Bombay High Court

Jt Cit vs Oceanic Farms (Export) (P) Ltd. on 29 January, 2004

Equivalent citations: (2004) 91 TTJ Mumbai 821

ORDER

I.P. Bansal, J.M.:

This is an appeal filed by the revenue and is directed against the order of Commissioner (Appeals), dated 29-3-2000, for the assessment year 1997-98.

2. Grounds of appeal read as under :

"1 On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 30 lakhs inasmuch as in the facts of the case, the impugned amount was in the nature of assistance granted by the State Government to the assessee for the purpose of carrying on the business which was already set up by the grant received from the Central Government for setting up the business."

"2. On the facts and in the circumstances of the case as immediately aforesaid, the learned Commissioner (Appeals) erred in holding that the ruling of the Supreme Court in Sahney Steel & Press Works Ltd v. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC) the subsidy for carrying on the business was a revenue receipt-was not applicable in the facts of the case."

3. The assessee is an exporter of agro-based products, mainly grapes. It established, cold storage in a backward area at Gat No. 126/2B, Kadwa Mahalungi, Taluka Dindhori, Distt. Nashik. The location of the undertaking is in a backward area which enables the assessee to avail of the package of incentives (1998 Scheme for Dispersal of Industries (hereinafter referred to as "'1998 Scheme")). The place where the industry- is situated is mentioned place as classified under Gr. "D" area of the said scheme. For establishing such industry in the said backward area, the assessee has received a sum of Rs. 30,00,000 as subsidy. According to the assessing officer, as the said sum was received after set up of the industry, it was for conducting the business of the assessee. Therefore, the nature of receipt was revenue and not capital. Thus, the assessing officer added the said sum of Rs. 30 lakhs to the income of assessee. The assessing officer for holding so followed the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd v. CIT (supra). The addition was agitated in an appeal before Commissioner (Appeals) who decided this issue as per para 5 of his order in favour of assessee. The said para 5 is'reproduced below :

"5. On a consideration of the facts and circumstances of the case and the various case laws discussed, it is very clear that Sahney Steel case stands on a completely different footing to the appellant's case to which, the decisions relied on by the appellant which have been approved in principle in Sahney Steels caseapply, because it is very clear that in Sahney Steel, the Andhra Pradesh Government gave a subsidy to bring down cost of production, whereas, in the appellant's case, the Government of Maharashtra has given capital subsidy for setting up new units in notified backward area and the subsidy has been given even as units are in the process of being set up, since the quantum of the subsidy is based on the capital cost involved. Moreover, the appellant's case is fully covered by the Supreme Court's decision in the case of Elys Plastic (1994) 210 ITR 177 (SC) (sic-CIT v. P.J. Chemicals Ltd. Etc. Etc. (1994) 210 ITR 830 (SC). Accordingly, this ground is decided in favour of the appellant."

4. The learned Departmental Representative contended that subsidy was received by the assessee after setting up of its business. Therefore, it was received for production and thus, was operational subsidy. It was not a capital subsidy. Therefore, the said subsidy was in the nature of revenue. The assessing officer was right in considering the same as taxable in view of the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd v. CIT (supra).

5. On the other hand, the learned authorised representative of the assessee submitted before us that the assessee had received special capital incentive in accordance with the abovementioned scheme. He has submitted before us a copy of the scheme in paper book from pp. 17 to 47. He pointed out that as per para 7.1 of the said scheme the assessee was entitled to receive Rs. 30 lakhs of subsidy. He, further invited our attention towards paras 7.2 and 7.3 of the Scheme. For the sake of convenience, the paras 7.2 and 7.3 are reproduced below :

"7.2 The special capital incentive will also be admissible to eligible units set up in the industrially backward district in Maharashtra where the Central investment subsidy is applicable. The quantum of special capital incentive admissible in such cases will be in addition to the amount of Central subsidy that would be admissible to such eligible units."

7.3 The special capital incentive will be admissible as a grant. The eligible unit will be entitled to draw the incentive after completion of all the effective steps-both initial and final-and the same will be computed on the basis of fixed capital investment actually made by the eligible unit."

Referring to the above-mentioned paras, he contended that the nature of subsidy was capital in nature. By the condition laid down in para 7.3, the assessee could draw the incentive only after completion of all effective steps both initial and final. Therefore, the learned Departmental Representative is not right in contending that as subsidy was received after setting up of an industry the same should be treated as revenue receipt. Therefore, the learned authorised representative of the assessee contended that Commissioner (Appeals) has rightly given the relief to the assessee.

6. We have carefully considered the rival submissions in the light of material placed before us. We have also per used the Scheme. As per para 7.3 of the said scheme the amount received by the assessee was capital incentive. It was not in the nature of supplementary receipt. It was not subsidy granted year after year. Therefore, it was not an assistance given for the purpose of carrying on the business of the assessee. On the other hand, the subsidy was given for the growth of the industry generally in public interest without any objective to supplement the trade receipt or to enable it to recoup revenue expenditure already incurred by the assessee. Therefore, the nature of the receipt is capital as per the view taken by jurisdictional High Court in the case of Sadichha Chitra v. CIT (1991) 189 ITR 774 (Bom), the case relied upon by the assessee before Commissioner (Appeals). The said decision of the Hon'ble Bombay High Court has been approved by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd v. CIT (supra). In this view of the factual and legal position, we find ourselves in agreement with the view taken by Commissioner (Appeals) that the subsidy received by the assessee was capital in nature, accordingly, it could not be taxed as revenue receipt. Therefore, we find no force in the departmental appeal. The appeal filed by the revenue is, there ore, dismissed.