The main legal point established in the judgment is that the replantation subsidy received from the Rubber Board is not a revenue receipt and cannot be included in the computation of the profits or income of the assessee.

1. A Division Bench of this Court referred these cases for the consideration of the Full Bench. Thus these cases come up before us for decision.

I.T.R. Nos.217 & 218/1980.

2. The chief question that arises for consideration in these Income Tax References is as to whether replanting subsidy received from the Rubber Board under the replanting subsidy scheme of 1967 by the assessees during the relevant periods of assessment is revenue receipt, taxable under the Income Tax Act, 1961, hereinafter referred to as the 'Act'.

3. A Division Bench of this Court in Commissioner of Income Tax v. Malayalam Plantations (1987 (2) K.L.T. 169) found that the subsidy "was paid to swell the profits of the assessee". The question referred as to whether the subsidy received from the Rubber Board is income of the assessee, was thus answered in favour of the Revenue.

4. Learned counsel appearing for the assessees submitted before the Division Bench that the decision (1987 (2) KLT.169) required reconsideration and so, the Division Bench referred the matter for a decision by the Full Bench. We propose to decide first I.T.R. Nos. 217 and 218 of 1980, since we heard detailed arguments in these two cases.

5. The only question that has to be considered is whether the subsidy received from the Rubber Board by the assessee is income of the assessee liable to be taxed under the Act. The assessee filed an appeal against the order of the Income Tax Officer before the Appellate Assistant Commissioner of Income Tax, Trivandrum only against the assessment of subsidy amounts received from the Rubber Board as taxable income. The Income Tax Officer held that the amount received by the assessee is not agricultural income. He also found that as the business carried on by the assessee is rubber manufacture and any expenditure incurred for the rubber plantation is also a business expenditure, the subsidy received thus for recouping some of the expenditure is taxable income.

6. The Appellate Assistant Commissioner disagreed with the Income Tax Officer and held that the avowed object of recouping the cost of planting and replanting rubber trees does not take the character, of income and that it is only a capital receipt and so not a taxable receipt at all. The Revenue took up the matter before the Income Tax Appellate Tribunal, Cochin Bench.

7. After considering the provisions of the Rubber Act and the Subsidy Scheme framed by the Rubber Board, the Tribunal held that what was received by the assessee from the Rubber Board was only by way of reimbursement of expenditure incurred by it in replanting rubber trees. It also said that even assuming that the expenditure incurred by way of replanting rubber trees would not be capital expenditure; it cannot be said that the amounts received by the assessee from the Rubber Board are liable to be considered as income, taxable under the Act. The reason stated by the Tribunal is that it cannot be considered under any circumstance that the expenditure incurred by the assessee by way of replanting trees is not an item which can be considered in the computation of the income assessable under the Act. On the particular facts of the case, the Appellate Tribunal also held that merely because the assessee had utilised the rubber from its estates in the business carried on by it, viz., the manufacture and sale of rubber and rubber products, it cannot be said that such amounts received by the assessee from the Rubber Board would form part of its business receipts. The Appellate Tribunal held that the Appellate Assistant Commissioner was justified in deleting the additions of the amount of subsidy received for the assessment years from the computation of the taxable income of the assessee.

8. At the instance of the Revenue, the following question is referred for the decision of this Court, by the Income Tax Appellate Tribunal, Cochin Bench: 'Whether, on the facts and in the circumstances of the case, Rs. 16,740/- and Rs.17,105/- the subsidy