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TMI Blog2011 (4) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... nd business which are trading receipts, that is, are to be brought into account in arriving at the balance of profits orgains - The judgment of the Supreme Court in Assam State Text Book Production and Publication Corporation Ltd. vs. C I T [ 2009 (10) TMI 60 - SUPREME COURT ], is particularly relevant in the present context and deals with taxability of the subsidy received by the appellant from the Assam Government - Decided in the favour of the assessee - 425 of 2010 - - - Dated:- 1-4-2011 - MR. JUSTICE SUDHIR KUMAR KATRIAR, MR. JUSTICE SAMARENDRA PRATAP SINGH, JJ. For the Appellant : Mr. D V Pathy, Advocate For the Respondents : Mr. Rishi Raj Sinha S K KATRIAR, J. The assessee has preferred this appeal under section 260A of the Income Tax Act 1961 (hereinafter referred to as `the Act ), and raises a grievance with respect to the order dated 9.10.2009, passed by the Income Tax Appellate Tribunal, Patna Bench, whereby the orders of the learned appellate authority as well as the learned assessing authority have been upheld, and it has been held that the subsidies received or receivable by the assessee from the Bihar Government is taxable under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal was correct in law in holding that the amount of Rs.8,23,15,167/- being the amount of subsidy receivable on sale of text books though not received either by the end of the final year or till date, could be brought to tax as income under the scheme of the Act? (ii) Whether the Tribunal was in error in applying the ratio of the judgment of the Hon ble Supreme Court in Sahni Steel Case (supra) which is distinguishable on facts? (iii) Whether the Tribunal was in error in holding that the subsidy receivable from the State Government of Bihar on sale of text books was taxable on mercantile system of accounting without an appropriate consideration of the fact that such subsidy not having been received was not real income and, therefore, not liable to tax? (iv) Whether the Tribunal erred in considering the fact that even otherwise sale of text book was an educational activity exempt from tax? 4. Learned counsel for the parties have made elaborate submissions in support their respective stand. 5. We have perused the materials on record and considered the submissions of the learned counsel for the parties. Section 2 of the Act is headed `Definitions , sub-section 15 whereof is heade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or .......... ......... (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or ............ .......... (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or .............. .......... Provided also that the fund or trust or institution (or any university or other educational institution or any hospital or other medical institution) referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April 2002, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a social order for the promotion of welfare of the people . Article 39 is to the effect that the State shall, in particular, direct its policy towards securing for the citizens, men and women equally, to secure the right to an adequate means of livelihood. Article 41 is headed `Right to work, to education and to public assistance in certain cases . It is to the effect that the State shall, within the limits of its economic capacity and development, make effective provision for securing the right to education. Article 45 provides that the State shall endeavour to provide early childhood care and education for all children until they complete the age of six years. Article 46 provides to the effect that the State shall promote with special care the educational interest of the weaker sections of the people and, in particular, of the Scheduled Castes and the Scheduled Tribes. It may be parenthetically added that in furtherance of these provisions of the Constitution, the Parliament has enacted the Right of Children to Free and Compulsory Education Act 2009. 7. The spirit of the quondam section 10(22) was to exempt the income of a university or other educational institutions existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10(23C)(vi) on which the learned Standing Counsel has placed considerable emphasis. In his submission, the assessee has not obtained the permission of the prescribed authority and is, therefore, covered by this provision. The contention is stated only to be rejected. That is not reading the whole of the sub-section which is really to the effect it is not applicable to situations which are covered by section 10(23C)(iiiab), and (iiiad) of sub-section (23C), of section 10. In other words, sub-section (iii ab) applies to educational institutions wholly or substantially financed by the Government, in contradistinction to sub-section (vi) which applies to organizations which do not have the benefit of government finance. As indicated hereinabove, the assessee is an instrumentality of the Government of Bihar, is indeed a government company within the meaning of section 617 of the Companies Act, and is substantially financed by government subsidy. We have, therefore, no doubt in rejecting the contention advanced on behalf of the learned Standing Counsel. Consequently, the applicability of sub-section (vi) is obviated. 10. We must consider the judgment of the Supreme Court in Sahney ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny had applied for and obtained grants from the Unemployment Grants Committee from funds appropriated by Parliament. These grants were paid as the work progressed and were equivalent to half the interest on approved expenditure met out of loans. In other words, the House of Lords observed that if a subsidy from public funds given for a particular purpose and objective to take care of the problem of unemployment, in that case financial assistance will not be treated to be operational or trade receipt and, therefore, exempt from taxation. Such a subsidy does not form part of trade activities of the company and, therefore, the House of Lords reached that conclusion. It had nothing to do with the trade of the company. Another test to determine this is whether or not such a subsidy is meant to achieve a certain objective, or the beneficiary is free to spend it for any item of its trade or business as was the case in Sahney Steel Press Works Ltd. In other words, if the recipient is bound to use the subsidy from public funds for a particular purpose, as was the case in Seaham Harbour Dock Company, or Lincolnshire Sugar Co. Ltd. v. Smart [(1937) 20 TC 643 (HL)], it would not be operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rant coming from the Government will qualify for exemption from taxation if the same was granted for a particular purpose of public utility or public importance, or to alleviate a situation affecting the general public, and cannot be used for any other purpose. The subsidy from the Government would be taxable if it can be used for any purpose the assessee likes including its trade and business, would then be in the nature of trade receipts and taxable. In other words, the basic question to be determined is whether a subsidy from payment from public funds is in the nature of capital or revenue. In the case of the former, it is not taxable, and is taxable in case of the latter. 13. The judgment of the Supreme Court in Assam State Text Book Production and Publication Corporation Ltd. vs. C I T [(2009) 319 ITR 317 (SC)], is particularly relevant in the present context and deals with taxability of the subsidy received by the appellant from the Assam Government. The facts and circumstances of that case with variation of minor details are common with the present case. We must sound the requisite note of caution that it was a case under quondam section 10(22) of the Act. The Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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