TMI Blog2017 (1) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... dvocate JUDGMENT [ Hrishikesh Roy, J. ] Heard Mr. R.P. Agarwalla, the learned senior counsel along with learned advocate Mr. R. Goenka for the appellant (assessee). Also heard Mr. S. Sarma, the learned standing counsel, Income Tax Department on behalf of the respondent. 2. This appeal is filed under Section 260A of the Income Tax Act, 1961 (here-in-after referred to as the I.T. Act ), against the common order dated 13.12.2013 (Annexure-G), of the Income Tax Appellate Tribunal, Guwahati. The departmental Appeal i.e. ITA No.20/Gau/2005 came to be partially allowed, whereby the transport subsidy was ordered to be treated as revenue receipt, taxable in the hands of the assessee, on account of the majority opinion of the 3 Member Tribunal. 3. This appeal is admitted on the following substantial question of law:- Whether on the facts and circumstances of the case, the Tribunal was justified in holding that the transport subsidy received by the assessee during the assessment year 2001-02 was in the nature of revenue receipt and not capital receipt and thus taxable in the hands of the assessee? 4. The appellant is a company and is assessed to income tax within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment to tax. However the learned Accountant Member differed with this view and in his separate opinion declared that since the transport subsidy is provided for assisting the assessee in carrying out his business operation after commencement of production, such receipt is revenue receipt and not capital in nature and therefore the amount in the hand of the assessee is to be construed as income, for the purpose of assessment. 8. On account of the differences between the two learned Members of the Appellate Tribunal, the matter was referred to a 3rd Member for his opinion. While the issue was under consideration by the 3rd Member, the first decision of 16.09.2010 of the jurisdictional High Court in CIT vs. Meghalaya Steels Ltd. (Gauhati), reported in 332 ITR 91, was rendered whereby, the transport subsidy was declared to be a revenue receipt. Following this decision of the jurisdictional High Court for Meghalaya Steels Ltd.(supra), the 3rd Member opined that the transport subsidy should be treated as revenue receipt and therefore is taxable in the hands of the assessee, by his order dated 03.07.2012 (Annexure-F). 9. When the majority members accepted the contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough that the sum received by the assessee cannot be characterized as revenue receipt, subject to taxation under the I.T. Act. 11.3 The Sr. counsel for the appellant cites Jai Bhagwan Oil and Flour Mills Vs. Union of India reported in (2009)14 SCC 63 to argue that the character of transport subsidy under the scheme applicable for North-East region, was examined by the Apex Court and it was declared that the object of the Transport Subsidy Scheme is not augmentation of revenue but to improve trade and commerce between the remote parts of the country and also to make it attractive for industrial entrepreneurs, to start and operate industries in remote region, by providing them a level playing field, so that they could compete with their counterparts in the non-remote areas of the country. Thus the receipt of the transport subsidy is submitted to be capital inflow. 12.1 On the other hand, Mr. S. Sarma, the learned standing counsel for the Income Tax Department submits that the assessee had credited the sum received as transport subsidy in their reserve and surplus account, but such accounting procedure is inconsistent with the method of accounting, specified under Section 145 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion was expressed by the Judicial Member (in favour of the assessee) and the Accountant Member (in favour of the Revenue) and thus the finality was sought through the opinion of the 3rd Member. The learned Member considered the ratio in Sahney Steel Press Works Ltd. (supra) and in Ponni Sugars Chemicals Ltd. (supra) and also the decision of the Jammu and Kashmir High Court in Shree Balaji Alloys Vs. CIT reported in (2011) 333 ITR 335 (Jammu Kashmir), where the purposive tests were applied. But by that time, the judgment of the jurisdictional High Court in CIT Vs. Meghalaya Steels Ltd. reported in (2011) 332 ITR 91 (Gauhati) was pronounced and in this case the Court declared that the transport subsidy in the hand of the assessee is a revenue receipt. This finding was given by the High Court only on account of the agreement of both parties since none had questioned that such receipt could be capital receipt. Therefore, influenced primarily by the 16.09.2010 judgment of the jurisdictional High Court, the 3rd Member on 03.07.2012 answered the issue in favour of the revenue and against the assessee. On account of the majority view, the final pronouncement of the Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of new assets and industrial environment in the State and thus the High Court declared that such sum received under subsidy head, cannot be construed as operational incentives for the benefit of the assessee alone. The object of the scheme was to create avenues of employment and to accelerate the industrial development in the State. Thus the concerned receipt was found to be non-taxable, in the hand of the assessee, as revenue receipt. The challenge of the revenue against the verdict of the Jammu and Kashmir High Court was dismissed by the Supreme Court on 19.04.1996 in Civil Appeal No.10061/2011 by declaring that the issue is covered against the revenue, by the decision in Ponni Sugars Chemicals Ltd. (supra) and in CIT Vs. Meghalaya Steels Ltd. reported in (2016) 383 ITR 217 (SC), where the purpose test was applied to clinch the issue. 20. What follows from the above discussion is the relevance and applicability of the purpose test to determine the nature of the receipt towards transport subsidy in the hand of the assessee. But before we proceed further with the matter, the Court has to deal with the contention of the revenue lawyer that the assessee cannot apply certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the subsidy is received by the assessee, is wholly irrelevant for deciding the issue. 22. Endorsing the purpose test enunciated in Sahney Steel Press Works Ltd. (supra), the Apex Court in Ponni Sugars Chemicals Ltd. (supra) reiterated that it is the object for which subsidy is given, that will determine the nature of the incentive subsidy and bearing in mind the objective behind the payment of incentive subsidy, the payment received by the assessee under the concerned head was declared to be categorized as capital receipt rather than revenue receipt and thus not taxable, in the hands of the assessee. 23. The transport subsidy received by a mustered oil unit located in Assam was the subject matter of consideration of the Apex Court in Jai Bhagwan Oil and Flour Mills (supra). In this case, the Supreme Court declared that the object of the Transport Subsidy Scheme is not augmentation of revenue but to improve trade and commerce between the remote parts of the country with other parts to bring about economic development of the remote and backward regions. The ratio of this case makes it clear that the amount received towards transportation cost in the hand of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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