TMI Blog1989 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel appearing for the assessees submitted before the Division Bench that the decision in Malayalam Plantations' case [1987] 168 ITR 63 (Ker), required reconsideration and so, the Division Bench referred the matter for a decision by the Full Bench. We propose to decide first 1. T. Rs. Nos. 217 and 218 of 1980, since we heard detailed arguments in these two cases. The only question that has to be considered is whether the subsidy received from the Rubber Board by the assessee is income of the assessee liable to be taxed under the Act. The assessee filed an appeal against the order of the Income-tax Officer before the Appellate Assistant Commissioner of Income-tax, Trivandrum, only against the assessment of subsidy amounts received from the Rubber Board as taxable income. The Income-tax Officer held that the amount received by the assessee is not agricultural income. He also found that as the business carried on by the assessee is rubber manufacture and any expenditure incurred for the rubber plantation is also a business expenditure, the subsidy received thus for recouping some of the expenditure is taxable income. The Appellate Assistant Commissioner disagreed with the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idy received by the assessee for the purpose of replanting, from the Rubber Board, is taxable income in the hands of the assessee ? Learned counsel for the assessee very frankly submitted before us that if the ratio of the decision in V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC) is applicable to the case, the question referred has to be answered in favour of the Revenue. Assuming that the question referred in the case reported in CIT v. Malayalam Plantations Ltd. [1987] 168 ITR 63 (Ker) is identical with the question that arose in Meenakshi Achi's case [1966] 60 ITR 253 (SC), this court has held that the subsidy paid to the assessee would swell the profits of the assessee, and so, the amount of subsidy is not a capital receipt and is only a revenue receipt which can be included in the taxable income. It is clear and plain that in coming to the above conclusion, the Division Bench proceeded on the stereobate that the question decided in Meenakshi Achi's case [1966] 60 ITR 253 (SC) was an identical question. Learned counsel submits that an analysis of the facts of the case in Meenakshi Achi's case [1966] 60 ITR 253 (SC) would plainly show that the facts and particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the Rubber Board. It is plainly clear from annexure F of the subsidy scheme framed by the Rubber Board that the subsidy is given for "replanting". It opens with the aim of the scheme, by declaring that the scheme is intended to provide for the grant of subsidy for replanting an area of 10,000 acres in 1967. Further, it is stated that the rate of subsidy is Rs. 1,000 per acre payable in seven yearly instalments, the first being Rs. 400 and the remaining at Rs. 100 per acre. Again, it is made clear that the subsidy will not be given for budding immature unselected plants but will be restricted to replanting. From the above provisions of the scheme, it can be fairly concluded that the object of the scheme is "replanting" and the subsidy is being paid for replanting high-yielding variety of rubber plants which the Rubber Board and the Government thought necessary for the development of the rubber industry, public purpose of vital public interest. The payment of subsidy can be justified only if it promotes a public interest. From the statutory provisions referred to by us and the provisions of the scheme, we feel that the confessed object and purpose of the whole scheme is a publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enakshi Achi's case [1966] 60 ITR 253 (SC) was assessed to income-tax, computing the income including payments made by a foreign Government out of the cess fund against the expenditure incurred on the maintenance of her plantation. Learned counsel for the assessee submitted before us that there were special and peculiar circumstances involved in that case and it can never be said that the question raised in Meenakshi Achi's case [1966] 60 ITR 253 (SC) was "identical" with the question that arose in Malayalam Plantations' case [1987] 168 ITR 63 (Ker). In Meenakshi Achi's case [1966] 60 ITR 253 (SC), the assessee owned rubber plantations in the Federated Malay States outside Penang. Out of a fund into which cesses collected under the Rubber Industry (Replanting) Fund Ordinance, 1952, on rubber produced in Penang and rubber exported from the Federation other than Penang, were paid, proportionate parts of the cesses so collected, after defraying expenses, were credited to the accounts of the assessee, corresponding to the amount of rubber produced by them, and payments were made to the assessees from the amounts so credited against expenditure incurred on the maintenance of the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision in Meenakshi Achi's case [1966] 60 ITR 253 (SC). The case decided by the Division Bench in Malayalam Plantations' case [1987] 168 ITR 63 (Ker) and the cases before us do not at all have those vital distinctive facts/ features found in Meenakshi Achi's case [1966] 60 ITR 253 (SC). Now, we shall refer to certain cases dealing with the question of the payment of subsidy as a capital receipt or a revenue receipt. In Bengal Textiles Association v. CIT [1960] 39 ITR 723, the Supreme Court has broadly stated what should be the