TMI Blog1989 (6) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in holding that the cash subsidy on controlled cloth of Rs. 52,87,267 was liable to tax under the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the benefit of Rs. 14,48,604 received by the assessee-company under the Export Incentive Scheme is taxable under the Income-tax Act, 1961 ?" In view of the decisions of this court in Kesoram Industries and Cotton Mills Ltd. v. CIT [1978] 115 ITR 143 ; jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448 and Bharat General and Textile Industries Ltd. v. CIT [1985] 153 ITR 747, the aforesaid two questions (which are questions Nos. (ii) and (iii), respectively, in the statement of case referred at the instance of the assessee) are answered in the affirmative and in favour of the Revenue and against the assessee. "3. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the provisions of sections 80A(2), 80B(5), 80K and 80H of the Income-tax Act, 1961, the Tribunal was justified in holding that the relief allowable under sections 80K and 80M was not allowable on gross dividend but could be allowed only after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same as an allowable expenditure. The Income-tax Officer disallowed the assessee's claim on the ground that the same related to the guest houses maintained by the assessee. In appeal, after considering the rival submissions of the parties, the Appellate Assistant Commissioner allowed Rs. 26,150 and sustained the disallowance of the balance amount. He recorded the submission of counsel and observed as follows: "Shree Choudhury argued that the transit bungalows were in remote villages and there were no, arrangements for hotels ; nor was there any facility for private accommodation. The touring staff and customers had to be provided with accommodation during business travels. Learned counsel urged that these bungalows should not be treated as guest houses. The appellant's factories were at Tribeni (rayon unit), Bansberia (spun pipe unit)' and Basantnagar (cement unit). These were in remote localities where proper accommodation was not available for persons visiting the factories. The appellant had to make arrangements for their stay and food. Hence, the need for guest houses in remote interior places. They should not be equated with guest-houses in towns and cities. On a perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. In our opinion, the Tribunal correctly concluded that, on the facts mentioned above, the bungalow in question cannot be treated as a guest house within the meaning of the aforesaid provision of section 37 and, hence, the expenses could not be disallowed on the ground that the amount was used for maintenance of the guest house." Our attention has been drawn also to a decision of this court in CIT v. Orient Paper Mills Ltd. [1988] 171 ITR 181. In that case, the assessee provided accommodation at places where no accommodation of any kind was available. The same was not meant for entertainment or relaxation. Further, the persons availing of the accommodation had been paying charges covering almost the entire expenditure. It was held that such accommodation facilities could not be treated as a guest house so as to attract the provisions of section 37(4). The facts of the instant case, however, are different. We have already extracted the findings of the Appellate Assistant Commissioner which have not been disputed before the Tribunal. There is no dispute that the assessee was maintaining guest houses in remote interior places. It is found that no recoveries were made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction of the amount spent on the maintenance of the transit bungalows. "7. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provision for gratuity liability made on the basis of actuarial valuation based on the services of the employees for the earlier years up to 31st March, 1971, was an allowable deduction in computing the assessee's total income for the assessment year 1972-73 ?" Although the question is concluded by the decision of this court regarding the allowability of gratuity ascertained on actuarial valuation, it is necessary to set out the facts as regards the quantum in view of the contentions raised in the reference for the subsequent years which we have heard along with the present reference. The facts are that the Income-tax Officer, in his order for the assessment year 1972-73, rejected the claim of the assessee for deduction of provision for gratuity in the following words : "Provision for gratuity Rs. 32,12,704. Above amount represents provision for gratuity of the year made on actuarial basis. The provisions for gratuity can be allowed only if the conditions laid down in section 36(1)(v) are f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue) is answered in the affirmative and in favour of the assessee. The only other question which remains to be considered and which was referred at the instance of the assessee is as follows : "8. