1984 (10) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Whether the subsidy received by the assessee-firm is a revenue receipt taxable under the Income-tax Act, 1961.
2. Whether the subsidy received can be considered a casual income.
3. Whether the subsidy should be taxed in the hands of the current partnership or the previous partnership that applied for it.

Issue-wise Detailed Analysis:

1. Taxability of Subsidy as Revenue Receipt:
The assessee-firm, engaged in the production and release of movie films, claimed a sum of Rs. 1 lakh as exempt, being a subsidy received from the Government of Kerala for four films released in 1975, 1976, and 1977. The Income Tax Officer (ITO) rejected the assessee's claim, treating the subsidy as a taxable revenue receipt. The Commissioner (Appeals) upheld the ITO's decision. The Tribunal examined the nature of the subsidy under the scheme for the grant of subsidy to full-length feature films produced in Kerala. The Tribunal noted that the subsidy was not connected to the cost or expenditure of the film, nor was it tied to any depreciable asset. The subsidy was a lump sum granted to promote film production within the state without any specific usage requirements. The Tribunal concluded that the subsidy was not a revenue receipt since it was not intended to supplement the profits of the assessee but to promote the film industry in Kerala.

2. Subsidy as Casual Income:
The assessee alternatively contended that the subsidy should be considered casual income. The Tribunal pointed out that the subsidy was not a casual receipt since it was paid for the production of films within the state, and the assessee, being a film producer, received it in that capacity. The Tribunal emphasized that the subsidy was not a capital receipt either, as it was not related to any capital outlay or expenditure. The Tribunal referred to various judicial precedents, including decisions in Dhrangadhra Chemical Works Ltd. v. CIT, CIT v. Wheel & Rim Co. of India Ltd., and CIT v. Swadeshi Cotton Mills Co. Ltd., which supported the view that any receipt in the course of business is a revenue receipt unless it is a capital or casual receipt. The Tribunal concluded that the subsidy could not be considered casual income.

3. Taxability in Hands of Current or Previous Partnership:
The assessee argued that the subsidy should not be taxed in the hands of the current partnership since the application for the subsidy was filed by the previous partnership, which was dissolved before the receipt of the subsidy. The Tribunal examined the continuity of the firm and the provisions of the partnership deed. The Tribunal noted that the firm was reconstituted with changes in partners but remained the same entity. The Tribunal referred to various judicial decisions, including CIT v. A. W. Figgies & Co., Shivram Poddar v. ITO, and CIT v. Kirkend Coal Co., which supported the view that changes in the constitution of a firm do not create a new entity. The Tribunal concluded that the subsidy was received by the same firm, albeit with a different constitution, and should be taxed in the hands of the current partnership.

Conclusion:
The Tribunal held that the subsidy received by the assessee was not taxable as a revenue receipt or casual income. The subsidy was granted as an incentive for film production within the state and was not connected to any specific expenditure or capital outlay. The Tribunal also concluded that the subsidy should be taxed in the hands of the current partnership, as the firm remained the same entity despite changes in its constitution. The appeal was decided in favor of the assessee, and the subsidy was held to be non-taxable.