2014 (1) TMI 1239 - HC - Income Tax

Buffer stock subsidy - Nature of Receipt Liability for taxation u/s 28(4) of the Act Deduction on account of buffer stock subsidy - Whether grain-in-aid received by the assessee would be revenue receipts Held that - The subsidy was received for holding buffer stock by the appellant and to meet expenditure incurred to hold on the buffer stock as required and all expenses relatable to maintaining buffer stock were debited. The subsidy given by the Central Government to compensate or reimburse the expenses was a revenue and taxable receipt - Relying upon Commissioner of Income Tax Vs. Ponni Sugars & Chemicals, Ltd.& Ors 2008 (9) TMI 14 - SUPREME COURT - the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given - The subsidy was given to compensate the burden on account of interest, storage and insurance etc. for holding the Buffer Stock of sugar i.e. to compensate the assessee in running his business which is clearly revenue receipt - No substantial questions of law arises in the appeals Decided against Assessee.

Summary

Issues:
Interpretation of charging section 4 read with section 28 of the Act regarding taxation of "grain-in-aid" received from Sugar Development Fund.

Analysis:
The judgment in question involves the interpretation of the charging section 4 read with section 28 of the Act concerning the taxation of a sum received by the assessee as "grain-in-aid" from the Sugar Development Fund. The primary issue raised in all the appeals was whether the amount received by the assessee was in the nature of a revenue receipt liable for taxation. The subsidy in question, amounting to Rs.9,98,966, was received by the assessee from the Central Government from the Sugar Development Fund to compensate for expenses related to holding a Buffer Stock of sugar. The Assessing Officer and the appellate authorities did not accept the assessee's contention that it was a capital receipt, leading to the filing of appeals under Section 260-A of the Income Tax Act, 1961.

The Commissioner (Appeals) had previously ruled against the appellant, stating that the subsidy received was a revenue and taxable receipt. The Tribunal also upheld this decision, prompting the present appeals. The revenue contended that the issues raised in the appeals were covered by the Supreme Court judgment in Commissioner of Income Tax Vs. Ponni Sugars & Chemicals, Ltd., where the purpose test was emphasized to determine the nature of the subsidy. The Apex Court had established that if the subsidy was given to enable the assessee to run the business more profitably, it would be considered a revenue receipt.

The judgment further cited the Sahney Steel case to illustrate the purpose test in determining the character of a subsidy. It emphasized that the object for which the subsidy is given determines its nature, whether on revenue or capital account. In the present case, all authorities had concluded that the subsidy was meant to compensate the assessee for expenses related to holding the Buffer Stock of sugar, indicating a revenue receipt. Therefore, the judgment dismissed all appeals, stating that no substantial questions of law arose in this matter.

In conclusion, the judgment analyzed the nature of the subsidy received by the assessee from the Sugar Development Fund, emphasizing the purpose test to determine its character as a revenue receipt. The decision aligned with previous rulings and established legal principles regarding the taxation of such subsidies, ultimately leading to the dismissal of all appeals.