principal point to be decided to determine whether a subsidy paid to an assessee is a capital receipt or a revenue receipt. The Supreme Court observed thus (at p. 728) : "What is decisive in this case is that these payments were made to the association in order that they be used in the business of the association and for services rendered and they have to be viewed from that point of view. So viewed, the payments cannot be said to be of a benevolent nature. Their very quality and nature make it impossible to treat them as bounty or subsidy because the use of the words 'bonus or subsidy' in section 4, proviso (c), connotes that the payment is in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as nothing to do with their trade in the sense of acquiring profits or gains of the trade, certainly it is not income in the hands of the recipient. Similarly, if a subsidy or any amount is paid for beneficial purpose, such as keeping men in employment or Starting an industry in a backward area or electrifying a remote area which could not be undertaken but for the grant, such payment, being of a beneficial character, cannot be taxed as income. In applying this principle, necessarily, we have to examine the nature, character and content of the subsidy given to the assessee. In this case, the facts relevant for investigation are the provisions under which the subsidy is granted. These provisions have to be discerned from the provisions of the Rubber Act and the Rubber Board Replanting Subsidy Scheme framed by the Rubber Board. The scheme provided for the grant of subsidy for replanting an area of 10,000 acres in 1967. The scheme is definitely only for one purpose, viz., replanting. It is not for the purpose of upkeeping or maintaining mature or immature plants. The chief purpose is replanting rubber trees. This fact is made clear by saying that the subsidy will be granted for repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived as subsidy in the hands of the assessee is income. But, he was not able to specify under what category this income can be included for the purpose of making it taxable income. Whether it is an amount received for capital expenditure or for revenue expenditure is a test to determine whether it is an income which is taxable under the Income-tax Act. The line of demarcation between capital expenditure and revenue expenditure is very thin. The problem finally turns on the question of distinction between capital expenditure and revenue expenditure or, in other words, whether the amount of subsidy received is a capital receipt or revenue receipt. The importance of the distinction is obvious. For the present purpose, it lies in the fact that the taxpayer can exclude it if the amount received as subsidy is a capital receipt from his total taxable income. The forensic field of conflict involved in this question is an intellectual minefield in which the principles are elusory and shrinking (at any rate that is the view taken by Lord Cullen in Mac Taggart v. B and E Strump [1925] SC 599). Analogies are perfidious and slippery, treacherous as it would appear from the observations of Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure in carrying on the concern is revenue expenditure. This makes the vital difference between the cases reported in Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR 83 (SC) and Travancore Rubber and Tea Co. Ltd. v. Commr. of Agrl. I. T. [1961] 41 ITR 751 (SC). Lord Dunedin in Vallambrosa Rubber Co. Ltd. v. Farmer (Surveyor of Taxes) [1910] 5 TC 529, 536 (C. Sess), suggested another criterion thus "Now, I don't say that this consideration is absolutely final or determinative, but in a rough way I think it is not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all, and income expenditure is a thing that is going to recur every year." In fact, Rowlatt J. adopted the dictum suggested by Lord Dunedin in Ounsworth (Surveyor of Taxes) v. Vickers Ltd. [1915] 6 TC 671 and said that the real test was between expenditure which was made to meet continuous demand for expenditure as opposed to an expenditure which was made once for all. In Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL), Viscount C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning asset and the process of the earning of the income. Expenditure in the acquisition of that asset was capital expenditure and expenditure in the process of the earning of the profits was revenue expenditure. " In a decision of the Court of Appeal in Tucker v. Granada Motorway Services Ltd. [1979] 1 All ER 23, Stamp and Orr LJJ. observed thus (headnote) "In determining whether a payment is of a capital or revenue nature, the questions to be asked are whether the payment brings some asset or advantage into existence and whether it is an enduring asset and advantage, i.e., enduring in the same way that fixed capital endures, and not whether it is made with a view to bringing into existence some asset or advantage for the enduring benefit of the trade." The subsidy scheme makes it very clear that the amount of subsidy has to be spent "for the acquisition of an asset" by replanting rubber plants of high-yielding varieties. The Division Bench in Malayalam Plantations' case [1987] 168 ITR 63 (Ker) has referred to section 10(30) of the Act which allowed exclusion of subsidy for tea plantation from the computation of total income and the Division Bench observed that what was other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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