COMMISSIONER OF INCOME-TAX VS MEAT PRODUCTS OF INDIA LTD.
2001 P T D 127
[238 I T R 987]
[Kerala High Court (India)]
Before Om Prakash, C. J. and J. B. Koshy, J
COMMISSIONER OF INCOME‑TAX
versus
MEAT PRODUCTS OF INDIA LTD.
Income‑tax Reference No. 86 of 1996, decided on 31/07/1998.
Income‑tax‑‑‑
‑‑‑‑Capital or revenue expenditure‑‑‑Subsidy‑‑‑Tests‑‑‑Purpose of subsidy to set up or complete a new project‑‑‑Subsidy is capital receipt‑‑‑Subsidy received to run business operations successfully after commencement of production‑‑‑Subsidy received is revenue receipt ‑‑‑Assessee engaged in producing meat and meat products‑‑‑Subsidy received from Government‑‑ No clear fining recorded by Tribunal whether subsidy was grad to assessee for establishing a new unit for manufacturing or 'for starting some other activity or for successful running of an already established unit‑‑ Matter remanded.
The test to distinguish between subsidy of capital nature and subsidy of revenue nature is the purpose of the subsidy. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as having been received for capital purposes. If the monies are given to the assessee for assisting him in carrying on the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade and as revenue receipts.
The assessee engaged in the business of meat and meat products received a sum of Rs.5 lakhs from the State Government as subsidy. The Assessing Officer assessed the amount as receipt of a revenue nature. On appeal, the Commissioner of Income‑tax (Appeals) held that the subsidy received was in the nature of a capital receipt. On further appeal, the Tribunal held that the subsidy was meant for low cost high quality pig feeds for distribution to farmers and affirmed the order of the Commissioner of Income‑tax (Appeals). On a reference:
Held, that no clear finding had been recorded by the Tribunal whether the subsidy was granted to the assessee for establishing a new unit for manufacturing or for starting some other activity or for successful running of an already established unit. Hence the matter was to be remanded to the Tribunal for recording a clear finding as to what was the purpose for which the subsidy was granted to the assessee and thereafter for deciding the appeal afresh
Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) fol.
P.K.R. Menon and N.R.K. Nair for the Commissioner.
P. Balachandran for the Assessee.
JUDGMENT
OM PRAKASH, C.J.‑‑‑Heard counsel for the parties.
The Income‑tax Appellate Tribunal, at the instance of the Revenue, referred the following question for the opinion of this Court relating to the assessment year 1982‑83, under section 256(2) of the Income Tax Act, 1961:
"Whether, on the facts and in the circumstances of the case, the subsidy given by the Government of Kerala, is a capital receipt not liable to tax?"
The assessee is a Kerala Government undertaking engaged in the business of producing meat and meat products. The assessee received a sum of Rs.5 lakhs from the Government of Kerala (Animal Husbandary Department) by the Government order, dated April 30, 1981. The subsidy was brought to tax by the Assessing Officer treating the same as receipt of revenue nature. On appeal the Commissioner of Income‑tax (Appeals) held that the subsidy was in the nature of capital receipt, and thus, he reversed the decision of the Assessing Officer to that extent. On further appeal, the Appellate Tribunal affirmed the order of the Commissioner of Income‑tax (Appeals).
The Government order sanctioning subsidy to the assessee has been reproduced in its order by the Appellate Tribunal, who held that the subsidy was meant for promoting low cost high quality pig feeds for distribution to farmers. No clear finding has been recorded by the Appellate Tribunal whether the subsidy was granted to the assessee for establishing a new unit for manufacturing or for starting some other activity or for successful running of an already established unit. In Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253, the Supreme Court precisely laid down a test to distinguish between the subsidy of capital nature or the subsidy of revenue nature. The test is the purpose of the subsidy. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only and after conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. Therefore, a clear finding of facts from the Appellate Tribunal is necessary whether the purpose of the subsidy was to set upon or complete a new project and whether the purpose was to run business operations successfully after the commencement of production.
The fact situation not being clear, we have no option but to remand the case to the Appellate Tribunal for recording a clear finding as to what was the purpose for which subsidy was granted to the assessee under the Government order.
In the result, the question is returned unanswered with the direction that the Appellate Tribunal will record a clear finding as to the purpose of the subsidy granted to the assessee and thereafter decide the appeal afresh.
M.B.A./179/FC
Order accordingly.