Commissioner of Income Tax vs Tamil Nadu Tourism Development Corporation Ltd.

R. Jayasimha Babu, J.—Grant of Rs. 5 lakhs by the Government to an undertaking owned by it, is according to the Revenue, reimbursement

of revenue expenditure and is therefore to be treated as taxable income for the year, while according to the corporation which received the

amount, it is a capital receipt earmarked for a specific purpose and shown in the balance-sheet as ""Fairs and Exhibition Fund"".

During the financial year 1973-74, the Government made available to the Tamil Nadu Tourism Development Corporation a sum of Rs. 5 lakhs.

It issued three Government orders one dated July 10, 1973 another dated November 30, 1973, and finally yet another Government order dated

March 28, 1974. While in the first Government order the Government said that the sum of Rs. 5 lakhs was given as a grant for conducting a tourist

festival, the second Government order clarified that the amount was only an advance which was required to be refunded from out of the profits of

the fair, in the third Government order the Government went further and said that the amount of Rs. 5 lakhs given to that corporation shall be

treated as outright grant for the specific purpose of conducting exhibitions in future.'' In the balance-sheet of the corporation these amounts were

shown as amounts earmarked for setting up a permanent exhibition wing.

Though the Income Tax Officer and the Commissioner held that this amount is income and taxable as such, the Tribunal held after consideration

of all the three Government orders together and the position prevailing as at the end of the financial year, that the amount was received as capital

funds, we are in agreement with that view of the Tribunal. The fact that, the amount which was initially given is recoverable advance, was

subsequently modified into a grant of a capital character to be used for creating a permanent fund, does not in any way render the monies so given

liable for taxation as a loan cannot be treated as income. The advance was to be refunded and was a liability ; when it was converted into a grant

that grant was for a specific purpose and for creating a fund for holding exhibition and fairs in future. It was in the nature of a capital receipt and

we, therefore, answer the question referred to us at the instance of the Revenue, namely :

Whether the Appellate Tribunal was right in holding that the sum of Rs. 5 lakhs received by the assessee from the Government of Tamil Nadu as

grant under G.O.Ms. No. 1977, dated July 10, 1973, read G. O. Ms. No. 3147, dated November 30, 1973 and G. O. Ms. No. 1010, dated

March 28, 1974, should not be treated as the assessee''s income as it was received towards capital fund ?

in favour of the assessee and against the Revenue. There will be no order as to costs.