TMI Blog1993 (8) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under section 256(1) of the said Act. In fine, this court is required to answer two questions as follows: "Question under section 256(1) : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Transport Subsidy granted by the Director of Industry, Assam, in terms of Notification of the Government of India, Ministry of Industrial Development dated July 23, 1971, were a receipt of revenue nature and were rightly added to the income of the assessee? Question under section 256(2) : Whether the finding of the Tribunal that the transport subsidies were inseparably connected with the business carried on by the assessee was unjust, unreasonable and perverse?" Briefly stated the facts are that the assessee during the previous years relevant to the assessment years 1980-81 to 1982-83 carried on the business of manufacture and sale of plywood and blackboards at Makum, Assam. It received Rs. 3,04,392, Rs. 1,27,569 and Rs. 2,00,982, respectively, as transport subsidy from the Central Government, in terms of Notification of the Government of India, Ministry of Industry, Department of Industrial Development, dated July 23, 1971, k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions Ltd. [1987] 168 ITR 63. The Appellate Tribunal examined the transport subsidy scheme and the objects of the same and found that under the Scheme 50 per cent. of the transportation cost of raw materials and finished goods was to be paid to the new units set up in backward areas as well as to the existing units which made substantial expansion or diversification after the commencement of the scheme. The Tribunal, while agreeing that the said subsidy scheme was formulated and subsidy granted for promotion and growth of industry in backward areas and subsidies were granted to obviate to some extent the extra hardship and difficulties faced by the entrepreneurs in the backward areas, however, held that that fact was not a decisive factor and the subsidy could not be treated as a capital receipt not liable to tax on that ground alone. The Tribunal distinguished the decision of the Madhya Pradesh High Court as well as of the Andhra Pradesh High Court and in our view rightly held that the said decisions do not advance the assessee's case. The decisions which have been relied upon are on subsidies which are given on the capital investment made by the assessee in setting up a new i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld constitute the income of the assessee. As the assessee had a right and was entitled to recover the incentives through a court of law, the refund allowed was inseparably connected with the business carried on by the assessee. The benefits were available only from the date the industrial undertaking commenced production and for a period of five years. There was no room or basis for dissociating the subsidy from the business of the assessee as the subsidy was given for setting up and development of business and not for any other unrelated purpose. The subsidy granted was also to attract industries to enhance employment potential, economic prosperity and income of the State. In the case of CIT v. Malayalam Plantations Ltd. [1987] 168 ITR 63, the Kerala High Court held that the money given by the State to recoup revenue expenses is a revenue receipt and accordingly taxable under the Income-tax Act. After considering almost the same case-law, both English and Indian, the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448 observed as follows: "In deciding the nature of a subsidy paid by the Government to encourage exports, what is decisive is the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckward areas. We, however, find no inequities in such a distinction. Every entrepreneurship has two-fold hazards. One hazard is in the capital outlay. If the business by virtue of being set up in a backward area goes on the rocks, the capital investment will be lost to the entrepreneur. So, if the State shares the burden of the capital outlay the same cannot but be brought to capital account because the capital sum, if expended solely on the entrepreneur's own account, would not be a revenue expenditure. Therefore, its reimbursement could not as well be a revenue receipt. This is a simple and forthright view. Thus, the advantage which the entrepreneur would secure by the subsidy is on capital account and has to be treated as such, but where the State decides to give a running support to hold the stability of the revenue of the unit set up and run in the backward areas, the support will be part of the profit. Taxing such supporting revenue would not result in inequity to such unit in a backward area as the support is intended to maintain the return to the entrepreneur year by year in line with the return to a similar unit in non-backward area. It would not be fair for the unit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to looking at it as the receipt of the trade entering into its profit. A reference is also to be made to the following observations by Viscount Simon (at page 328 of 34 TC): "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, i.e., are to be brought into account in arriving at the balance of profits or gains under case I of Schedule D." (see Ostime v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261, 278 (HL). In any case, we are of the view, that the transport subsidy is a sum which went to make up the profits or gains of the trade of the assessee, is so far as it recoups the expenditure on account of transport. The judiciary is also very clear on the treatment of subsidies or grants from public funds. There is a clear principle discernible in V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC) that where subsidies or grants are given by the Government to assist the trader to earn profit in his business, they are, generally speaking, payments of a revenue nature. As we have seen above, the English judiciary has gone to the length of saying that even where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertake replanting of old and uneconomic plantations and for that the Rubber Board is offering them assistance under its replanting subsidy scheme. This economic assistance is offered by the Board under stringent conditions for implementing a scheme that seeks to achieve development of the rubber plantation on efficient and economic lines. It is done to promote public interest. Thus, it is difficult to hold that the replantation subsidy given to the rubber growers is to swell the profits of the growers. So replanting subsidy received from the Rubber Board under the Replantation Subsidy Scheme of 1967 by the assessee-grower is not a revenue receipt. But, this decision to our mind is not consistent with the decision in V. S. S. V. Meenakshi Achi's case [1966] 60 ITR 253 (SC). In that case, the assessee owned rubber plantations in Malaya. Out of the fund into which the collection of cesses on rubber produced and rubber exported from the Federation of Malay States were paid, proportionate parts of the cesses so collected, after defraying the expenses, were credited to the accounts of the assessees, corresponding to the amount of rubber produced by them, and payments were made to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt potential, economic prosperity and the income of the State. It is to attract new entrepreneurs that the Government had come forward with the said incentives. The payments could not be considered to be voluntary contributions. The assessee and for that matter any other person setting up an industry in the State of Andhra Pradesh was entitled to the facilities and incentives provided by the said Government Order as a matter of right which, if denied, he could enforce in a court of law. The fact that the Government reserved to itself the power to withdraw the Government Order or to amend it, did not mean that so long as the Government Order was in operation, the persons concerned did not have a right to enforce the same. The source as well as the payments were both certain and definite. The payments were inseparably connected with the business carried on by the assessee. The benefits were available only from the date the new industrial undertaking commenced production and for a period of five years therefrom. The refund of the subsidy, as it may be called, was dependent upon the industry continuing in production. There was no room or basis for dissociating the subsidy from the busi ..... 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