TMI Blog2013 (3) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... d down by the Apex Court [in the case of Sahney Steel & Press Works Ltd. Versus Commissioner of Income Tax,A.P.-I, Hyderabad, (1997 (9) TMI 3 - SUPREME COURT)] to the facts of the present case, we find that one of the objectives of the Janta Cloth Scheme was to provide cheaper cloth to the weaker section of the population of our country. The subsidy was payable on actual deliveries made and not on the portion relating to goods returned. 20% of the subsidy was meant for meeting the overhead expenses while 80% was to be utilised for meeting the cost of production. Anything incurred towards overhead expenses and cost of production is necessarily a revenue expenditure. Therefore, amount given as subsidy to meet any revenue expenditure can safel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived subsidy from the Central Government under the "Janta Cloth Scheme" announced by the Central Government. The salient features of the Janta Cloth Scheme as culled out from the various orders is given below: The "Janta Cloth Scheme" for the Handloom sector was introduced with the twin objectives of providing sustained employment to the unemployed and underemployed Handloom weavers and at the same time providing cheaper cloth to the weaker section of the population of our country. Under this scheme, the Handloom Weavers Cooperative Society and State Handloom Development Corporation known as implementing agencies were eligible to participate in the production of "Janta Cloth Scheme". The Nodal Agency for implementation of the scheme in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that the subsidy is not linked with the actual sale made by the Corporation and did not assume the character of the trading receipt at its hand. It was meant for providing the working capital which has been eroded due to making of cheaper cloth to the general public in terms of government policy and, therefore, it was a capital receipt. However, the Assessing Officer treated it to be a revenue receipt on the ground that subsidy is related to the actual deliveries made of Janta Cloth and is not payable in respect of cloth which is received back unsold. In fact, it is meant to meet the margin of cost of production and the sale price in the hands of the assessee Corporation, which is just to compensate the assessee for selling Janta Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government scheme due to erosion of working capital of implementing agencies in implementing the aforesaid scheme. It is payable on the actual delivery basis which means the subsidy is payable when the Janta Cloth is transferred from the Central Godown to sale point and, thus, it can not assume the character of trading receipt. The subsidy can only be utilised for the purpose of which it has been given. Unspent subsidy has to be adjusted against the future scheme. Learned standing counsel appearing for the department, however, submitted that the main object of the scheme was to provide handloom cloth to the consumers at an affordable price and that is why the subsidy was available to the existing units. It was meant to meet the margin of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eant for meeting overhead expenses whereas 80% was to be utilised for meeting the cost of production. The Apex Court in the case of Sahney Steel Press Works Ltd. Versus Commissioner of Income Tax,A.P.-I, Hyderabad, (1997) 7 SCC 764 quoted with approval the principles stated by the Viscount Simon in Pontypridd and Rhondda Joint Water Board v. Ostine 28 TC 261 : (1946) 1 All ER 668. "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. It is sufficient to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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