1993 (8) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Assessability of transport subsidy received by the assessee.
2. Whether the finding of the Tribunal that the transport subsidies were inseparably connected with the business carried on by the assessee was unjust, unreasonable, and perverse.

Summary:

Issue 1: Assessability of Transport Subsidy
The primary issue was whether the transport subsidy received by the assessee from the State Government of Assam during the assessment years 1980-81 to 1982-83 was of a revenue nature and thus taxable. The assessee argued that the subsidy was a capital receipt meant to encourage the development of industries in backward regions and should not be taxed. However, the Income-tax Officer, Commissioner of Income-tax (Appeals), and the Tribunal held that the subsidy was a revenue receipt. The Tribunal noted that the subsidy was a reimbursement of transport costs and was directly related to the business expenses, thus supplementing the trading receipts. The Tribunal distinguished the case from other High Court decisions where subsidies were linked to capital outlay, concluding that the transport subsidy was intended to augment the profits and make the industry economically viable.

Issue 2: Connection of Subsidies with Business
The second issue was whether the Tribunal's finding that the transport subsidies were inseparably connected with the business carried on by the assessee was unjust, unreasonable, and perverse. The Tribunal examined the transport subsidy scheme and found that it was related to the transport costs of raw materials and finished goods, which are integral to the business operations. The Tribunal emphasized that the subsidy was meant to recoup transport expenses and mitigate profit deficits due to operating in a backward area. The Tribunal's approach was based on the distinction between subsidies for capital outlay and those for running the business. The court upheld the Tribunal's finding, stating that the subsidies were indeed inseparably connected with the profitable conduct of the business.

Conclusion:
The court answered the first question in the affirmative, holding that the transport subsidy was a revenue receipt and thus taxable. The second question was answered in the negative, affirming that the Tribunal's finding was neither unjust nor perverse. There was no order as to costs.