TMI Blog1997 (7) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... olding--- (i) 'the cost of work was not to include charges for establishment and supervision'; (ii) 'these expenses have to be borne by the assessee'; (iii) 'there was always a deficit in the revenue account'; (iv) 'it was for this reason that the Government had agreed to pay to the assessee the subsidy'; (v) 'it does not spring from any activity carried on by the assessee'; (vi) 'the amount so received would not partake of the character of a revenue receipt'; (vii) 'without grants from the Government there would be no possibility of the assessee carrying on its activity for long'; (viii) 'the contribution made by the Government therefore were to augment the capital of the assessee...'; (ix) 'this is not a trading receipt.... it was not received... in the character of a trader'; (x) 'it is for that reason the subsidy is granted by the Government' and are not the above findings wrong, unreasonable and inconsistent with the draft schemes and the object of the assessee-company?" The relevant facts are as follows : The assessee, the Kerala Land Development Corporation Ltd., is a Government company registered under the Companies Act, 1956. Under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these tax reference cases at the instance of the Revenue. Before we go into the issue raised in these cases, we will first examine the nature of the duties cast on the assessee-Corporation by the statute, its activities and its right to get subsidy from the State Government. The Kerala Land Development Corporation Limited (Special Powers) Act, 1974, invests the assessee-Corporation with certain powers to facilitate execution of land development schemes in the State of Kerala. The Act came into force with effect from November 21, 1973. Section 3 of the above statute provides that whenever the Corporation is of opinion that it is expedient and in public interest to execute a scheme in any area, it may prepare a draft scheme containing necessary particulars as provided under the Act. The scheme may relate to control and prevention of soil erosion, preservation and improvement of soil, reclamation of waste, saline or water-logged areas etc. The scheme will be published inviting objections from the public and an enquiry officer appointed by the Corporation or the Government would enquire into the objections received. He would submit those objections to the Corporation together with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended on behalf of the Revenue that the subsidy received by the assessee constitutes revenue receipt and it is income in its hands. In support of the above contention, learned standing counsel for the Revenue relied on the following decisions : Pontypridd and Rhondda Joint Water Board v. Ostime (H. M. Inspector of Taxes) [1946] 14 ITR (Supp.) 45 (HL); Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 (SC); Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473 (Bom); CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747 (All) and Kesaria Tea Co. Ltd. v. CIT [1989] 180 ITR 134 (Ker). In Pontypridd and Rhondda Joint Water Board v. Ostime [1946] 14 ITR (Suppl.) 45 (HL), the question that arose for consideration was whether sums received by Pontypridd and Rhondda Joint Water Board to meet the estimated deficiency in the result of what were admittedly trading activities can be taken into account in computing the profits and gains of the Board's trade. It was held that since assistance was given for the purpose of being used in the business carried on by the Board so as to enable them to meet the trading obligations, the amounts so given are trading receipts. Even though the main j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arose from it. Under these circumstances, the assessee was found not entitled to exemption under section 4(3)(vii). In Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473, the Bombay High Court had occasion to consider the nature of the subsidy allowed to the manufacturers of soda ash as per a decision of the Government in February, 1950. During the years 1950-51 and 1951-52, there was a glut in the market of soda ash because of large imports thereof. On representations made to the Government by those who were engaged in the manufacture of soda ash, the Government took a decision to allow subsidy of Re. 1 per cwt. on soda ash produced by the companies mentioned and sold from the date of the resolution, provided the Government was satisfied that the companies actually sold the soda ash at the fair selling price recommended by the Tariff Board. The Income-tax Officer brought to charge the amount received by the assessee as subsidy from the Government. The above view was affirmed by the appellate authorities. On a reference, the High Court of Bombay did not accept the contention of the assessee that the receipt of subsidy was of a casual and non-recurring nature and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a revenue receipt, for, it was an additional payment received for the goods sold by way of export. Therefore, the amount received by the assessee as export subsidy was held to be the assessee's income. The assessee, on the other hand, would contend that none of the decisions relied on by the Revenue have application in the facts of this case. We find merit in this submission. In all those cases, the assessees were involved in trading activities whereas in the case of the Corporation, trading activity is not one of its objects or at any rate, the duties cast on the Corporation as per the provisions contained under the Kerala Land Development Corporation Ltd. (Special Powers) Act, 1974, are not in the nature of a trading activity. There is no question of profit motive when the Corporation discharges its statutory functions. This is clear from the provisions contained under sections 3, 10 and 11 of the Act. Apart from the above, the subsidy granted by the Government covers only the supervision charges and overhead expenses of the Corporation while it discharges its statutory duties. Therefore, subsidy received by the assessee cannot be treated as trade receipt. In Crook v. Seaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion raised by learned counsel for the Revenue that the principle laid down in the decision of the Supreme Court in CIT v. G. R. Karthikeyan [1993] 201 ITR 866 should apply in this case also. Now, we will consider whether the decision in Kesaria Tea Co. Ltd. v. CIT [1989] 180 ITR 134 (Ker) has any application to the facts of the present case. In that case, the assessee, who was carrying on the business of export of tea, received cash assistance from the Government of India. Such cash assistance was given to customers like the assessee in order to help them to carry on the export business in a profitable manner. The quantum of the assistance was fixed at 10 per cent. of the free on board value of instant tea, packet tea and tea bags. The assessing authority held that the cash assistance thus received would be income for the purpose of assessment to income-tax. This court also affirmed the view. It was found that the amount was received during the course of the conduct of the business. The payment of subsidy or cash assistance was directly proportionate to the quantity of the goods exported. Therefore, the amount received by the assessee was supplementary income as it was by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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