TMI Blog1993 (11) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... ly paid to the sales-tax department. It was contended by the assessee that the amount was being disputed by it inasmuch as the assessee claimed exemptions from sales-tax and special benefit granted by the Government of Karnataka to newly established industries. The Assessing Officer mentioned in the assessment order that the dispute between the assessee and the Government of Karnataka had been decided by the Karnataka High Court on 4-4-1979 in which the High Court had upheld the view point of the assessee. The matter was taken up to the Supreme Court and the Supreme Court finally ruled the issue in favour of the assessee by its order dated 5-5-1988. The Assessing Officer thus came to the decision that inasmuch as the issue had finally been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital one. He thus finally concluded that it would be part of the sale proceeds and would be taxable as income. As regards the year in which it was to be taxed, the CIT (Appeals) held that since the matter had become final in the present year, the Assessing Officer had rightly added back the amount under consideration as income of the assessee in this year. 3. In the appellate grounds, the assessee has challenged the addition of the amount under consideration. The assessee has furthermore stated in the appellate grounds that inasmuch as the receipt of the amount had taken place in the pariods corresponding to assessment years 1981-82 and 1982-83, addition if at all to be made, should have been done in those two years. 3.1 At the stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, Madras Bench 'B' (Special Bench) in the case of First ITO v. Smt. Peethambari Devi [1983] 4 ITD 557 and also another decision of the ITAT, Bangalore Bench, in the case of Padmalakshmi Combines [IT Appeal No. 458 (Bang.) of 1981 dated 7-7-1983] an argued that although those two decisions related to subsidies granted to film industries, the ratio of those decisions holding the subsidies to be on the revenue side, should apply to the present case. 5. We find that in the case of Dusad Industries, the facts were that under a scheme framed by the M.P. Government, sales-tax subsidies were granted to industries set up in backward areas in the State for a specified period from the date of starting production. Under one of the clauses of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industry on raw materials purchased by it for the first 5(five) years from the date the industry goes into production, eligibility to the concessions being determined on the basis of a certificate to be issued by the Department of Industries and Commerce." It is clear from above that the subsidy in the instant case is of the nature of cash refund of all sales tax paid on raw materials purchased by the assessee for the first five years of its production. Sales-tax payment constitutes an allowable item of expenditure for the assessee and the refund thereof by the Government must therefore be considered to be falling within the ambit of section 41(1) of the IT Act. The decisions of the MP High Court are clearly distinguishable inasmuch as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er limits being attached to the clause relating to making of such refund. Therefore, there cannot be any doubt that the subsidy goes to relieve the assessee of some of its revenue expenses or in other words, to supplement its profits. The subsidy, hence, is of revenue nature and is therefore clearly taxable. At the same time again, we do not find any reason for including this amount within the income of the assessee for this particular year. It is a pity that this important issue was not argued by either of the sides, at the time of the hearing of the appeal before us. We, however, gather from the papers before us that the amount in fact, was collected as sales-tax by the assessee from its customers quite far back in the accounting year end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve either granting of a separate amount as refund of the sales-tax already paid or adjustment of the outstanding sales-tax liability of the assessee against the incentive. But until the Government makes such an order or undertakes such an action, the assessee would not be in a position to receive the incentive from the Government. It was not again necessary for the Government of Karnataka to wait till the judgment of the Supreme Court for passing such order or undertaking such action. Even the earlier judgment of the High Court of Karnataka was itself binding enough on the Government of Karnataka to take recourse to such a procedure, unless that judgment of the Karnataka High Court had specifically been stayed by the Supreme Court. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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