1995 (9) TMI 30 - HC - Income Tax

Summary

Issues:
The judgment involves tax case references u/s 256 of the Income-tax Act, 1961, regarding the treatment of amounts received from SIPCOT as revenue or capital receipts for the assessment years 1979-80 and 1980-81.

Treatment of Subsidy as Revenue or Capital Receipt:
The court considered whether the subsidy received from SIPCOT should be treated as revenue or capital receipts. The subsidy was in relation to a revenue expenditure incurred by the assessee in modernizing its plant in a backward area. The assessee argued that since a previous subsidy for fixed capital investment was treated as a capital receipt, this subsidy should also be treated similarly. However, the court noted that the subsidy was given in instalments to recoup the revenue expenditure, making it a revenue receipt as per precedents like V. S. S. V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC).

Comparison with Precedents:
The court distinguished the present case from decisions like Velimalai Rubber Co. Ltd. v. Agrl. ITO [1991] 188 ITR 262 (Mad) and CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181 (Ker), which held subsidies as capital receipts. It also differentiated the case from CIT v. Dusad Industries [1986] 162 ITR 784 (MP), where subsidies were given for setting up industries in a backward area. The court emphasized that the subsidy in question directly related to revenue expenditure, following the rationale in Merinoply and Chemicals Ltd. v. CIT [1994] 209 ITR 508 (Cal).

Interpretation of Subsidy and Revenue Expenditure:
The court rejected the argument that the subsidy was a measure to quantify the revenue expenditure, emphasizing that the subsidy was specifically given to cover the entire corresponding revenue expenditure. It also highlighted that circulars from the Board cannot pre-empt judicial interpretation, as seen in CWT v. V. T. Ramalingam [1993] 201 ITR 839 (Mad).

Conclusion:
The court answered the question in the affirmative, stating that the subsidy received should be treated as a revenue receipt, not a capital receipt. No costs were awarded in this decision.