U.P. State Handloom Corpn. Ltd. vs Commissioner Income Tax

We have heard Sri R.S. Agrawal for the appellant-assessee. Sri R.K. Upadhyay appears for the respondent-department. This Income Tax Appeal u/s 260-A of the Income Tax Act, 1961 (the Act) is directed against the order dated 28.02.2003, passed by the Income Tax Appellate Tribunal, Lucknow Bench, Lucknow in Income Tax Appeal No. 455/Alld/1994, relating to the Assessment Year 1990-91.

The assessee-appellant has raised the following substantial questions of law, for consideration:-

Whether on a true and correct interpretation of the provisions of Section 28 read with charging Section 4 of the Act, the Tribunal was legally correct in holding that the sum of Rs. 1,03,20,933/- represented the profits and gains of the assessee, liable for taxation in the year under assessment?

Whether having regard to the Janta Cloth Scheme as had been launched by the Central Government under its new textiles policy, the amount received by the assessee under the said scheme and/or any part thereof, could be legally treated/held to be taxable in its hand?

Whether on the facts and circumstances of the case, particularly that the assessee did not have any vested right in unutilized amount of subsidy, the Tribunal was legally correct in holding that the sum represented its income and upholding the taxability of the same in the hands of the assessee?

The assessee has not framed the questions properly The questions that calls for consideration of the Court is whether unutilized portion of subsidy received from the Central Government, as compensation for loss of profit, could be treated as capital receipt.

This question was decided against the assessee in all previous years, namely, 1979-80 and 1980-81.

In Income Tax Reference No. 160 of 1983 M/s. U.P. State Handloom Corporation Ltd. Vs. The Commissioner, a similar question was referred, namely, whether having regard to the material on record and the scheme, namely, "Janta Cloth Scheme" of the Central Government, the Income Tax Appellate Tribunal was legally correct in holding that the amount of subsidy received by the assessee represented compensation for loss of profit and not as a financial capital to make the good the erosion of capital, and therefore, it was not a capital but a revenue receipt.

After detailed discussion and relying on the judgment of Apex Court in M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of Income Tax, Andhra Pradesh-I, Hyderabad, , which has quoted the principle of law propounded by Viscount Simon in Pontypridd and Rhondda Joint Water Board Vs. Ostine, that subject to exception, payments in the nature of a subsidy from public funds made to an undertaking to assist in carrying on the undertaker''s trade or business are trading receipts, which are to be brought into account in arriving at the balance of profits or gains, this Court in ITR No. 160 of 1993 (M/s. U.P. State Handloom Corporation Ltd. Vs. The Commissioner) (Supra) held that amount given as subsidy to meet any revenue expenditure can safely be termed as revenue receipt. The answer given by this Court, in the case of the same assessee is quoted as follows:-

Applying the principles laid down by the Apex Court to the facts of the present case, we find that one of the objectives of the Janta Cloth Scheme was to provide cheaper cloth to the weaker section of the population of our country. The subsidy was payable on actual deliveries made and not on the portion relating to goods returned. 20% of the subsidy was meant for meeting the overhead expenses while 80% was to be utilised for meeting the cost of production. Anything incurred towards overhead expenses and cost of production is necessarily a revenue expenditure. Therefore, amount given as subsidy to meet any revenue expenditure can safely be termed as revenue receipt.

In view of the foregoing discussions, we are of the considered opinion that the subsidy received under the Janta Cloth Scheme represented compensation for loss of profit and was a revenue receipt.

The question referred to us is answered in the affirmative i.e. in favour of the Revenue and against the assessee.

We find that the questions raised before us in this Appeal are covered by the aforesaid judgment.

All the questions are consequently decided against the assessee, and in favour of the revenue. The Income Tax Appeal is dismissed.