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PUNJAB & HARYANA HIGH COURT
Rajendra Nath Mittal and J.V.Gupta JJ.
Ludhiana Central Co-operative Consumers Stores Ltd.
Versus
Commissioner Of Income-tax
Income tax Reference No. 12 of 1974,
Decided On : AUGUST 20, 1979
INCOME TAX - Subsidy received by co-operative society from Government - Whether revenue receipt - Admission fee charged by co-operative society from its members - Whether taxable receipt - Sections 10(3), 28 - Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC) - CIT v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 (SC) - CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 - Panyam Cements and Mineral Industries Ltd. v. Addl. CIT [1979] 117 ITR 770 (AP) - H. R. Sugar Factory (P.) Ltd. v. CIT [1970] 77 ITR 614 (All) - Lola Indra Sen, In re [1940] 8 ITR 187 (All) [FB] - Groz-Beckeri Saboo Ltd. v. CIT [1972] 86 ITR 256 (Punj) - H. H. Maharani Shri Vijaykuverba Saheb of Morvi v. CIT [1963] 49 ITR 594 (Bom) - H. H. Maharaja Rana Hemant Singhji v. CIT [1971] 79 ITR 83 (Raj) - Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC) - Bengal Textiles Association v. CIT [1960] 39 ITR 723 (SC) - Ratna Sugar Mills Co. Ltd. v. CIT [1958] 33 ITR 644 (All).
Fact of the Case:
The assessee, a co-operative society running a store of consumables primarily for its members and shareholders, received subsidies from the Government to cover managerial and rental expenses. The assessee also charged an admission fee of Re. 1 per member. The ITO assessed the subsidies and admission fee as taxable income. The AAC allowed the assessee's appeal, holding that the subsidies and admission fee were casual and non-recurring receipts and thus exempt from tax. The Tribunal reversed the AAC's order, holding that the subsidies and admission fee were revenue receipts and thus taxable.
Finding of the Court:
The court held that the subsidies received by the assessee from the Government were revenue receipts and thus taxable. The court also held that the admission fee charged by the assessee from its members was a taxable receipt.
Issues: (i) Whether the subsidies received by the assessee from the Government constituted revenue receipts to be taxed as such? (ii) Whether the admission fee charged by the assessee-co-operative society from its members constituted a taxable receipt?
Ratio Decidendi: The court held that the subsidies received by the assessee from the Government were revenue receipts and thus taxable because they were given to meet the managerial and rental expenses of the assessee and thus constituted income for the relevant assessment year. The court also held that the admission fee charged by the assessee from its members was a taxable receipt because it did not confer any mutual benefit on the members and was thus not exempt under Section 10(3) of the Act.
Final Decision: The court answered both questions referred to it in the affirmative, holding that the subsidies received by the assessee from the Government and the admission fee charged by the assessee from its members were both taxable receipts.
J.V.Gupta, J.
1. In this reference, arising out of the assessees applications under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), the following two questions of law have been referred to this court :
" (i) (a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the subsidy of Rs. 11,969 received by the assessee from the Government constituted a revenue receipt to be taxed as such (assessment year 1965-66) ?
(b) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the subsidy of Rs. 12,815 received by the assessee from the Government constituted a revenue receipt to be taxed as such (assessment year 1967-68) ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 6,104 representing admission fee charged by the assessee-co-operative society from its members constituted a taxable receipt ? "
2. The facts giving rise to these questions of law are : The assessee is a co-oporative society registered under the Co-operative Societies Act, which is running a store of consumables primarily for its members and shareholders. The society did not succeed in its venture and approached the Govt. for subsidy which was given, at Rs. 15,719 (Rs. 2,500 for delivery van, Rs. 1,250 for equipment, Rs. 11,969 for managerial and rental expense es) for the first year, i.e., assessment year 1965-66, and Rs. 12,815 on account of managerial expenses, for the second year, i. e., assessment year 1967-68. The dispute, therefore, relates to Rs. 11,969 only as far as the assessment year 1965-66 is concerned and to Rs. 12,815 for the assessment year 1967-68. The assessees case for both the years in question before the revenue authorities was that the subsidy was a receipt of casual and nonrecurring nature and was hence exempted from tax. The ITO did not accept this contention. The assessee went up in appeal and the AAC allowed the appeal, on the ground that, in his opinion, the receipt of subsidy was of the nature of casual and non-recurring receipt and was thus not taxable. In support of this view, certain authorities are referred in his order, annex. " B ". The revenue went up in second appeal before the Tribunal and contended that the case law on which the AAC allowed the appeal, is not relevant as it did not even touch upon the issues involved in these two cases. However, the learned Tribunal allowed the departmental appeals, with the following observations :
" After hearing both the parties and going through the cases relied upon by both the parties, we are of the view that the AAC did not correctly apply his mind to the issue before him. The subsidy or the grant given by the Govt. was an incentive, as the assessee calls it, so that the assessee may pass through its initial stages of struggle. The receipt was a revenue receipt not to be returned to the Government at any future date. When an assessee receives an amount of such a nature, it can neither be casual nor non-recurring in nature but is positively revenue receipt which is taxable. After all, keeping in view the concern of the Government to encourage co-operatives, such subsidies are given so that the co-operatives may be in a position to carry on their business very effectively and more successfully resulting in more profitability. Such subsidies are boosters to the business and as they are not returnable or refundable either in cash or by adjustment, they are revenue receipts to be taxed as such. We, therefore, hold that the subsidies in the two assessment years assessed by the ITO had been rightly assessed and the AACs order is, therefore, reversed and that of the ITO restored to this extent for both the years."
3. The learned counsel for the assessee has urged that, in view of Section 10(3) of the Act, any receipt which is of a casual and non-recurring nature, is to be e
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