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TMI Blog2002 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ottles with marking of "Coca-Cola" and "Fanta" the two products, in which soft drink was marketed earlier remained with the assessee. As a result of disruption of this arrangement, a letter was issued by Coca-Cola Export Corporation through its office in India dealing with the stocks of Coca-Cola and Fanta bottles remaining with the assessee. As the entire contention is based on the contents of this letter, which is marked as annexure C, along with the statement of the case, we deem it proper to reproduce the same in its entirety "Reference No. 402 49-17-22 February 2, 1978. Messrs. jai Drinks Pvt. Ltd., Jawaharlal Nehru Marg, Jaipur-302004. Dear Sir, 1. The Coca-Cola Export Corporation does not accept any legal obligation to purchase stocks of Coca-Cola and Fanta bottles in your possession. 2. However, in response to appeals from several of the bottlers who find themselves in dire financial straits as a result of the non-availability of Coca cola, the Corporation is prepared to make an ex gratia offer of compensation to assist the bottlers through this difficult period treating all bottlers on an equal basis. 3. As your Coca-Cola and Fanta bottles are not usable and now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable income of the assessee. However, the Assessing Officer considered the amount received by the assessee on destruction of the bottles as revenue receipts chargeable to tax, on the ground that the cost of bottles, which were plant of the assessee had earlier been subjected to deductions under the provisions of the Income-tax Act while computing taxable income of such earlier years. According to the Assessing Officer, the aforesaid amount received by the assessee was the amount paid to him in respect of the plant, which was destroyed and such receipt was liable to be taxed under section 41(2) as it was prevalent in the assessment year in question. The assessee was unsuccessful before the Commissioner of Income-tax (Appeals) and in second appeal the learned judicial Member and the Accountant Member had a difference of opinion on this issue. While the judicial Member agreed with the conclusion reached by the Income-tax Officer and affirmed by the Commissioner of Income-tax (Appeals), the Accountant Member held it to be a capital receipt in the hands of the assessee and the question was referred to the President of the Tribunal. The President agreed with the judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be drawn by learned counsel with the principle on which subsidy extended by the Government in the interest of economic growth to different industries, which were not considered as a measure of reducing capital cost of establishing industries where subsidies are extended, None the less, the amount of subsidy to be disbursed, is measured with reference to capital investment made by the industry in the shape of fixed capital assets. He relied on the decisions in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830 (SC); CIT v. Bombay Burmah Trading Corporation [1986] 161 ITR 386 (SC) and CIT v. Bengal Assam Steamship Co. Ltd. [1986] 161 ITR 576 (Cal). On the other hand, it was contended by learned counsel for the Revenue that the amount received by the assessee is directly relatable to his plant in the form of Coca-Cola and Fanta bottles on account of destruction of such bottles. The bottles were his business assets in respect of which deductions have been claimed by the assessee. Any amount received by him whether by sale of such plant or on account of destruction of such plant was liable to be included in the taxable income under section 41(2) of the Income-tax Act, to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not placing the burden of carrying assets without its authority to market that the assessee destroyed all those bottles and for such destruction the Corporation paid it a certain amount. Clauses (3) and (4) of the letter leave no room of doubt. They deal with the contract between the Corporation and the assessee and the real object for the transaction was devising a mechanism to secure destruction of bottles by making payment therefor. No amount was payable, if the bottles were not destroyed. The amount was not payable as subsidy de hors the requisite conditions to be fulfilled by the assessee. If that be a conclusion, which we have reached, the payment received by the assessee as a result of destruction of business asset in respect of which deduction as depreciation under section 32 has been allowed to the assessee, the same was liable to be taxed under section 41(2) of the Income-tax Act. On the first conclusion the consequence to follow is not seriously disputed by learned counsel for the assessee. Also section 41(2) as it existed during the assessment years in question, clearly postulates that where any building, machinery, plant or furniture which is owned by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 1979-80 and 1980-81, respectively, during which the amount has became due. The decisions relied on by learned counsel are of little help to him. In CIT v. P. 1. Chemicals Ltd. [1994] 210 ITR 830 (SC), the question related to what should be the actual cost to the assessee of the capital assets within the meaning of section 43(1) on which depreciation is to be calculated. The contention was raised on behalf of the Revenue that the subsidy is paid by the Government to reduce the cost of acquisition of capital assets in the hands of the persons to whom subsidy is granted. The real question posed by this court was whether the subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries. The court concluded after referring to various decisions of the High Courts in India that: "The Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'." With t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was considered that in exchange of the loss of lease which was a capital asset for the assessee, the timber received also would partake of the character of a capital asset and the amount arising out of sale of such logs was not a revenue receipt, therefore, the application of the principle of balancing charge could not be made applicable to transaction of sale of plant. In the aforesaid circumstances, the case is clearly distinguishable both on facts and the controversy which had arisen before the court. The decision in CIT v. Bengal Assam Steamship Co. Ltd. [1986] 161 ITR 576, by the Calcutta High Court depended on the distinction drawn by it whether destruction of the business asset was accepted on account of some voluntary act of the assessee or its destruction was caused by act during the hostilities between India and Pakistan and was indemnified under the Scheme. Without dwelling on the validity of the distinction which weighed with the Calcutta High Court, on the principle evolved by the said High Court, the assessee's contention must fail. The destruction of the bottles in the present case has been caused on behalf of the assessee voluntarily. The offer was made t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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