total income?
        (ii) Whether the assessee was entitled to exemption under Section 80 P(2)(a)(i) of the Income Tax Act, 1961 in respect of interest received from the members of the society?
        2. Four incentive subsidy Schemes of 1980, 1987, 1988 and 1993 are covered in these appeals.
       Finding of the Court :
        The nature of the subsidy receipts depends upon the stipulations about its utilization.
       Result : Appeals partly allowed.

Judgment

S.H. Kapadia, J. —

1. Leave granted.

2. In the above batch of civil appeals, based on the arguments addressed before us, we are mainly concerned with the following two questions, namely :

(i) Whether the incentive subsidy received by the assessee is a capital receipt not includible in the total income?

(ii) Whether the assessee was entitled to exemption under Section 80 P(2)(a)(i) of the Income Tax Act, 1961 in respect of interest received from the members of the society?

3. At the outset, it may be noted that this batch of civil appeals covers four incentive subsidy Schemes of 1980, 1987, 1988 and 1993. All the four schemes are almost identical. They are different in matter of details.

However, in 1980 and 1987 Schemes there is an additional benefit by way of rebate in respect of payment of excise duty which is not there in the remaining two Schemes of 1988 and 1993.

4. With the above preface, we refer to the facts in the case of Salem Cooperative Sugar Mills Ltd (civil appeal arising out of SLP (C) No. 12355/06).

5. That matter concerns the 1980 Scheme. The dispute pertains to Assessment Year 1986-87. In this matter both the above questions arises for determination. The incentives conferred under that Scheme were twofold. First, in the nature of a higher free sale sugar quota and second, in allowing the manufacturer to collect excise duty on the sale price of the free sale sugar in excess of the normal quota, but pay to the Government only the excise duty payable on the price of levy sugar. In that connection, we quote clause 7 of the Scheme, which reads as under:

“The beneficiaries of the incentive scheme shall ensure that the surplus funds generated through sale of the incentive sugar are utilized for the repayment of term loans, if any, outstanding from the Central Financial institutions. The sugar factories should submit utilization certificates annually from Chartered/Cost Accountant, holding certificate of practice. Utilisation certificate in respect of each sugar season during the incentive period should be furnished on or before the 31st December of the succeeding year. Failure to submit utilization certificate within the stipulated time may result not only in the termination of release of incentive free sale quota, but also in the recovery of the incentive free sale releases already made, by resorting to adjustment from the free sale releases of future years.”

6. At this stage, we may again note that the 1980 and 1987 Schemes are similar to each other. In the case of Salem Cooperative Sugar Mills Ltd. we are concerned with the Scheme of 1980.

7. On the first question, namely, whether the incentive subsidy received by the assessee is a capital receipt, Shri P.V. Shetty, learned senior counsel appearing on behalf of the Department (appellant) submitted that the additional revenue generated by higher free sale sugar quota cannot be considered to be a capital receipt in the hands of the assessee (respondent herein) as held by the High Court. He further contended that similarly retention of the collective excise duty on the sale price of free sale sugar in excess of the normal quota and paying to the Government only the excise duty payable on the price of levy sugar resulted in revenue generation in the hands of the assessee which contention of the Department has been erroneously rejected by the High Court. According to the learned counsel, under the Scheme, there were two distinct concepts, namely, the concept of accrual of income in the hands of the assessee and the concept of application of additional funds generated thereunder. According to the learned counsel, application of additional funds is neither material nor relevant for deciding the character of the incentive subsidy. In this connection, learned counsel placed reliance on the Judgment of this Court in the case of Sahney Steel and Press Works Ltd. and Ors. v. CIT,1 reported in (1997) 228 ITR 253.

8. Shri Ganesh, learned senior counsel appearing on behalf of the a

Click Here to Read the rest of this document

2008 Supreme(SC) 1384

IMPORTANT POINT The nature of the subsidy receipts depends upon the stipulations about its utilization.

Cases Referred (1)

IMPORTANT POINT
The nature of the subsidy receipts depends upon the stipulations about its utilization.