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TMI Blog1957 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of U. P. and Bihar so that the Government of U. P. ordered the sugar factories, situate in U. P. to pay wages to the workmen at the enhanced rates with retrospective effect from 30-9-1946. The order was passed sometime in the month of February, 1947. In order to implement this demand of the U. P. Government, the sugar factories demanded proportionate compensation either in the form of increase in the price of sugar or in the form of subsidy by the Government of India. The Government of India, after consultation with the Governments of U. P. and Bihar, decided to accept, in principle, the claim of the sugar factories in the U. P. and Bihar for compensation and to pay such compensation in the form of a subsidy to all sugar factories in these two provinces. The payment of the subsidy was agreed to be at rate of 9 annas per maund to each sugar factory in the two provinces on quantity of sugar actually produced by each factory during the sugar season 1946-47, which covers the period from 1-12-1946 to 30-11-1947. Having directed this payment, the Central Government had to decide where the amount for this payment was to be drawn from and it was laid down that this charge was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas this subsidy was paid to the assessee by the Government of India, which was distinct and separate from the U. P. Government, so that the two transactions cannot be related to each other and this payment must be held to be a gratuitous payment by the Central Government irrespective of ether circumstances. In our opinion, in judging the nature of a receipt, we have to take into account all the circumstances under which the assessee may have received the money and particularly the purpose for which it was given to the assessee. In the present case, the facts show that the assessee company had been directed to implement the decision of the U. P. Government under which additional wages had to be paid to the workmen with effect from 1-10-1946, and thereupon the assessee company, in conjunction with other companies which had received similar directions demanded proportionate compensation either in the form of an increase in the price of the sugar or in the form of subsidy by the Government of India. Thereafter, the decision of the Government of India was to pay such compensation, but the payment was to take the form of a subsidy. Clearly, the question of payment of this subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made several times a year, for some years. It was held that the payments were not annual profits or gains liable to income-tax. The two main judgments in this case were delivered by Lord Buckmaster and Lord Atkin, both of whom held that the payments, which had been made to the dock company by the Unemployment Grants Committee, were not annual profits or gains liable to income-tax as they were not trading receipts at all. The decision in that case came for consideration before the House of Lords again in, 1946-14 ITR 45 (Sup) (A) cited above, where Lord Thankerton pointed out that in that earlier case what Lord Buck-master had said was: It was a grant by a Government Department with the idea that by its use men might be kept in employment. It was not a trade receipt. Lord Thankerton also noted that what Lord Atkin had said was, When received, they were received by the appropriate body not as part of their profits or gains or as a sum of which went to make Up the profits or gains of their trade. Lord Atkin had, in fact, gone on to hold, It is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in profits so as to enable payment of interest which, under certain stipulations, the assessee had to pay on the paid up capital. It was held that the subsidy paid to the company was income of the company and was liable to be taxed in spite of the fact that it was intended to be paid automatically to the share-holders. 7. Finally we may refer to a decision of the Supreme Court in the case of Raghuvanshi Mills Ltd., Bombay v. Commr. of Income-tax, Bombay City, (1952) 22 ITR 484: (AIR 1953 SC 4) (E). In that case the assessee company had received a certain amount from the Insurance Company as a result of fire. The amount was paid on account of loss of profits. Their Lordships of the Supreme Court holding that it was taxable income remarked: The assessee is a business company. Its aim is to make profits and to insure against loss. In the ordinary way, it does this by buying raw material, manufacturing goods out of them and selling them so that on balance there is a profit or gain to itself- But it also has other ways of acquiring gain, as do all prudent businesses, namely by insuring against loss of profits. It is indubitable that the money paid in such circumstances is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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