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TMI Blog1988 (8) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... y distinguishable. That was a case where the subsidy was given after the plant had started production. There the subsidy was given to assist the business of the assessee in the initial five years after production is commenced. The subsidy consisted in refund of sales tax paid by the assessee on raw material, etc., besides some other minor subsidies. Indeed, it was clearly held in that decision that if the State gives a subsidy to a person to set up a new plant, it would not be a trading receipt but capital receipt. The present case is of such a nature. On this short ground, I answer the question referred in favour of the assessee. Y. V. ANJANEYULU J.-At the instance of the Commissioner of Incometax, the Income-tax Appellate Tribunal made this reference to this court under section 256(1) of the Income-tax Act, 1961 (for short the "Act"). This reference relates to the income-tax assessment year 1972-73 And the question referred for the consideration of this court is "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the subsidy of Rs. 50,000 is not taxable as a revenue receipt ?" The relevant facts may be noticed. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feature films will be produced in this State, quite a few film studios were established. The expectations were belied. The industry did not choose to move from Madras. Almost all the Telugu feature films continued to be produced in Madras and were released for distribution in the State of Andhra Pradesh. Even Telugu producers found Madras to be a more convenient centre for production of Telugu films. The result was that the Telugu film industry showed indifference in moving to the State of Andhra Pradesh. The number of Telugu feature films produced far exceeded the films produced in other languages including Hindi. The Government felt disappointed that the film industry did not take root in the State of Andhra Pradesh although in the production of feature films, Telugu films are the forerunners. Obviously, the question engaged the attention of the Government as to how to attract the film industry to the State of Andhra Pradesh. It was in this context that initially in January, 1965, a scheme was devised whereby the State Government had decided to offer a subsidy of Rs. 50,000 to each film produced in Andhra Pradesh vide : G.O.Ms. No. 30, General Administration (I PR) Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Read the following: 1. G. O. Ms. 30, Gen. Admn. (I PR) dated January 8, 1965. 2. G. O. Ms. No. 82, Gen. Admn. (I PR) dated February 14,1968. 3. G. O. Ms. No. 424, Gen. Admn. (I PR) dated July 3, 1968. ORDER: With a view to encourage the film industry, the State Government have decided to offer a subsidy of Rs. 50,000 (Rupees fifty thousand only) to each film produced in Andhra Pradesh. The Rules for the grant of subsidies were issued in the G. O. first cited and extended up to March 31, 1968, in the Government Order second cited. These rules have been extended for a further period till March 31, 1970, in the Government Order last cited. The Government now order that the subsidy scheme and the rules as detailed in the annexure to this order be extended beyond April 1, 1970. This order is issued with the concurrence of the Finance Department, vide their U.O.No.74663/3174/HG/71-1,dated December 24, 1971. (By order and in the name of the Governor of Andhra Pradesh) Sd. V. K. Rao, Chief Secretary to Government." The rules detailed in the annexure to the Government Order dated December 31, 1971, have already been referred to above. At the time of granting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) the raw film required for the feature film should be purchased to the extent available at any place within the State (e) the registered, office of the producer should be located within the State ; and (f) when the registered office is shifted from this State, the subsidy received has to be refunded to the Government. These are the essential features. They at once indicate that the main objective of granting the subsidy of Rs. 50,000 is to encourage the production of films in this State. The sum of Rs. 50,000 offered is an inducement to the producer to produce the picture in this State. Obviously, the idea behind the entire scheme is that if the producers take advantage of the inducement offered and begin producing pictures in the State of Andhra Pradesh, the film industry would grow in course of time and the State will be benefited. The Government rightly realised that notwithstanding that the Telugu film industry being the pioneer in film making, the benefits of films produced are going to the other States while the exhibition of the films produced elsewhere is confined to the State of Andhra Pradesh. Naturally, therefore, the Government was anxious that by encouraging t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imon should apply to all subsidies given by the State to an undertaking. This court declined to accept the Revenue's suggestion to read the propostion of Viscount Simon in such a wide fashion. The following observations occurring at page 52 of 152 ITR are relevant: "...We are not inclined to read the said proposition in such a wide fashion as the Department wants us to do. The State may give a subsidy to a person to set up a new plant. In such a case, it cannot be said that the subsidy is a trading receipt. At the same time, we must say that a subsidy to assist the business of an assessee may be given in many a manner. There are several ways of subsidising an industrial undertaking. The State may do it by supplying the raw material at a concessional rate, by giving tax holiday, by giving a development rebate, by purchasing its goods at rate higher than the market rate and so on. It is not possible to exhaustively lay down the several methods or manner in which the State may choose to subsidise an undertaking ; but, one thing is clear in all such cases, the subsidy so given would fall within the first proposition of Viscount Simon." Scrutinising the details of the subsidy given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the industrial undertaking so that it can work properly and grow. This is another method. But in both cases the subsidy is given to assist the business of the undertaking. We are, therefore, of the opinion that the receipt of the said subsidy or refund, as it may be called, is of revenue nature and cannot be called a capital receipt in the hands of the assessee." The passages quoted above from the Sahney Steel's case [1985] 152 ITR 39 (AP) bring out the reason for this court holding the subsidy under consideration in that case as partaking of the nature of income. The distinction between the two subsidies is too striking. I may catalogue the sam below: Subsidy under consideration Subsidy under consideration in the in the present case case of Sahney Steel 1. The subsidy is an arbitrary The subsidy is not a cash grant lump sum cash grant of Rs. 50,000. but related to various constituents of production. 2. The subsidy is given to every The subsidy is given only to producer, whether new or established, entrepreneurs setting up, new for producing a feature film in this state. industrial undertakings. It is not available to existing industries. 3. The subsidy is not gra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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