BAGHAPURANA COOPERATIVE MARKETING SOCIETY LTD. VS COMMISSIONER OF INCOME-TAX
1991 P T D 156
[Punjab and Haryana High Court (India)]
Before Gokal Chand Mital and S.S. Sodhi, JJ
BAGHAPURANA COOPERATIVE MARKETING SOCIETY LTD.
versus
COMMISSIONER OF INCOME-TAX
Income-tax Reference No. 13 of 1980, decided on 21/11/1988.
(a) Income-tax---
----Income or capital---Burden of proof---Burden on Income-tax Department to prove receipt is of revenue nature---Subsidy given to recoup capital expenditure is capital receipt.
(b) Income-tax---
----Cooperative society---Deduction---Disallowance of proportionate expenditure relating to business activities contemplated by S. 80-P(2)(a) of the Indian Income-tax, 1961 is not valid.
If a subsidy or grant is given to recoup revenue expenditure, it will take the colour of revenue receipt, if not, then it would be a capital receipt. The onus to prove that the amount received in a revenue receipt is on the Income-tax Department.
The assessee was a co-operative society the object of which was to obtain and supply fertilizers to its members. The apex body of such societies was the Punjab State Cooperative Supply and Marketing Federation called Markfed. A company known as Indian Farmers Fertilizer Cooperative Ltd. (IFFCO) was constituted and it floated its shares. The value of each share was Rs.l lakh. MARKFED desired that Cooperative societies like the assessee should purchase one share each of IFFCO and it gave subsidies to the Cooperative societies to enable them to do so. During the assessment year, Markfed gave the Assessee a subsidy of Rs.25,000 because 1/4th value of the share had to be remitted at the time of application for the issue of one share. The amount of Rs.25,000 was sent directly to IFFCO. The Income-tax Officer brought this amount to tax in the hands of the assessee. The Income-tax Officer also disallowed proportionate expenditure relating to business activities contemplated under section 80-P(2)(a) of the Indian Income-tax Act, 1961. The Tribunal upheld the views of the Income-tax Officer. On a reference:
Held, (i) that the Tribunal was in error in law in upholding the disallowance of proportionate expenditure relating to the business activities of the assessee contemplated by section 80-P(2)(a) of the Act.
(ii) That, in the instant case, the Income-tax Department had failed to show any connection between the business of the assessee and the grant of the subsidy. Moreover, on the face of it, when the business of the assessee was to purchase and distribute fertilizer, the subsidy received for purchase of share of company at the instance of the apex body would amount to a capital receipt.
Punjab State Cooperative Supply and Marketing Federation Ltd. v. C.I.T. (1981) 128 ITR 189 (P & H) fol.
Bombay Steam Navigation Co. (1953) (Pvt.) Ltd. v. C.I.T. (1965) 56 ITR 52 (SC) ref.
B.S. Gupta (Sanjay Bansal with him) for the Assessee.
L.K. Sood for the Commissioner.
JUDGMENT
GOKAL CHAND MITAL, J.---The following questions have been referred by the Income-tax Appellate Tribunal, Chandigarh:
"(1) Whether the Tribunal has been in error in law in upholding the disallowance of proportionate expenditure relating to such business activities of the assessee (Cooperative society) as are contemplated by section 80-P(2)(a) of the Act?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal has been in error in law in holding that the sum of Rs.25,000 received from the Punjab State Cooperative Supply & Marketing Federation Ltd. was taxable in the hands of the assessee?"
The Baghapurana Cooperative Marketing Society Ltd., which is a society registered under the Cooperative Societies Act, 1961, is the assessee. Its main object and function is to obtain and supply fertilizer to its members. The apex body of such like societies is the Punjab State Cooperative Supply and Marketing Federation Ltd. (hereinafter called "MARKFED"). A company known as the Indian Farmers' Fertilizer Cooperative Ltd., Delhi (hereinafter referred to as "IFFCO"), was constituted and it floated its shares. The value of each share was Rs. one lakh. MARKFED desired that such like Cooperative societies in the State of Punjab should purchase one share each of IFFCO and when the society was not in a position to do so, it gave subsidy to all the societies. During the assessment year 1972-73, subsidy of Rs.25,000 was given by MARKFED to its societies as 1/4th value of the share was desired to be remitted at the time of filing of application for issue of one share. After obtaining the applications from each society, MARKFED directly sent the amount of Rs.25,000 to IFFCO.
During the assessment proceedings, the assessee claimed certain deductions under section 80 P(2)(a) of the Income-tax Act, 1961 (for short "the Act"), but up to the Tribunal, proportionate expenditure was disallowed and for that the first question has been referred.
Since the matter is covered by an earlier decision of this Court in Punjab State Cooperative Supply and Marketing Federation Ltd. v. CIT (1981) 128 ITR 189, in favour of the assessee and against the Revenue, without dilating any further, we answer question No. 1 in the affirmative, for the reasons recorded in Punjab State Cooperative Supply and Marketing Federation Ltd.'s case (1981) 128 ITR 189(P & H) and hold that the entire expenses are allowable.
The other point which cropped up during the assessment proceedings was whether the sum of Rs.25,000 given as subsidy by MARKFED was a revenue receipt or a capital receipt. It was held up to the Tribunal that it was a revenue receipt and was considered as the income of the assessee and thus was charged to Income-tax. Question No. 2 has been referred on this point.
This Court has to opine whether, on the facts and circumstances of the case, the subsidy of Rs.25,000 would amount to a capital receipt or a revenue receipt. It is not disputed that if it is held that it is a revenue receipt, it will be included in the income of the assessee and if it is not, then it would not be included in the assessee's income for the purpose of levy of Income-tax.
Counsel for the parties have cited some decided cases but no case is near the facts in dispute but are distinguishable. However, the principle of law that emerges from the decided cases is that it has to be seen as to what is the character of the receipt. If a subsidy or grant is given to recoup the revenue expenditure, it will take the colour of a revenue receipt, if not then it would be a capital receipt. Keeping this test in view, we are of the opinion that the subsidy in this case was of capital nature and cannot be termed other than a capital receipt. The onus to prove that the amount received represented a revenue receipt was on the Department in view of the judgment of the Supreme Court in Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT (1965) 56 ITR 52 and if the Department fails to discharge the onus, then the amount will not be included in the income of' assessee. If, in a given case, the Department is able to show it, then the onus shifts to the assessee to rebut it. In this case, we are of the opinion that the Department has failed to show any business connection for granting the subsidy. Therefore, it could not be included as a revenue receipt while assessing the income of the assessee. Moreover, on the face of it, when the business of the assessee was to purchase and distribute fertilizer to its members, the subsidy received for purchase of a share of a company at the instance of the apex body would amount to a capital receipt.
For the reasons recorded above, we answer the second question in the affirmative, that is, in favour of the assessee and hold that the amount of Rs.25,000 received by it from MARKFED by way of subsidy was a capital receipt. The assessee shall have the costs from the Revenue.
Z.S./796/TOrder accordingly.