TMI Blog2013 (9) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... in their earlier decision in the case of the respondent/assessee [1981 (12) TMI 25 - DELHI High Court] is the grant given by the holding company was of capital nature and not revenue or contributing to the trading income of the respondent. Even when we apply the purpose test applied in the case of Sahney Steel & Press Works Ltd. (1997 (9) TMI 3 - SUPREME Court) as explained in Ponni Sugar and Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT). It cannot be said that the earlier decision of the Delhi High Court [1981 (12) TMI 25 - DELHI High Court] has been overturned or overruled by the Supreme Court in the two decisions mentioned above. - Decided against Revenue. - ITA 3/2001 - - - Dated:- 5-9-2013 - Sanjiv Khanna And Sanjeev Sachdeva,JJ. For the Appellant : Mr. Amol Sinha, Adv. For the Respondent : Mr. Kamal Mehta, Adv. JUDGMENT Sanjiv Khanna, J. Revenue by this appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) which pertains to assessment year 1985-86 submits that grant of Rs. 25 lakhs received by respondent assessee, M/s Handicrafts and Handlooms Exports Corporation of India Ltd. from its holding company State Trading Corporation of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves or subsidies by way of refund of sales tax, power and electricity consumed on production, water rate etc. should be treated as revenue receipts. Incentives and subsidy received in nature of production expenses after the production has started were not directly or indirectly for setting up of industries and hence revenue in character. Manner and mode of computation of subsidy was not determinative. Operational subsidies would be revenue in nature and they amount to trading receipts. Refunds of sales tax, or on account of water rate, land revenue or electricity charges enables an assessee to run his business profitably. The Supreme Court approved the basic principle propounded in Pontypridd and Rhondda Joint Water Board vs. Ostine (1946) 14 ITR (Supp.) 45 which reads as under:- The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker s trade or business are trading receipts, are to be brought into account in arriving at the balance of profits or gains under Case I of Schedule D 6. When subsidy is received from a public fund and these are to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee for a definite purpose. If the purpose is to help the assessee to set up its business or complete a project as in Seaham Harbour Dock Co.'s case [1931] 16 TC 333 (HL), the monies must be treated as having been received for a capital purpose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. 7. Reference was made to the full bench decision of Kerala High Court in CIT vs. Ruby Rubber Works Ltd. [1989] 178 ITR 181 where subsidy was received for acquisition of an asset by replanting rubber plants of high yield varieties and it was held that the subsidy was capital in nature as it was not for maintenance of mature and immature rubber trees. Similarly, subsidy received for producing new original films was held to be capital receipt as they were for creating or acquiring of a new asset. 8. In a subsequent decision, CIT vs. Ponni Sugars and Chemicals, [2008] 9 SCC 337 Supreme Court has lucidly explained the performance test in the following words: The importance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of subsidiary under the scheme was held to be capital in nature and not made during the course of trade. 12. The findings recorded by the Delhi High Court in their earlier decision in the case of the respondent/assessee reported in [1983] 140 ITR 532 is the grant given by the holding company was of capital nature and not revenue or contributing to the trading income of the respondent. 13. In the present case, Rs.25 lakhs was not paid by a third party or by a public authority but by the holding company. It was not on account of any trade or a commercial transaction between the subsidiary and holding company. The holding company was a shareholder and the shares partake and were in nature of capital. Share subscription money received in the hands of the respondent assessee was a capital receipt. The intention and purpose behind the said payment was to secure and protect the capital investment made by STC Ltd. in the respondent. The payment of grant by STC and receipt thereof by the respondent was not during the course of trade or performance of trade, thus, could be categorised or classified as a gift or a capital grant and did not partake character of a trading receipts. Trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. So far as this item is concerned both the AAC and the Tribunal deleted it and the correctness of their findings is the subject-matter of ITR No. 196/77, which is pending before this court. We are not here concerned with it. So far as the sum of Rs.11,70,000 is concerned, however, the AAC rejected the plea of the assessee but the Tribunal accepted it and it is the correctness of the conclusion of the Tribunal that is challenged before us. We have heard learned counsel on both sides in regard to this matter and we agree with the conclusion of the Tribunal that the sum of Rs. 11,70,000 stands on no different footing from the amounts received from the STC in earlier years. We have pointed out that what happened in earlier years was that the assessee, having incurred certain losses in its export business, approached the STC for assistance to enable it to meet its liabilities consequent on such losses and the STC agreed to do so by reimbursing the losses incurred by the assessee. There was, therefore, even in those years an agreement on the part of the STC to recoup the losses made by the assessee. The circumstance, therefore, that in the present year, there was an agreement dur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
