1988 (11) TMI 48 - HC - Income Tax

Summary

Issues:
1. Disallowance of proportionate expenditure under section 80P(2)(a) of the Income-tax Act.
2. Taxability of Rs. 25,000 subsidy received from Punjab State Co-operative Supply & Marketing Federation Ltd.

Analysis:
1. The Baghapurana Co-operative Marketing Society Ltd., an assessee under the Co-operative Societies Act, claimed deductions under section 80P(2)(a) of the Income-tax Act. The Tribunal disallowed proportionate expenditure, leading to the first issue. Citing a previous judgment in Punjab State Co-operative Supply and Marketing Federation Ltd. v. CIT [1981] 128 ITR 189, the court held in favor of the assessee, allowing the entire expenses as deductible under section 80P(2)(a).

2. The second issue revolved around whether the Rs. 25,000 subsidy received from MARKFED was a revenue or capital receipt. The Tribunal considered it a revenue receipt, making it taxable. The court analyzed the nature of the subsidy, applying the test of whether it recoups revenue expenditure or is a capital receipt. Relying on Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52, the court emphasized that the onus is on the Department to prove the subsidy as a revenue receipt. In this case, the court found the subsidy to be of a capital nature, as it lacked a business connection and was received for purchasing shares, a capital investment. Therefore, the court held that the Rs. 25,000 subsidy was a capital receipt, not taxable as income.

In conclusion, the court ruled in favor of the assessee on both issues, allowing the proportionate expenditure deduction under section 80P(2)(a) and determining the Rs. 25,000 subsidy as a capital receipt, not subject to income tax.