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TMI Blog1986 (4) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... d its factory in a backward area. As per the Government Order G. O. No. 2241 dated 9-3-1976, any assessee establishing industrial units in backward areas would be entitled to an investment subsidy. Under this scheme, the assessee would be eligible on the fixed capital cost at 10 per cent of the fixed capital subject to a ceiling of Rs. 10 lakhs. This would be admissible provided the fixed capital cost on land, buildings, plant and machinery did not exceed Rs. 1 crore. The assessee, on the basis of this Government Order, received during the year Rs. 23,380 as investment subsidy. The ITO was of the opinion that this amount should be treated as revenue receipt. According to him, the subsidy is taxable as it was earned by the assessee only beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is more in the nature of subsidies of the Central Government. The CBDT themselves have accepted that such subsidies, which are towards the capital contribution, are not revenue receipts. We may also state that the decision cited by the department itself recognises that in law the subsidy would not always be taxable. They have pointed out at p. 59 that it is the quality of the payment that is decisive of the character of the payment and not the method of payment or its measure. We therefore, uphold the findings of the Commissioner (Appeals) on this point. 5. The second ground is regarding the claim for deduction under section 80HHA. This deduction is available for newly established small-scale industry in a rural area. One of the conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also pointed out that insofar as the assessee had got the raw materials processed in another undertaking and sold the same, it must be held that, in law, the assessee had manufactured the same. Admittedly, the said manufacture was before 30-9-1977. Therefore, one of the conditions of the section is not satisfied. 7. We are unable to accept this submission. Section 80HHA exempts a part of the profits and gains derived from a small-scale undertaking provided the conditions in sub-section (2) therein are satisfied. The first condition is that the small-scale underrating should start production after 30-9-1977. Now it is an admitted position that there is a dichotomy between the assessee and the undertaking. The assessee may have several under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. On the facts found by us, the industrial undertaking to which section 80HHA applies has not done this manufacturing by a proxy. So this reasoning cannot stand against the assessee. 8. It was next submitted by Shri Pradhan that in the industrial under taking set up, second-hand machineries and plant had been used and that constitutes more than 20 per cent and, therefore, the requirement that the undertaking should not have formed by transfer to a new business of machinery and plant previously used for.any purpose is not satisfied. Now the Commissioner [Appeals] has found that the value of the plant and machinery received from the existing firm was Rs. 82,409 and the total value of the machineries used in the business was Rs. 4,70,438. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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