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TMI Blog2009 (12) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the grant of ₹ 24,44,38,406/- was not in the nature of revenue income. It be so held now. 2.2 The ld. CIT(A) has erred in not appreciating the contention that nature of grant would not defer either received in form of cash or in kind. It is submitted that grant has been accepted as a capital receipt and on that premises grant received in cash form should also be held to be capital in nature. It be so held now. 3. The ld. CIT(A) has erred in confirming the lease rent expenses of ₹ 7,84,704/- paid for leasehold land situated at Narela considering same as capital expenditure. It is submitted that in the facts and circumstances of the case, lease rent paid of ₹ 7,84,704/- ought to have been held to be revenue expenditure. It is submitted that it be so held now. 4. The ld. CIT(A) has erred in not directing the ld. AO to allow depreciation on actual cost of the assets transferred from National Dairy Development Board worth ₹ 5,55,61,594/- as grant. It is submitted that in the facts and circumstances of the case, pursuant to explanation 2 to section 43(1) of the IT Act, depreciation ought to have been granted. It is submitted that direction be given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase are that the assessee company is engaged in manufacturing and trading in various edible oils and food products under the brand name "Dhara". One of the objects incidental or ancillary to the main objects of the assessee company was to acquire, take-over and manage the on-going and other agricultural products in operation in NDDB with all assets or liabilities held in connection with the production of vegetable oil by NDDB. The NDDB is a body corporate established under an Act of Parliament i.e. National Dairy Development Board Act, 1987. NDDB has been authorised to form one or more subsidiary companies for implementation of its objects after obtaining necessary approval of the Central Government under section 43(1) of the NDDB Act. Accordingly NDDB obtained prior approval of the central Govt. under section 43(1) of its Act and transferred all its oil related activities carried out by a separate division of NDDB to assessee company under section 43(2) of the NDDB Act. Accordingly vide agreement dated 23rd March, 2001 NDDB transferred its separate division carrying out its oil related activities to the assessee company. It is undisputed fact that assessee is wholly owned subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a part of assessee's business. 3.8 Moreover, there is no prohibitory clause whereby it is intended that if assessee company does not apply the amount to research and development work and utilizes this fund in any other manner, all securities and grant will be recovered back. No prohibitory or restrictive conditions have been provided in the clause 10 of the agreement. The total control over the investments and the right for changing the nature of investment is of assessee company and for all legal purposes, the ownership on the fund of ₹ 24,44,38,406/- is of DOFCO, therefore, considering all the facts, the same constitutes revenue receipts in the hands of assessee company. 3.9 Any grant may whatever be the nature, granted to a company after it has started production, is a revenue receipt. The payment of subsidy to assist an assessee in carrying on trade or business as distinct from the subsidy to help the assessee to set up an industry or complete a project is production incentive or operational subsidy is not a capital subsidy. Hence, it is chargeable to tax as revenue receipt. The same view was held in the decision of Sahaney Steel & Press Works India Ltd. Vs. CIT 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the appellant. 10. The CIT(A) rejected these arguments. He has held as under :- (1) Nomenclature given by the transacting party is not conclusive to understand the true and real character of a particular receipt. Therefore, above arguments of assessee as covered in para 6(i), 6(ii) and 6(iii) are not acceptable. (2) The nature of funds in the hands of payer is nondeterminative of character of the receipt in the hands of recipient. A capital receipt in the hands of one may become income in the hands of receiver. He referred to the decision in the case of CIT vs. Presidency Co-op. Housing Society Ltd. (1995) 216 ITR 321,325 (Bom); CIT vs. Kamal Behari Lal Singha (1971) 82 ITR 460 (SC). (3) An obligation to use the income in a particular manner does not remove it from the category of income. Even when the obligation to use it in a particular manner forms a part of an original contract/agreement giving rise to such income and will not alter its character. He referred to the decision of Apex Court in E.D.Sassoon & Co. vs. CIT (1954) 26 ITR 27 (SC) to this effect. From this ld. CIT(A) inferred that even if assessee was obliged to use the grant in a particular manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,594/- in the form of fixed assets and balance in the form of Fixed Deposit as corpus fund. 13. The ld. Authorised Representative drew our attention to clause 10 of the agreement according to which assessee had agreed to amount received in cash as a earmarked corpus and keep the amount invested in the long term financial instrument. The assessee also agreed to utilize the amount of interest earned thereon for the research and development activities. Thus the grant of ₹ 24.44 crores was out of capital funds of NDDB and transferred to the assessee company for carrying out research and development activities out of interest earned from the investment of such cash. There is specific stipulation in the agreement to use the interest for the said purpose. Interest earned thereon has been treated as income and taxed accordingly while expenditure incurred for research and development has been shown as expenditure, claimed as deduction and allowed accordingly by the Department. NDDB has given other capital grant as a loan to the assessee. Every item so given cannot be treated as revenue receipt. Once there is a control of NDDB and direction to the assessee company to use only intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to understand the judgement as laying down the broad proposition that wherever the subsidy is given after the commencement of production and conditional upon the same, it should be treated as a revenue receipt in the hands of the assessee, irrespective of the object for which the subsidy is granted. The object for which the subsidy is granted takes primacy over the fact that it is given after the commencement of production and conditional upon the same. That the Supreme Court itself recognized that position had been amply made clear in its observation. Thus the purpose and object of the Scheme under which the subsidy is given is of more fundamental importance than the fact that the subsidy is received after the commencement of production or conditional upon it. Hence, the Tribunal in the case of the assessee for the assessment year 198586 had correctly interpreted and understood the ratio of the judgement of the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra). 4. Addl.CIT vs. Chodavaram Co-op. Sugars Ltd. (2003) 86 ITD 139 (Visakha) The Supreme Court laid down a principle by stating that the character of subsidy is to be determined having regard to the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch and development in such subsidiary. It is one thing to give grant as a condition and it is another thing to accept a grant with a condition. In the former ld. Departmental Representative submitted that condition will decide the nature of the grant but in the latter its imposed conditions are inconsequential in determining the nature of grant. 15. We have heard the rival submissions and perused the material on record. In our considered view assessee deserves to succeed. The undisputed facts are already narrated above. The NDDB has given various grants and loans to assessee company after it being created as 100% subsidiary. ₹ 5.55 crores being the value of assets involved in research and development are transferred to the assessee company and balance of ₹ 24.44 crores is transferred in cash which was in the form of fixed deposit. Clause -10 of the agreement dated 23rd March, 2001 between NDDB and DOFCO (i.e. assessee company) reads as under :- "10. NDDB further agrees to give a grant of ₹ 30 crore to DOFCO for research and development in oilseeds, oil and food related activities. An amount of ₹ 6.06 crore, being the value of assets belonging to Dal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that research and development activities constitute activities on which expenditure incurred would be revenue in nature but that does not automatically lead to the inference that funds earmarked for such activities would also be revenue in nature. Further it is incorrect to say that funds of ₹ 30 crores including fixed assets of ₹ 5.55 crorres were given to the assessee during the course of production. They were given at the time of creation of assessee company when assessee company had not taken over the ongoing operation of the oil unit of NDDB. The transfer of asset took place on 1.4.2001 as per clause 1 of the agreement whereas agreement to transfer the funds took place on 22nd March, 2001. 17. The arguments of ld. Authorised Representative cannot be brushed aside that grant given to the assessee company is a liability and is refundable to the NDDB. The liability cannot be treated as income except in accordance with the provisions of law i.e. only after invoking section 68. 18. Arguments of ld. Departmental Representative that it is unilaterally assured by assessee company to the NDDB and hence such assurance cannot alter the character of receipt, is not acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing it as capital in nature. Assessee company had taken on lease at Kandla (for 30 years), at Narela ( perpetual lease) & Kolkata ( for 30 years ). Initial amount paid for lease hold land rights was capitalized. Subsequently lease rent was paid. The Assessing Officer disallowed the claim on the ground that assessee has acquired rights which provide enduring benefits. It was claimed before ld. CIT(A) that amount was paid for use of the assets and not for acquiring the assets. Ld. CIT(A) held that lease rent in respect of Kandla and Kolkata is revenue in nature as no ownership rights are granted to the assessee. However, lease rent paid in respect of Narela is for acquiring perpetual leasehold rights for 99 years. For all practical purposes it is a permanent asset in possession of assessee and, therefore, expenditure incurred thereon has been correctly capitalized. The ld. Authorised Representative on the other hand submitted that ownership of the land vested in the Government and by paying annual leasehold rentals assessee is not getting any permanent asset which is already given by paying one time. Ld. Authorised Representative submitted that the issue is covered in its favour by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. Thus, the Tribunal having applied the ratio of Apex Court decisions had made and order in accordance with law which was not required to be interfered with. (6) The facts are not in dispute. The lease agreement entered into between the assessee and GIDC has been analysed and relevant terms summarized by the Tribunal. It is not necessary to refer to the said terms in detail in the present proceedings. Suffice it to state that the Tribunal on appreciation of the Deed in question, has recorded following findings of fact : 'It is not disputed that the land which has been leased out to the assessee did not cease to be belonging to GIDC, the lessor. The lease deed was registered because as per the Registration Act it is compulsorily registrable, but it has not changed the ownership. It is not also disputed that the lease rent is very nominal and by obtaining this land by lease the capital structure of the company has not been changed…. …Thus by this payment the assets of the assessee company had not been increased because the land continued to be the land of GIDC. The benefit the assessee got is only of an advantage of carrying on the business more profitably b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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