Sales tax subsidy given as incentive for capital investment in backward areas is not taxable as revenue receipt.

P.D. Mulye, J.

The Income Tax Appellate Tribunal, Indore Bench, Indore, at the instance of the Commissioner of Income Tax, Bhopal, has made this reference u/s 256(1) of the Income Tax Act, 1961, for the opinion of this court on the following question of law :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the additions of Rs. 24,481 and Rs. 66,990 made by the Income Tax Officer for the assessment years 1979-80 and 1980-81, respectively, being sales tax subsidy received by the assessee ? "

2. The facts giving rise to this reference, as per the statement of case received may be stated, in brief, thus : During the two years in question, the respondent-assessee received sales tax subsidies of Rs. 24,481 and Rs. 66,990, respectively. The Income Tax Officer was of the opinion that these receipts were revenue in nature and, as such, liable to be taxed as the income of the assessee. Consequently, he added these amounts in the assessee's hands. This was confirmed by the Appellate Assistant Commissioner on appeal. On a further appeal being filed by the assessee before the Tribunal, it deleted the additions with the following observations :

"6. In my opinion, the contention of the assessee has force. The copy of the agreement in question is at pages 13 to 19 of the paper book. Clause 4 of the agreement says that the grantee shall not change the location of the whole or part of the industrial unit or effect construction or dispose of a substantial part of his total capital investment within the period of five years from the date of disbursement of the subsidy. Clause 5 of the agreement provides that the grantee shall be bound to permit the grantor or any person deputed or authorised by general or special order in writing in this behalf by the grantor to inspect the property (premises, building, plants, machinery, tools, etc.) and accounts of the industrial business or enterprise. Rules of concessions of sales tax for establishing new units are given at pages 21 to 26 of the paper book. The title is as under :

'This scheme may be called a scheme for grant of subsidy/interest-free loan to new industries set up in Madhya Pradesh.' "

3. Clause (8A) deals with the quantum of subsidy/interest-free loans. Sub-clause B of Clause 8 reads as under :

"Units having capital investment up to 50 lakhs set up in category 'A' backward districts will be entitled to a subsidy of 75% of the sales tax paid in a year for a period of five years from the date of starting production. Units having fixed capital investment of over 50 lakhs but below 5 crores shall be given this amount as 15 years interest-free loan instead of subsidy. However, those units which were registered on and after September 15, 1969, but before March 31, 1971, will only get 50%. Similarly, those units which are registered with the Department after March 31, 1971, but before April 1, 1972, will get this subsidy only for a period of 3 years. The quantum of subsidy in a year would, however, be limited to 8% of the capital investment. "

4. Hence, this reference at the instance of the Department.

5. Learned counsel for the applicant has submitted I. A. No. 3957 of 1985 u/s 58 of the Income Tax Act for supplementary statement of facts on the ground that the learned Income Tax Appellate Tribunal has not recorded essential facts on the point of object and purpose of giving subsidy to the respondent nor is any such finding of fact given. However, after hearing learned counsel, we see no valid ground to allow this application. The same is, therefore, rejected.

6. Learned counsel for the Revenue, Shri R. C. Mukati, relying upon the decisions in Delhi Flour Mills Co. Ltd. Vs. Commissioner of Income Tax, (1974) ILR Delhi 749, Dhrangadhra Chemical Works Ltd. Vs. Commissioner of Income Tax, Bombay City II, (1977) 106 ITR 473; Ludhiana Central Co-operative Consumers Stores Ltd. Vs. Commissioner of Income Tax, (1980) 14 CTR 134; Chowringhee Sales Bureau