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the incentive scheme G. O. No. 1225 dated 31 St December, 1968, as modified by G. O. Ms. No. 455 dated 31 St May, 1971, drawn up by the Industries and Commerce Department of the State of Andhra Pradesh, the incentive of Rs. 13,02,782 received by the assessee-company from the Government of Andhra Pradesh was a capital receipt or a revenue receipt liable to tax under the Income-tax Act, 1961 ?" The facts relating to this question are that the assessee installed cement factory costing about Rs. 7 crores in the State of Andhra Pradesh. Under an Incentive Scheme drawn up by the Industries and Commerce Department of the State of Andhra Pradesh (G. O.Ms. No. 1225 dated December 31, 1968, as modified by G. O. Ms. No. 455 dated May 31, 1971), the assessee was entitled to refund of sales tax on raw materials, machinery and finished goods levied by the State Government subject to a maximum of 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the incentive scheme issued by the State of Andhra Pradesh that, primarily, the incentive is given to 'small scale industries' with a capital investment of not more than Rs. 7.5 lakhs. In the present case, as stated above, the investment runs into over Rs. 7 crores. Further, we find from the order of the Appellate Assistant Commissioner that the assessee had received similar incentive in the subsequent year also. In other words, the receipt of the incentive from the State Government is incidental to the carrying on of the business by the assessee. In this view of the matter, it is difficult to hold that the incentive received by the assessee from the Government of Andhra Pradesh was of casual and non-recurring nature as was urged on behalf of the assessee. We, accordingly, uphold the order of the Appellate Assistant Commissioner on this point" Before us, the contentions as urged before the Tribunal have been reiterated. The nature of the subsidy has to be considered in the light of the relevant Government orders. It appears that, having regard to the slow pace of industrialisation in Andhra Pradesh and with a view to stimulating rapid industrialisation throughout the State, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the sum was given as cash assistance to the exporters to meet their losses or whether it was given to promote the export industries or not, must be determined on the general nature because one assessee might have treated it as a compensation for losses suffered and another might have treated it differently. We are inclined to accept this contention of the assessee that it must be determined on the true basis and character of the cash assistance and the true nature of the receipt. It is, therefore, necessary for us to determine what is the true character of the receipt." Thereafter, this court considered how the expression "subsidy" has been defined in the dictionary. The Supreme Court in Shri Ambica Mills Ltd. v. Textile Labour Association, AIR 1973 SC 1081 ; [1973] 43 FJR 150, 153 referred to various definitions of subsidy as follows (pp. 1083, 1084) : " Webster's New World Dictionary, 1962 :-'a grant of money, specifically (a) ... (b) a government grant to a private enterprise considered of benefit to the public.' "Shorter Oxford English Dictionary :-'Help, aid, assistance Financial aid furnished by a state or a public corporation in furtherance of an undertaking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an illustration. The second proposition constitutes an exception. If the undertaker is rating authority and the subsidy is the proceeds of rates imposed by it, or comes from a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising ; see, for example, Lord Buckmaster's explanation in Inland Revenue Commissioners v. Forth Conservancy Board [1931] 16 TC 103 (HL), and compare what Lord Macmillan said in Municipal Mutual Insurance Ltd. v. Hills 1932] 16 TC 430 (HL)." In our view, the principle laid down in the aforesaid decision of this court would equally apply to the facts of this case. What is decisive in these matters is the nature of business, the nature of income and the nature of the right to receive and also the relation inter se, that is the key to resolve the issue in the light of the general principles, which are to be followed in such cases. The receipt of the incentives from the State Government in this case is incidental to the carrying on of the business by the assessee. Such subsidies have been received year after year. The assessee received refund of sales tax. The sales tax liability is a trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Andhra Pradesh High Court considered in detail the very scheme in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39: In that case, the assessee received refunds of sales tax on purchase of machinery and raw materials and on the sale of finished goods under Government Order issued by the State Government of Andhra Pradesh. The Government Order had been issued with a view to speed up the industrial development of the State. The amount refunded had to be used specifically for development of the industry and could not be distributed as profits. The Income-tax Officer assessed the receipt but the Tribunal held that the development subsidy was in the nature of a capital receipt and it was not also assessable under section 41 (1). On a reference, it was contended on behalf of the assessee that the amounts were not of the nature of "income" at all and in any case it was a voluntary contribution. It was held that it was not necessary for a receipt to constitute income that it must necessarily be in the nature of a return. It may be that there is no consideration for the benefits extended to the assessee in terms of the Government Order in the common law sense. But it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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