TMI Blog2008 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... 700/08 (arising out of S.L.P.(C) No. 11787/06), Civil Appeal No. 5701/08 (arising out of S.L.P.(C) No. 12778/06), Civil Appeal No. 5702/08 (arising out of S.L.P.(C) No. 12958/06), Civil Appeal No. 5703/08 (arising out of S.L.P.(C) No. 15099/06), Civil Appeal No. 5704/08 (arising out of S.L.P.(C) No. 573/07), Civil Appeal No. 5705/08 (arising out of S.L.P.(C) No. 3948/07), Civil Appeal No. 5706/08 (arising out of S.L.P.(C) No. 6658/07), Civil Appeal No. 5707/08 (arising out of S.L.P.(C) No. 3112/06), Civil Appeal No. 5708/08 (arising out of S.L.P.(C) No. 11963/07), Civil Appeal No. 5709/08 (arising out of S.L.P.(C) No. 14407/07), Civil Appeal No. 5710/08 (arising out of S.L.P.(C) No. 14050/07), Civil Appeal No. 5711/08 (arising out of S.L.P.(C) No. 8290/07), Civil Appeal No. 5712/08 (arising out of S.L.P.(C) No. 6686/08), Civil Appeal No. 5713/08 (arising out of S.L.P.(C) No. 7643/08), Civil Appeal No. 5714/08 (arising out of S.L.P.(C) No. 9584/08) and Civil Appeal No. 5715/08 (arising out of S.L.P.(C) No. 17149/08) JUDGMENT S. H. KAPADIA, J. Leave granted. 2. In the above batch of civil appeals, based on the arguments addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to each other. In the case of Salem Cooperative Sugar Mills Ltd. we are concerned with the Scheme of 1980. 7. On the first question, namely, whether the incentive subsidy received by the assessee is a capital receipt, Shri P.V. Shetty, learned senior counsel appearing on behalf of the Department (appellant) submitted that the additional revenue generated by higher free sale sugar quota cannot be considered to be a capital receipt in the hands of the assessee (respondent herein) as held by the High Court. He further contended that similarly retention of the collective excise duty on the sale price of free sale sugar in excess of the normal quota and paying to the Government only the excise duty payable on the price of levy sugar resulted in revenue generation in the hands of the assessee which contention of the Department has been erroneously rejected by the High Court. According to the learned counsel, under the Scheme, there were two distinct concepts, namely, the concept of accrual of income in the hands of the assessee and the concept of application of additional funds generated thereunder. According to the learned counsel, application of additional funds is neither materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the increase in the cost of Plant and Machinery. The said Committee gave its Report in which the Committee recommended that the economic viability of a factory would mean that the unit should not break even after meeting the working expenses, interest on borrowings, depreciation on Plant and Machinery, but it should also be able to declare a reasonable dividend on the equity capital. According to the Committee, the factory should be able to generate sufficient funds to repay the instalments of the term loans. Under Para 21.0 the said Committee stated that five possible incentives for making a sugar plant economically viable unit could be provided for, namely, capital subsidy, allowing a larger percentage of free sale sugar, high levy sugar price, allowing rebate on excise duty and remission of purchase tax. In this case, we are concerned with allowability of a larger percentage of free sale sugar and rebate on excise duty. Following the said Report of the Sampat Committee, the above Schemes came to be formulated. 11. We have examined in this case the 1980 and 1987 Schemes. Essentially all the four schemes are similar except in the matter of details. Four factors exist in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance in the form of a grant was made by the Government with the object that by its use men might be kept in employment and, therefore, its receipt was capital in nature. The importance of the judgment lies in the fact that the company had applied for financial assistance to the Unemployment Grants Committee. The Committee gave financial assistance from time to time as the work progressed and the payments were equivalent to half the interest for two years on approved expenditure met out of loans. Even though the payment was equivalent to half the interest amount payable on the loan (interest subsidy) still the House of Lords held that money received by the company was not in the course of trade but was of capital nature. The judgment of House of Lords shows that the source of payment or the form in which the subsidy is paid or the mechanism through which it is paid is immaterial and that what is relevant is the purpose for payment of assistance. Ordinarily such payments would have been on revenue account but since the purpose of the payment was to curtail/obliterate unemployment and since the purpose was dock extension, the House of Lords held that the payment made was of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety must be engaged in carrying on the business of banking or providing credit facilities to its members. Therefore, in each case, the Tribunal was required to examine the Memorandum of Association, the Articles of Association, the Return of Income filed with the Department, the status of business indicated in such Returns etc.. This exercise had not been undertaken at all. 19. For the aforestated reasons, we set aside the impugned judgments of the High Court and remit the matters to the Tribunal for de novo consideration in accordance with law. All the contentions on both sides are expressly kept open. 20. In addition to the above two questions, one more question arises for consideration in the civil appeal arising out of SLP (C) No. 573/07 [CIT, Salem v. Dharampuri District Co-operative Sugar Mills Ltd.] filed by the Department is: whether the area development funds collection by sugar mills would be trading receipt? 21. In view of the judgment of the Bombay High Court in CIT v. Chhatrapati Sahakari Sakhar Karkhana Ltd. reported in (2000) 245 ITR 498 the matter is remitted to the Tribunal for de novo consideration in accordance with law and in accordance with the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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