A. M. MOOSA VS COMMISSIONER OF WEALTH TAX
1998 P T D 2300
[225 I T R 391]
[Kerala High Court (India)]
Before V. V. Kamat and P.A. Mohammed, JJ
A. M. MOOSA
versus
COMMISSIONER OF WEALTH TAX
Income-tax Reference No. 175 of 1987, decided on 14/06/1996.
Wealth tax---
---- Net wealth---Deductions---Ascertained liability---Subsidy received by industrial undertaking from Government---Subsidy to be returned if industrial undertaking closed down within five years after commencement or from date of receipt of subsidy---Receipt of subsidy does not create any liability---Subsidy not deductible in computing net wealth.
The assessee received an amount of Rs.1,20,407 as subsidy in regard to the development of his industrial concern. The assessee had to refund the subsidy to the Government if his unit went out of production within a period of five years after the commencement or from the date of the receipt of the subsidy, whichever was later. The Income-tax Officer treated the amount as an asset to be included in the net wealth of the assessee this was upheld by the Tribunal. On a reference:
Held, that the receipt of the subsidy did not create any liability. The liability could be said to arise only if the unit of the assessee went out of production within a period of five years after the commencement or from the date of receipt of the subsidy, whichever was later. Thus, at the time the assessee received the amount, it was incorrect and consequently wealth of the assessee and consequently it formed part of the assets of the assessee.
Bombay Dyeing and Manufacturing Co. Ltd. v. CWT (1974) 93 ITR 603 (SC); CWT v. Gopinathan Nair (K.) (1976) 103 ITR 23 (Ker.) and Standard Mills Co. Ltd. v. CWT (1967) 63 ITR 470 (SC) ref.
C.Kochunni Nair, M.A. Firoz and Dale P. Kurian for the Assessee.
P.K.R. Menon for the Commissioner.
JUDGMENT
V. V. KAMAT, J.---This arises out of a reference under section 27(1) of the Wealth Tax Act, 1957, by the Tribunal of the following question for our answer:
"Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that the industrial subsidy received by the assessee was a contingent liability and not an ascertained liability?"
The question itself would unfold the limited character of controversy. The assessee received the amount as industrial subsidy. The factual matrix shows that this amount was Rs.1,20,407. The amount was received by the assessee as a subsidy in regard to the development of his industrial concern. The condition in regard thereto was that in the event of the assessee not being able to have benefit in the process of development resulting into the closure of the industrial activity altogether, then and then only the amount was refundable and in default liable to be recovered from him.
The assessment year is 1978-79. There is no dispute that the amount was received by the assessee during the assessment year in question as subsidy. The Income Tax Officer treated it to be an asset to be included in the net wealth.
The first appellate authority---Commissioner of Income-tax, Calicut (Appeals)---in paragraph 8 of the order considered the situation for reinforcement. It was argued that the subsidy would only reduce the cost of the asset and would not increase the capital of the business. It was submitted before the first appellate authority that even the balance-sheet refers to this amount of investment subsidy as a liability. The appellate authority, therefore, observed that whatever may be the mode of presentation of the subsidy in the balance-sheet, it is an amount received by the assessee irrevocably and the question of refund or recovery would only arise if the assessee as a prospective industrialist chooses to close his activity and does not give it a trial during the period of five years from the date of the receipts. Naturally, the conclusion was that the amount is part and parcel of the appellant's capital and would not reduce the cost of the asset in any sense of the term.
Before the Tribunal the submissions or arguments are summarised. It was argued before the Tribunal that, according to the terms of the agreement, the assessee has to refund the subsidy to the Government if his unit goes out of production within a period of five years after the commencement and from the date of the receipt of the subsidy, whichever is later. It was further submitted that the subsidy would become the wealth of the assessee only after the completion of five years of production from the date of the subsidy or the commencement of the production of the unit, whichever is later. In other words, the position that the amount of subsidy has to be understood as wealth was not disturbed in any fashion and the only question that was argued was whether it became the wealth at the time of the receipt or it could be understood as wealth five years later. It is, in this Context, the Tribunal proceeded to consider the nature of the grant of subsidy. Subsidy was not refundable at all and can be understood to be refundable only in the event of the unit going out of production within a period of five years as stated hereinbefore. In the above situation, the Tribunal brushed aside the contention because it was based on the solitary strength of the fact that this amount was shown as a liability in the balance -sheet as on March 31, 1978. It was rightly considered as not determinative of the situation only on the strength of its entry in the balance-sheet as stated above.
Apart therefrom, the question came up for decision before this Court in CIT v. K. Gopinathan Nair (1976) 103 ITR 23. This was in relation to the question of payment of gratuity under the Kerala Industrial Employees Payment of Gratuity Act, 1970. The gratuity was payable to an employee on his retirement, death;' etc., after completion of a minimum period of five years of continuous service. The Employer had made provision in regard thereto and claimed deduction in respect thereof. Such a claim for deduction on the basis of the contention that it is a contingent liability was rejected by this Court and in the process reliance is placed on two Supreme Court decisions in Bombay Dyeing and Manufacturing Co. Ltd. v. CWT (1974) 93 ITR 603 and Standard Mills Co. Ltd. v. CWT (1967) 63 ITR 470 where provision with regard to gratuity was made by the employer contending that it is a liability of a contingent character. This Court has already observed that the two decisions of the apex Court conclude the matter observing that such a liability cannot be considered as a contingent liability, and that it is a definite, ascertained and present liability in the context of the situation. On the facts and conscripted pleading reproduced hereinbefore, the receipt of the amount did not create any liability and the liability as has been consistently held could be said to arise only if the unit of the assessee goes out of production within a period of five years after the commencement and from. the date of receipt of the subsidy, whichever is later. Thus, at the time the assessee received the amount, it was income and consequently wealth of the assessee and naturally consequently it goes to the formation of the assets of the assessee. The above discussion will show that the question does not arise at all because the receipt of the Income is not a liability at all.
For the above reasons, we decline to answer the question referred, but confirm the order of the Tribunal.
A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
M.B.A./1479/FCAnswered declined.