TMI Blog1976 (7) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the revenue are agreed that in view of the decision of the Supreme Court in the case of India Cements Ltd. v. Commissioner of Income-tax [1966] 60 ITR 52 (SC), this question has to be answered in the negative and in favour of the assessee. We answer question No. 1 accordingly in the negative and in favour of the assessee. So far as questions Nos. 2 and 3 are concerned, they are raised with reference to the assessment year 1955-56, the corresponding accounting period being the financial year 1954-55, i.e., the year ending March 31, 1955. The assessee-company carried on the business of manufacture of chemicals and in particular of soda ash. During the years 1950-51 and 1951-52 there was a glut in the market, largely because of large imports of soda ash. Tata Chemicals Ltd. was another concern which was also manufacturing soda ash. These two companies found it difficult to carry on the business in soda ash profitably. The production was stopped. Representations were made to the Government of India in the Ministry of Commerce for imposing restrictions on the imports and for granting protection to the soda ash industry. By a resolution of the Government of India in the Minis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved a notice under section 80 of the Code of Civil Procedure upon the Government making the claim of Rs. 2,15,270 and stating that if the said amount was not paid it would file a suit to claim the said amount from the Government. As neither the amount was paid pursuant to the statutory notice, nor was any reply sent to it, ultimately, in February, 1954, the assessee filed a suit being Civil Suit No. 40 of 1954 in the court of the Senior Sub-Judge, Surendranagar, claiming a sum of Rs. 2,15,270 by way of subsidy from the Government. Ultimately, pursuant to an agreement arrived at between the Government and the assessee as stated in the letter of the Under-Secretary, Ministry of Commerce and Industry, Government of India, dated August 13, 1954, a sum of Rs. 2,03,903-2-0 was sanctioned to be paid by the President to the assessee as and by way of subsidy in respect of soda ash sold during the period October 1, 1950, to July 12, 1951. It was stated in this letter that this payment was to be in full and final settlement of the claim of the assessee for subsidy as agreed to amicably between the assessee and the Government. In view of the said agreement, during the accounting year 1954-55, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal and urged the very same contentions. Thus, two questions arose for determination before the Tribunal, viz., (1) whether the receipt of sum of Rs. 2,03,903 was income from business and/or whether it was a casual and non-recurring receipt and, therefore, exempt from payment of income-tax ? and (2) when did this income actually accrue to the assessee and, therefore in which year, if at all it was assessable ? The Tribunal held that the receipt of Rs. 2,03,903 directly arose out of the assessee carrying on the business of manufacture and sale of soda ash ; that the subsidy was paid to compensate for the loss of profits which the assessee would have otherwise incurred on the manufacture and sale. Accordingly, the Tribunal took the view that the receipt of Rs. 2,03,903 was a revenue receipt and not casual and non-recurring and was assessable as business income of the assessee. So far as the second contention urged on behalf of the assessee was concerned, the Tribunal held that the assessee had been adopting the mercantile system of accounting as far as that business was concerned ; that it did not disclose or offer to disclose for assessment for the year 1951 or the year 1952 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature or are not by way of addition to the remuneration of an employee, are to included in the total income of the person receiving the same. The question to be considered in the present case is whether the sum of Rs. 2,03,903 which was received by the assessee from the Government was a capital receipt and whether it was of a casual and non-recurring nature. It is an admitted fact that during the years 1950 and 1951-52, there was a glut in the market of soda ash largely because of large imports thereof. The assessee as well as Tata Chemicals Ltd., which was the other concern manufacturing soda ash, found it difficult to carry on the business profitably and the production of soda ash was stopped. Under these circumstances a representation was made to the Government and the Government in its turn referred the matter for recommendations to the Tariff Board. The Tariff Board in their recommendations, inter alia, pointed out that the factory of the assessee and Tata Chemicals Ltd. were closed down in April, 1949, because of their inability to dispose of the stocks due to excessive imports of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undoubtedly, as the production had stopped and it was to be restarted, then, naturally, unemployment would be relieved to a certain extent, but the sole object underlying the grant of subsidy was that the assessee as well as Tata Chemicals Ltd. may be able to carry on their business of manufacture of soda ash profitably in competition with the price of imported soda ash. The question whether subsidy or grant from the Government should be treated as a revenue receipt or a capial receipt is well-settled in view of the decision of the House of Lords in Ostime (H. M. Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261 ; 14 ITR (Supp) 45, 47 (HL). At page 278 Viscount Simon laid down two propositions as under : " The first proposition is that, subject to the exception hereafter mentioned, 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, that is, are to be brought into account in arriving at the balance of profits or gains.... The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find myself quite unable to see that it was a trade receipt........Lord Atkin said at page 353 : " ... when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. " So far as the subsidy received by the assessee from the Government was concerned, it could not be regarded as falling into the same category as unemployment grant in the Seaham Harbour Dock Company's case [1931] 16 TC 333 (HL). On the contrary, it was received as a sum which enabled the assessee-company to carry on its business of manufacture of soda ash profitably. It was urged by Mr. Kolah that under the resolution of the Government the subsidy was payable only for the period ending March 31, 1953, and so the receipt was of a casual and non-recurring nature and was, therefore, not includible in ascertaining the profits or gains of the business. It is not possible to accept this contention. The sole object underlying the grant of subsidy was to enable the assessee-company to carry on its business profitably in order that it might not suffer losses having regard to the prices at which imported soda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee against the Government. He submitted that even though the accounts of the assessee-company are maintained on mercantile system of accounting, as the amounts accrued during the two assessment years 1951-52 and 1952-53, they were not liable to be taxed by the taxing authority as well as by the Tribunal during the assessment year 1955-56. Mr. Joshi, on behalf of the revenue, on the other hand, contended that if regard be had to the resolution passed by the Government on February 22, 1950, it is quite evident that upon a mere sale by the assessee-company of soda ash manufactured by it after the date of the resolution, a right to demand subsidy did not accrue to the assessee. Such amount of subsidy was payable by Government to the assessee only after the Government was satisfied that the assessee-company actually sold the soda ash at the fair selling price recommended by the Tariff Board. He pointed out that when the demand was made for the first time by the assessee by its letter dated January 29, 1952, the sum demanded was Rs. 2,15,270 and that was on the basis of the sale of 2,15,270 cwts. of soda ash. The Form "A " annexed to this letter clearly indicated that the total quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price fixed by the Government came into play at all or prevented or stopped accrual of the income, it is quite clear that the claim made in the notice as well as in the suit has not been accepted in toto by the Government. Actually, under the resolution of the Government, the right to subsidy at the rate of Re. 1 per cwt. would arise for the first time not by mere reason of sale of soda ash but only when the Government was satisfied that the assessee actually sold soda ash at the fair selling prices recommended by the Tariff Board. In the recommendations of the Tariff Board it is clearly pointed out that the assessee-company was expected to sell soda ash at the rate of round about Rs. 15.35 per cwt. When the Government is satisfied that it had been sold at a fair selling price as recommended by the Tariff Board, then alone a right will accrue to the assessee-company to ask for subsidy. Actually, it is not clear from the very first letter dated January 29, 1952, whereby demand for Rs. 2,15,270 was made by way of subsidy from the Government that part of soda ash was sold at a rate higher than what was recommended by the Tariff Board. Mr. Kolah is right that the claim has not been den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir selling price at which soda ash was sold by the assessee and arrived at the actual figure by mutual settlement with the assessee. Such an event took place in or about August, 1954, and, therefore, the right to receive the amount accrued after such amicable agreement. Reference was also made by Mr. Kolah to the decision of the Bombay High Court in the case of Vishnu Agencies Private Ltd. v. Commissioner of Income-tax [1963] 48 ITR 444 (Bom). In this case the assessee, which maintained its accounts on the mercantile system, acted as transport contractor to the Government. After transporting sugar from the docks to the godowns for some time, the assessee found that sufficient load for its trucks were not provided. The assessee brought this fact to the notice of the Government, but as no action was taken by the Government, the assessee informed the Government that it would not be possible for it to supply any more trucks until the loading conditions were improved. For the work it had done already a sum of Rs. 1,45,395 was due to the assessee during the relevant previous year. Although it had debited in its accounts the expenses incurred by it in connection with the work, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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