Back
High Court Of Delhi
COMMISSIONER OF INCOME TAX - Appellant
Versus
STATE TRADING CORPORATION OF INDIA LIMITED - Respondent
I.T.R. 35 of 1968
Decided On : 12/12/1972
INCOME TAX - Grant-in-aid received by assessee company before commencement of business - Whether taxable as business receipt - Held, no.
Fact of the Case:
The State Trading Corporation of India Ltd. received a grant-in-aid from the Government of India before it commenced its trading activities. The Income-tax Officer treated the grant as a revenue receipt, but the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that it was not taxable.
Finding of the Court:
The court held that the grant-in-aid was not taxable as a business receipt because it was received before the assessee company commenced its trading activities.
Issues: Whether the grant-in-aid received by the assessee company before commencement of business was taxable as a business receipt.
Ratio Decidendi: The court held that a business must be carried on before there can be any profit or gain, and if any receipt is received before the business is carried on, it is not a business receipt. The court also held that the grant-in-aid was of a non-recurring nature and was exempt from taxation under Section 4 (3) (vii) of the Indian Income-Tax Act, 1922.
Final Decision: The court answered the question referred to it in the negative, holding that the grant-in-aid was not taxable as a business receipt.
( 1 ) THE State Trading Corporation of India Ltd. was incorporated as a company on 18th May 1956 its entire share capital being subscribed by the Government of India. Its first accounts were closed on 30th June 1957. It started its trading activities to wards the beginning of July, 1956. By a letter dated 21st June 1956 the Government of India Ministry of Commerce and Industry conveyed to the company a sanction of Rs. 2 lacs "as grant-in-aid to the State Trading Corporation of India (Private) Ltd. to enable the corporation to meet the expenditure in connection with its administration. " This letter was caplioned as follow? :
"state Trading Corporation-Initial Establishment and Miscellaneous Expenditure-transfer of funds-sanclicned. "
( 2 ) THE amount in question was sanctioned before the company had commenced its trading activities. The amount was not spent at all and the company under intimation to the Government treated it as a capital reserve.
( 3 ) WHEN the company was assessed to income tax for the assessment year 1958-59 in respect of its first year of business for the accounting period ending on 30th June 1957 the Income-tax Officer treated the sum of Rs. 2 lacs as the assessee s income because according to him the grant-in-aid went toward reducing the revenue expenditure of the company thereby swerling its profit. The Income-tax Officer was of the view that the purpose for which the grant-in-aid was made determined its nature. If the grant was towards capital investment its nature was capital, if it was intended to reduce the assessee s burden of trading liabilities, it was revenue in character. The Income-tax Officer relied upon the decision in Higgs V. Wrightson. 26 Tax Cases 73 to hold that the receipt was a trading receipt.
( 4 ) ON appeal by the company to the Appellate Assistant Commissioner it was held that as the grant-in-aid had been sanctioned before the assessee started its trading activities, it was a non-returnable and a non-trading receipt from its only share-holder for a specific purpose. He thus held that the receipt was not taxable.
( 5 ) THE Department appealed to the Income-tax Appellate Tribunal, which affirmed the Appellate Assistant Commissioner s decision on two grounds : (i) the grant-in-aid having been received prior to the commencement of the business could have no bearing on the profit of the company and (ii) it was a receipt of casual and non-recurring nature of the type of windfall and was consequently exempt under Section 4 (3) (vii) of the Income Tax Act 1922.
( 6 ) THE Commissioner of Income-tax thereafter sought a reference under Section 66 (1) of the Income Tax Act, 1922, the Tribunal REFERRED TO the following question to this Court :
"whether on the facts and in the circumstances of the case, the grant-in-aid was chargeable to Income-tax The Tribunal drew up a statement of the case and annexed the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal to form a part of the case. The facts set out above are to be found in that statement and its annexed orders. "
( 7 ) MR. B. N. Kirpal, learned counsel for the Commissioner of Incometax submits that the nature of the receipt has to be determined from the purpose for which the amount was sanctioned by the Government and it is irrelevant as to when this amount was received or as to the purpose for which it was utilised by the assessee company. He lays emphasis on the fact that the amount was sanctioned by the President, as a grant-in-aid to enable the Corporation to meet its expenditure in connection with administration. This means that the amount would be in the nature of a revenue receipt. He has cited several cases in support of the proposition that the nature of a receipt like the present, whether it be in the form of a subsidy, compensation or grant, has to be determined by the purpose for which the same is intended to be utilised by the person giving the subsidy, grant etc. On th
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
