Tamilnadu Sugar Corporation Ltd. vs Commissioner of Income Tax and Another

N.V. Balasubramanian, J.—The petitioner has filed both the writ petitions challenging the order passed by the Commissioner of Income Tax

u/s 264 of the Income Tax Act, 1,961, hereinafter referred to as ""the Income Tax Act"", relating to the assessment of the petitioner''s income for the

assessment years 1986-87 and 1987-88.

The only point that arose before the Commissioner of Income Tax was whether the purchase tax subsidy received by the assessee, which was

returned as part of total income had to be excluded treating it as a capital receipt, and the Commissioner held that it was a revenue receipt and

dismissed the revision filed by the petitioner herein. It is against the said order, the present writ petitions have been filed,

The assessee, a writ petitioner herein, filed revision petitions before the Commissioner of Income Tax for two assessment years 1986-87 and

1987-88 and the point that was raised by the petitioner was that the purchase tax subsidy given to the petitioner by the Government of Tamil Nadu

which was earlier returned as business income was liable to be treated as a capital receipt. In G. O. Ms. No. 1294, Industries Department, dated

October 24, 1975, it is stated that the Government of India had constituted a Committee to go into the question of viability of sugar factories of

1,250 ted. established at high cost and the said Committee observed that sugar factories of 1,250 ted. established at such high cost would lose

heavily unless adequate reliefs as recommended by them are granted by the Central and State Governments. The G. O. also says that the

Committee recommended, among other recommendations, remission of purchase tax levied on the purchase of cane and the State Government

considered the recommendation of the Committee in the light of the projected profitability of the new sugar factories and decided in favour of the

grant of relief to new sugar factories yet to be commissioned in the co-operative and public sectors. In the G. O. it is also stated that the State

Government has decided that the abovementioned relief would be in the form of an annual subsidy equivalent to the quantum of purchase tax on

cane due from the sugar factories for a period of five years from the date of their going into production.

The case of the assessee, a writ petitioner herein, was that for the assessment years 1986-87 and 1987-88 it received purchase tax subsidy

from the State Government and returned the same as part of its income by mistake and hence claimed the same to be excluded in the computation

of the total income. As already found, the Commissioner of Income Tax did not accede to the request of the petitioner and dismissed the revision

filed by it.

Mr. P. P. S. Janarthana Raja, learned counsel appearing for the petitioner, submitted that the subsidy paid was for the setting up of sugar

factories and merely because the subsidy given is equivalent to the purchase tax on cane, it does not mean that it is a revenue receipt. Learned

counsel submitted that the subsidy is not for a specific liability and the yardstick cannot override the object of the scheme. Learned counsel

referred to the order of the Commissioner of Income Tax and submitted that the Commissioner has proceeded on wrong basis and the view of the

Commissioner that the purchase tax subsidy is a revenue receipt is erroneous. Learned counsel brought to the notice Of this court the decision of

the Supreme Court in M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of Income Tax, Andhra Pradesh-I,

Hyderabad, and submitted that on the basis of the decision of the Supreme Court, the subsidy which was given for setting up of the factory is not a

revenue receipt and hence not liable to be taxed as such.

Mr. C. V. Rajan, learned senior standing counsel appearing for the respondents, submitted that the subsidy was given only after the

commencement of production of sugar and it was not given for the setting up of the industries and, therefore, the Commissioner was correct in

holding that the subsidy is a revenue receipt.

I have carefully considered the submissions of learned counsel for the petitioner and learned senior standing counsel appearing for the

respondents. A fair reading of the Government order, cited supra, clearly shows that the subsidy equivalent to the quantum of purchase tax was

given to the sugar factories for a period of five years from the date of the commencement of production. In other words, the subsidy was given by

way of giving assistance to the sugar factories on the commencement of production and it is not given for the setting up of the factories, and the

subsidy is given only to tide over the difficulties that may be experienced by the management in the actual running of the sugar factories. Though the

amount of subsidy is equivalent to the quantum of purchase tax, the object behind the grant of the subsidy is not to set up a new sugar factory, but

to run the factory efficiently. In other words, the subsidy is given so that the management may not be in trouble in running of the sugar factories in

the initial years.

I am of the view the decision of the Supreme Court in M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of

Income Tax, Andhra Pradesh-I, Hyderabad, would apply to the facts of the case as in that case also under the scheme, the payments were made

directly or indirectly not for the setting up of the industries, but the payments were made only after the production was commenced and the subsidy

received was held to be revenue receipt. On the facts of the case, under the scheme, the payments of subsidy were made not for the purchase of

capital items, and it was not tied up with the purchase of machinery or for future expansion of the industry. In other words, it was given without any

prior condition attached to it and it is open to the petitioner to utilise the same for any of its purposes including its business purposes. The fact that

the payments made might have been utilised for the purchase of capital equipments is not relevant as there is no embargo imposed on the sugar

factory not to utilise the subsidy received for business purposes. The subsidy, in other words, is granted to tide over the teething troubles that the

sugar factory may face soon after the commencement of production and it is not for the setting up of the factory. I also hold that the fact that the

sugar factory is eligible to get the subsidy for a period of five years from the date of the commencement of production clearly indicates that the

payment of subsidy is linked to the production of sugar in the factory. It is further strengthened by the fact that the measure of payment of subsidy

is also closely interlinked with the purchase of sugarcane by the sugar factory which shows that the subsidy was granted for the continuous running

of its business and it is, not granted for the setting up of the sugar factory. Hence, I am not able to accept the submission of learned counsel for the

petitioner that the object of the grant of subsidy was for setting up of the sugar factory. Though the Commissioner may not be correct in his view

that the subsidy granted is the reimbursement of the purchase tax as he referred to Section 41(1) of the Income Tax Act, yet, while considering the

scheme under which the subsidy was granted, it is clear that it is a production oriented subsidy and not for the establishment of the factory.

Though I agree with Mr. P. P. S. Janarthana Raja, learned counsel, that the reasoning given by the Commissioner may not be quite accurate, a

fair reading of the scheme clearly shows that the ultimate conclusion arrived at by the Commissioner that the subsidy amount is a revenue receipt is

sustainable in law and since his ultimate conclusion is correct, it is not necessary to remit the same to him to arrive at the same conclusion by a

different process of reasoning. I, therefore, hold that the subsidy received by the petitioner was rightly held by the Commissioner of Income Tax as

revenue receipt. Both the writ petitions fail and are dismissed. However, in the circumstances there will be no order as to costs. Consequently, W.

M. P. Nos. 24864 and 24865 of 1990 are closed.