TMI Blog1981 (7) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... with the only difference that the amount involved is Rs. 4,52,000 for that year instead of Rs. 6,27,000, which was the figure for the earlier year. The two questions arise out of the identical circumstances and the amounts mentioned in the question represent the amounts received by the assessee corporation from the State Trading Corporation of India (hereinafter referred to as the " STC ") for the reasons which will be mentioned later. The assessee-corporation was set up by the Ministry of Commerce of the Government of India in 1958, as a Government company under the name and style of Indian Handicrafts Development Corporation Ltd. Till the year 1962-63, the corporation was known under this name and its expenditure was being met by the Govt. of India by way of grants sanctioned on the basis of budget estimates submitted from year to year. The corporation after appropriating the grants had to send a certificate of utilisation to the Government. In June, 1962, the entire paid up share capital of the corporation was acquired by the STC from the Govt. of India. In October, 1962, the Handloom Exports Organisation of the STC was merged with the Indian Handicrafts Development Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the aspect of reimbursement was concerned, it was pointed out that there was nothing to show that the company could claim reimbursement as a matter of right. Even as late as in 1965, the matter was under correspondence between the assessee, the STC and the Government and there was no clearly established right in favour of the company, either against the STC, its holding company, or against the Government. It was, therefore, held that it was not possible to set off the loss against any accrued right to receive the reimbursement in respect thereof. It was, therefore, held by the Tribunal that the total income of the company should be determined after taking into account the expenditure subject to routine in admissible. It appears that this order of the Tribunal was accepted by the department and there was no further reference in the matter. For the assessment year 1965-66, the assessee-company claimed a loss of Rs. 8,75,367. This represented the excess of the expenditure incurred by the assessee over the Government grants. In this year also the assessee's loss was reimbursed by the STC to the extent of Rs. 6,27,000. It may also be mentioned that actually the total loss incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Trading Corporation, however, is quite different. In general law as well as for income-tax law each company has a separate personality and the subsidiary company has to be treated as distinct and separate from the parent or holding company. While it is true that in considering the nature and scope of business of a public sector undertaking, the special circumstances of its origin and functioning can be taken into account, the distinction between the holding company and the subsidiary company cannot in any manner be diluted or watered down judged from that point of view, all that had happened in the present case was that the holding company had made good the losses suffered by the subsidiary company. These losses had not occurred or at any rate there is nothing to show that these losses had occurred due to transactions undertaken by the assessee-company on behalf of the holding company. There was also nothing to show that the reimbursement was made by the holding company under any basic arrangement whereby the holding company was bound to, reimburse and the subsidiary company could anticipate such reimbursement. The indication, on the other hand, was that the question of rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,639 received by way of grant from the Moscow fair, and the sum of Rs. 4,52,000 received from the STC. The Tribunal, following the order of the assessment year 1965-66, held that the sum of Rs. 1,44,639 was taxable but not the further sum of Rs. 4,52,000. So far as the sum of Rs. 4,52,000 is concerned, an attempt was made by the department before the Tribunal to persuade it to take a view different from that taken in the earlier assessment year. It was sought to be suggested that the full correspondence with the Govt. of India in the matter had not been before the Tribunal when the appeal for the earlier year had been heard and that in any event having regard to the decision taken by the Government on September 2, 1965, to reimburse the assessee out of the funds of the STC, it should be taken that the STC had agreed to reimburse the losses incurred by the assessee and that the amounts paid by it should be treated as income. The Tribunal did not accept the points of distinction sought to be made out by the department and for reasons recorded separately but more or less the same, as had been set out in the earlier order, allowed the assessee's claim in regard to that sum. The departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular by the Tribunal in both the appellate orders and in the statement of case that the amounts given by the Government were in the nature of grants-in-aid. In other words, they were not of the same nature as the reimbursement made by the STC. They were amounts paid by the Government to the assessee which was carrying on an export business to promote its activities and the subsidies given by the Government to enable the assessee to carry on its export business more efficiently and satisfactorily were part of the trading receipts of the STC. We are of the opinion that the Tribunal was right in refusing to equate the reimbursement given by the STC with the grants-in-aid given by the Government. For the reasons which we have mentioned above we are of the opinion that the view taken by the Tribunal was correct and the sum of Rs. 6,27,000 for the assessment year 1965-66, and Rs. 4,52,000 for the assessment year 1966-67, were held rightly to be not includible in the total income of the assessee under the provisions of the I.T. Act, 1961. The questions referred are thus answered in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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