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TMI Blog1985 (6) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidies to industrialists wishing to set up new industries. The amount was equivalent to the refund of sales tax on raw materials, machinery and finished goods levied by the State Government subject to a maximum of 10 per cent of equity capital. Subsidy was also given on power consumed for production to the extent of 10 per cent in the case of medium and large-scale industries and 12 1/2 per cent for small-scale industries. 4. GO Ms. No. 224 with which we are concerned states that in the light of the developments and the needs of the present situation, the Government have been considering revision of the earlier incentives so as to more effectively serve the purpose of bringing about rapid industrial growth in the State and along with that to serve the purpose of bringing about this growth in all parts of the State with particular attention to backward taluks. GO Ms. No. 224 superseded the earlier two GOs. The new incentives are offered to all new industries which will go into regular production on or after 1-1-1976. Those industries which go into substantial expansion, i.e., add fixed capital cost of a value not less than 25 per cent of the undepreciated value of the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived under a different GO it is only a revision of the earlier GOs. The first condition of the State incentive scheme under the later GO is that the industry should go into production on or after 1-1-1976 and the GO will be in operation for a period of five years. For units which went into production prior to 1-1-1976 the earlier GOs will be operative. These differences, according to the Commissioner (Appeals), were only differences in form and not in substance. What is granted is only an incentive to strengthen the industry to ensure industrial growth. The critical point to notice, as per the learned Commissioner, is that the grant is payable only after the commencement of production. The idea of linking growth with production is to ensure that the funds shall be utilised to strengthen the industry after it started production. Financial assistance, he opined, given to the industry after starting of production is in the nature of income receipt. He, therefore, upheld the order of the ITO. 8. The assessee is in further appeal before us. Shri Ramachandra Rao, the learned counsel for the assessee, submitted that there is a difference between the GO considered by the Andhra Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee or whether it was a voluntary contribution by the State unrelated to the character of the assessee and whether the said amount constitutes income in the hands of the recipient, viz., the assessee." The High Court then stated that this question has four aspects: (i) whether the refund of the said amount was a voluntary contribution, (ii) whether the contribution was unrelated to the character and business of the assessee, (iii) whether the nature of the receipt is capital or revenue, and (iv) whether it can be called income. As far, as two of these issues are concerned, i.e., the first two issues, the findings to be given will be governed by the Andhra Pradesh High Court's decision. Even this subsidy received under GO Ms. No. 224 of 1976 is not a voluntary contribution and the assessee has a right to get it once it satisfies the condition. Secondly, it is not unrelated to the character and business of the assessee. The third issue to be considered is whether it is revenue or capital and the fourth issue is connected with that, i.e., if it is capital, certainly it is not income. 12. This will take us to the discussion regarding the third issue. After considering the meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the condition that the industry should go into regular production on or after 1-1-1976 and, therefore, the grant is only after the commencement of production and not before. He went on to say that financial assistance given to the industry after the starting of production is in the nature of income receipt and not capital receipt. It is true, as we have noted, that the GO contains the following condition: "The incentives are available for new units going into regular production on or before 1-1-1976. Units which went into production prior to 1-1-1976 and who are eligible to avail themselves of the incentives under GO No. 1225, Industries, dated 31-12-1968 and GO Ms. No. 455, Industries and Commerce department, dated 3-5-1971 must register with the Director of Industries within 3 months from the date of issue of this order to avail themselves of the incentives offered in the above two GOs." Now, there is distinction between the purpose for which a subsidy is given and the condition under which the subsidy would be given. The purpose for which the subsidy is given qualifies its nature. The conditions imposed could be safeguards to see that the subsidy is properly utilise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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