2004 (11) TMI 53 - HC - Income Tax

Infirmities in the statement of case power of HC to decline to examine the question referred - Whether Tribunal was justified in holding that the amount of Rs. 4,48,819 received by the assessee as subsidy was receipt of capital nature? - In our considered opinion, in the absence of the Scheme, which is the basic document for deciding the true nature of the receipt and also in the absence of copies of several unreported decisions of the Tribunal on which the finding is reached by the Tribunal on the question, this court feels that it is not possible to answer the question referred to this court by the Tribunal on the merits. This court does possess the power to decline to answer the question referred to this court if the aforesaid infirmities are noticed in the statement of case. We, therefore, take recourse to such power though with reluctance and decline to examine the question referred.

Summary

Issues:
Interpretation of subsidy as capital or revenue receipt under Income-tax Act, 1961.

Analysis:
The High Court of Madhya Pradesh was presented with a reference under section 256(1) of the Income-tax Act, 1961 by the Tribunal regarding the nature of an amount received as subsidy by the assessee. The court was tasked with determining whether the subsidy amount of Rs. 4,48,819 was a receipt of capital nature. The court heard arguments from both the Revenue and the assessee's counsels and examined the statement of case provided by the Tribunal along with annexures.

The court emphasized that the classification of a subsidy as either capital or revenue receipt hinges on the nature of the subsidy scheme under which it was disbursed. Referring to the Supreme Court's decision in Sahney Steel and Press Works Ltd. v. CIT, the court highlighted the importance of examining the scheme of subsidy to ascertain the true character of the amount received. However, the court noted deficiencies in the Tribunal's statement of case, as it failed to provide details of the scheme or relevant clauses essential for a proper interpretation.

Furthermore, the court criticized the Tribunal's decision-making process, pointing out that the Tribunal relied on previous judgments without adequately considering the terms and conditions of the subsidy scheme in question. The court stressed the necessity of including all relevant documents, such as the scheme and unreported decisions relied upon, in the statement of case for a comprehensive assessment.

In exercising its jurisdiction under section 256(1) of the Income-tax Act, the High Court reiterated that it can only base its decision on the contents of the statement of case and accompanying documents. The court expressed its inability to answer the question referred due to the absence of crucial documents like the scheme and relevant judgments relied upon by the Tribunal. Consequently, the court declined to provide a substantive response to the question posed.

In conclusion, the court advised the Tribunal to meticulously prepare the statement of case in future proceedings, ensuring the inclusion of all necessary documents and adhering to the rules governing such references. The court emphasized the importance of providing all relevant materials for a thorough examination of the issues at hand, especially in cases where section 256(1) or 256(2) of the Act is still applicable despite its deletion from the statute book.