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TMI Blog2013 (9) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Delhi High Court in the respondent's case in earlier years reported as (1983) 140 ITR 532 (Del.) titled Handicrats and Handlooms Corporation Ltd. Vs. Commissioner of Income Tax, Delhi. 3. The contention of the Revenue is that this decision in respondent's case stands impliedly overruled by decision of the Supreme Court in Sahney Steel and Press Works Ltd. Hyderabad. Vs. Commissioner of Income Tax (1997) 7 SCC 764. 4. The assessment order records that respondent is a Government company and operates as channelizing agency for sale of handicrafts and handlooms abroad. There is no discussion in the assessment order regarding addition of Rs.25 lakhs on account of grant received by respondent assessee. However, this additional ground of appeal was taken in the first appeal and the Commissioner of Income Tax (Appeals) admitted the said ground. He has recorded that this amount was received from the holding company and Income Tax Appellate Tribunal in its order in assessment year 1986-87 had held that the grant received was not taxable as revenue receipt. This grant was given to recoup losses incurred by the respondent corporation and was in the nature of capital contribution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been observed: "If any refund of sales tax paid on purchase of capital goods is made, the refund will partake of the character which it had originally borne. Such refunds cannot in any circumstances be treated as trade receipts or supplementary trade receipts. This argument, though attractive at first blush, does not bear close scrutiny. This argument overlooks the basic principle laid down in the cases discussed above. It is not the source from which the amount is paid to the assessee, which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's case [1946] 14 ITR (Suppl.) 45 (HL) is that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The sales tax upon collection forms part of the public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned is this case is that the incentive must be utilised for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the Subsidy Scheme was to enable the assessee to run the business more profitable then the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant". 9. It was observed that the purpose for payment of subsidy was made relevant criteria. It was further observed that in the case of Sahney Steel and Press Works Ltd. (Supra) the money received could be utilised in any manner by the assessee and the assessee was not obliged to spend the money for a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplement their general revenues or trading receipts and not earmarked for any specific or particular purpose and a case of a private party agreeing to make good the losses incurred by an assessee on account of a mutual relationship that subsists between them. The former are treated as trading receipts because they reach the trader in his capacity as such and are made in order to assist him in the carrying on of the trade. The amounts with which we are concerned are different. They are not grants received from an outsider or the Government on such general grounds. As found by the Tribunal, these are specific amounts paid by the STC to the assessee in order to enable the assessee, which was its subsidiary and was incurring losses year after year, to recoup those losses and to enable it to meet its liabilities. These amounts, we are of opinion, cannot form part of the trading receipts of the assessed. As stated in our order for the earlier year, the position will be clear if we consider the case of a father agreeing to recoup the losses incurred by sons in his business. The amounts given by the father will be only in the nature of gifts or voluntary payments motivated by affection or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object of enabling it to offset the losses which it had incurred in the course of its business. The fact that the contribution which the STC was prepared to make to enable the assessee to do this was measured in terms of a percentage of its export earnings and was not a flat or round sum of money as in the prior years does not, it seems to us, make any difference. In all the years it is only a case of a cent. per cent. holding company coming to the rescue of its subsidiary which has incurred losses and enabling it to recoup those losses and continue to carry on the business in spite of such losses. In the circumstances, what we have said in our earlier judgment in ITR Nos. 17 and 94/74 (Addl. CIT v. Handicrafts & Handloom Export Corpn. [1982] 133 ITR 590) will equally apply in regard to the assistance received by the assessed from the STC during the current year." 14. The aforesaid findings recorded by the High Court in the earlier decision i.e. (1983) 140 ITR 532 merit acceptance, even when we apply the purpose test applied in the case of Sahney Steel & Press Works Ltd. (supra) as explained in Ponni Sugar and Chemicals Ltd. (Supra). It cannot be said that the earlier decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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