Back
1993 Supreme(Cal) 393
High Court Of Calcutta
Ajit Kumar Sengupta, Shyamal Kumar Sen
MERINOPLY AND CHEMICALS LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 106 Of 1991
Decided On : 08/20/1993
Transport subsidies granted to a business to recoup possible profit deficit for operating in a backward area are a receipt of revenue nature and are taxable.
Headnote:
TRANSPORT SUBSIDY - INCOME TAX - SCHEME - REVENUE OR CAPITAL RECEIPT - WHETHER TRANSPORT SUBSIDY GRANTED BY THE DIRECTOR OF INDUSTRY, ASSAM, IN TERMS OF NOTIFICATION OF THE GOVERNMENT OF INDIA, MINISTRY OF INDUSTRIAL DEVELOPMENT DATED JULY 23, 1971, WERE A RECEIPT OF REVENUE NATURE AND WERE RIGHTLY ADDED TO THE INCOME OF THE ASSESSEE - WHETHER THE FINDING OF THE TRIBUNAL THAT THE TRANSPORT SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE WAS UNJUST, UNREASONABLE AND PERVESE?
Fact of the Case:
The assessee, a manufacturer of plywood and blockboards, received transport subsidies from the Central Government under the Transport Subsidy Scheme, 1971, for the assessment years 1980-81 to 1982-83. The Income-tax Officer added the subsidies to the assessee's income, holding that they were of revenue nature. The Commissioner of Income-tax (Appeals) confirmed the order. The Tribunal held that the subsidies were taxable as they were inseparably connected with the assessee's business.
Finding of the Court:
The court held that the transport subsidies were a receipt of revenue nature and were rightly added to the income of the assessee. The court also held that the finding of the Tribunal that the transport subsidies were inseparably connected with the business carried on by the assessee was not unjust, unreasonable, or perverse.
Issues: 1. Whether the transport subsidy granted by the Director of Industry, Assam, in terms of Notification of the Government of India, Ministry of Industrial Development dated July 23, 1971, were a receipt of revenue nature and were rightly added to the income of the assessee? 2. Whether the finding of the Tribunal that the transport subsidies were inseparably connected with the business carried on by the assessee was unjust, unreasonable and perverse?
Ratio Decidendi: The court held that the transport subsidies were a receipt of revenue nature and were rightly added to the income of the assessee because: * The subsidies were meant to augment the profit and make the industry viable economically. * The subsidies were inseparably connected with the profitable conduct of the business. * The purpose of the subsidies was to recoup possible profit deficit for operating in a backward area. The court also held that the finding of the Tribunal that the transport subsidies were inseparably connected with the business carried on by the assessee was not unjust, unreasonable, or perverse because: * The assessee was a manufacturer of plywood. * The assessee had its unit in a backward area and was entitled to the benefit of the scheme. * Transport expenditure was an incidental expenditure of the assessee's business. * The subsidies recouped the transport expenditure.
Final Decision: The court answered the first question in the affirmative and against the assessee and the second question in the negative and also against the assessee.
( 1 ) THE two references--one under Section 256 (2) of the Income-tax Act, 1961, both at the instance of the assessee were heard together as both involve one issue relating to the assessability of transport subsidy received by the assessee from the State Government of Assam during the previous years relevant to the three assessment years 1980-81 to 1982-83.
( 2 ) IN this reference petition filed before the Tribunal on the same issue the assessee sought for reference on five questions, all touching the basic issue as aforesaid. The Tribunal, however, thought fit to refer only the first question presumably considering the other questions subsidiary and mere ramifications of the first question. The assessee, however, obtained a rule from this court directing the Tribunal to prepare a statement of case on one more question correlated with the question granted by the Tribunal in its reference under Section 256 (1) of the said Act. In fine, this court is required to answer two questions as follows :"question under Section 256 (1) : whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Transport Subsidy granted by the Director of Industry, Assam, in terms of Notification of the Government of India, Ministry of Industrial Development dated July 23, 1971, were a receipt of revenue nature and were rightly added to the income of the assessee ? question under Section 256 (2) : whether the finding of the Tribunal that the transport subsidies were inseparably connected with the business carried on by the assessee was unjust, unreasonable and perverse ?"
( 3 ) BRIEFLY stated the facts are that the assessee during the previous years relevant to the assessment years 1980-81 to 1982-83 carried on the business of manufacture and sale of plywood and blockboards at Makum, Assam. It received Rs. 3,04,392, Rs. 1,27,569 and Rs. 2,00,982, respectively, as transport subsidy from the Central Government, in terms of Notification of the Government of India, Ministry of Industry, Department of Industrial Development, dated July 23, 1971, known as Transport Subsidy Scheme, 1971. The assessee's contention before the Income-tax Officer was that the subsidy in question was granted for the specific purpose of encouraging the setting up and development of industries in backward regions and, therefore, these grants were of capital nature not liable to tax under the Income-tax Act. The plea did not find favour with the Income-tax Officer who held that the amounts granted represented reimbursement of a certain portion of the transport expenditure actually incurred by the assessee and cannot be treated as capital receipt. The transport subsidy was added to the income of the assessee for each of the three assessment years under consideration. The Commissioner of Income-tax (Appeals) held that the subsidy being of revenue account were taxable. According to him, the subsidy was compensation paid at the rate of 50 per cent. of the transportation cost actually incurred and had a direct relationship with the expenses incurred. The subsidy supplemented the trading receipt and was given to recoup the revenue expenses. The Commissioner of Income-tax (Appeals) held that the subsidy was a revenue receipt in the hands of the assessee. He, accordingly, confirmed the orders of the Income-tax Officer.
( 4 ) AGGRIEVED the assessee preferred a second appeal and pleaded before the Tribunal that the transport subsidy scheme as published in the Official Gazette dated July 23, 1971, with the subsequent amendments was formulated with a view to promoting growth of industries in selected backward areas. Subsidies were granted as recompense for the hardships and inconveniences the entrepreneurs encountered while setting up industries in backward areas. It was only as a measure of determining the cash subsidy, that 50 per cent. of the transport cost of raw materials and finished goods was adopted under the scheme
