Commissioner of Income Tax vs Meat Products of India Ltd.

Om Prakash, C.J.—Heard counsel for the parties.

The Income Tax Appellate Tribunal, at the instance of the Revenue, referred the following question for the opinion of this court relating to the assessment year 1982-83, u/s 256(2) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the subsidy given by the Government of Kerala, is a capital receipt not liable to tax ?"

The assessee is a Kerala Government undertaking engaged in the business of producing meat and meat products. The assessee received a sum of Rs. 5 lakhs from the Government of Kerala (Animal Husbandary Department) by the Government order dated April 30, 1981. The subsidy was brought to tax by the Assessing Officer treating the same as receipt of revenue nature. On appeal the Commissioner of Income Tax (Appeals) held that the subsidy was in the nature of capital receipt and thus he reversed the decision of the Assessing Officer to that extent. On further appeal, the Appellate Tribunal affirmed the order of the Commissioner of Income Tax (Appeals).

The Government order sanctioning subsidy to the assessee has been reproduced in its order by the Appellate Tribunal, who held that the subsidy was meant for promoting low cost high quality pig feeds for distribution to farmers. No clear finding has been recorded by the Appellate Tribunal whether the subsidy was granted to the assessee for establishing a new unit for manufacturing or for starting some other activity or for successful running of an already established unit. In M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of Income Tax, Andhra Pradesh-I, Hyderabad, , the Supreme Court precisely laid down a test to distinguish between the subsidy of capital nature or the subsidy of revenue nature. The test is the purpose of the subsidy. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as having been received for capital purposes. But if monies arc given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. Therefore, a clear finding of facts from the Appellate Tribunal is necessary whether the purpose of the subsidy was to set up or complete a new project and whether the purpose was to run business operations successfully after the commencement of production.

The fact situation not being clear, we have no option but to remand the case to the Appellate Tribunal for recording a clear finding as to what was the purpose for which subsidy was granted to the assessee under the Government order.

In the result, the question is returned unanswered with the direction that the Appellate Tribunal will record a clear finding as to the purpose of the subsidy granted to the assessee and thereafter decide the appeal afresh.