Sales tax subsidy received after production cannot be treated as a capital receipt.

( 1 ) ON an application under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion along with the statement of case :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding the view that the sales tax subsidy of Rs. 2,06,400 received by the assessee was a capital receipt not liable to income-tax ?"

( 2 ) DURING the course of assessment, the Assessing Officer (North-East) wrote a letter to the assessee dated February 20, 1989 (sic ). In that letter, he claimed that the sales tax subsidy received by the firm amounting to Rs. 2,06,400 from the Directorate of Industries, Madhya Pradesh Government, is exempt from income-tax, as it is not a revenue receipt. The Assessing Officer negatived the claim of the assessee and treated it as a revenue receipt. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has followed the decisions of the Madhya Pradesh High Court in the case of CIT v. Dusad Industries [1986] 162 ITR 784 and CIT v. Plastichem [1988] 174 ITR 546 and held that subsidy is a capital receipt and not liable to tax. The Tribunal has also followed the same decision and upheld the view taken by the Commissioner of Income-tax (Appeals ).

( 3 ) NONE appears for the assessee, though the matter was listed 2/3 times. Heard learned counsel for the Revenue.

( 4 ) LEARNED counsel for the Revenue submits that now the issue is concluded by the apex court in the case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253. He submits that sales tax subsidy received after production cannot be treated as capital receipt.

( 5 ) THE facts are not in dispute that the subsidy, i. e. , in the form of refund of sales tax is received after production commenced in the industry of the assessee.

( 6 ) THEIR Lordships have observed at page 263 of 228 ITR as under :"but if monies are given to the assessee for assisting him in carrying out the business operation 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. "

( 7 ) THEIR Lordships have further observed that the decision of the Madhya Pradesh High Court in the case of CIT v. Dusad Industries is erroneous.

( 8 ) FOLLOWING the view taken by their Lordships in the case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 the sales tax subsidy received after production cannot be treated as capital receipt.

( 9 ) IN the result, we answer the question in the negative, i. e. , in favour of the Revenue and against the assessee.

( 10 ) THE reference application is thus disposed of.

Click Here to Read the rest of this document