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TMI Blog1983 (12) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... rea survey and for Tribal activity 2,67,000 (ii) Subsidy for Crafts India 77 Exhibition Rs. 25,000 and other for Bombay Emporium 1,25,000 (iii) Subsidy for intensive Handloom Development Scheme 4,10,000 --------------------------- 8,02,000 --------------------------- The assessee credited the said amounts to its profit and loss account and at the same time debited a sum of Rs. 6,36,285 being unspent amount out of the said grant to its profit and loss account. Thus, in effect, the assessee took credit of a sum of Rs. 1,65,715, which was the amount spent by the assessee during the relevant year of account. It was explained on behalf of the assessee that the Government of Gujarat had sanctioned the grants and subsidies under various resolutions. The relevant resolutions were placed before the ITO. The ITO observed that a plain reading of these resolutions show that the amounts in question were disbursed to the assessee once and for all subject to the condition that the assessee should produce its account for audit to the Accountant General, Ahmedabad, if required by him. He next pointed out that the assessee was not answerable to the Government regarding unspent balances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans and subsidies with a view that the main object of the corporation was not defeated for want of finance. The said loans and subsidies were granted by the Government for different objects and aims in various resolutions passed by the Government. In some cases the Government had converted subsidies granted earlier into loans. That apart there was a specific stipulation that the amounts of unspent subsidies have to be refunded to the Government in the following year. Various resolutions in this connection were produced. Thus, on the basis of the resolutions it was pointed out firstly, that the subsidies were granted by the Government for specific object or purpose. Secondly, the same were required to be utilised only for the said purpose and objects. Thirdly, the unspent subsidies were required to be refunded to the Government and lastly, the assessee received the amounts as subsidy as merely a trustee for the Government who was required to utilise the amount as per the directions of the Government from time to time. It was also pointed out that the assessee had no right over the funds at all. Relying on the decision in the case of Seaham Harbour Dock Co. v. Crook (Inspector of Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's trading receipts and were not taxable as income for the respective years under consideration. The Commissioner (Appeals), thus, deleted the said additions. 5. Being aggrieved, the revenue has come up in appeal before us for both the years. The learned departmental representative relying on the order of the ITO submitted that various grants and subsidies made over by the Government to the assessee were in the nature of income inasmuch as the assessee had credited the amounts to its profit and loss account. Secondly, grants and subsidies were given in order to supplement the assessee's own activities. Therefore, they were in nature of supplementary receipts and as such it could not be divorced from its main business activity. Relying on the decision in V.S.S.V. Meenakshi Achi's case, it was pointed out that when a grant or subsidy is given to a trader by the Government to assist in his business activities, such grants or subsidies assume character of trading receipts and as such are revenue in nature. In effect, various subsidies and grants made by the Government under its various resolutions were intended to meet the loss caused to the assessee in course of its trading activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 191, 192 have stated "that the receipt being one which in law could not be regarded as income, it could not become income merely because the respondent erroneously credited it to the profit and loss account. " Therefore, in the light of these decisions, which we respectfully follow, the submission made by the revenue to treat the amounts as income only on the footing that amount stood credited to the profit and loss account must fail. 7. Now we turn to the main question about the nature and character of the receipts, viz., grants and subsidies. A reference to the following decisions would be relevant :---- 1. In CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 (SC). The question arose regarding 'Dharmada' collection made by the assessee according to custom from its customers. It was held that : " . . . when the customers or brokers paid the amounts to the respondent earmarking them for 'Dharmada', those payments were validly earmarked for charity : in other words, right from the inception those amounts were received and held by the respondent under an obligation to spend them for charitable purposes only, with the result that those amounts were not its trading receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny were contemplating an extension of their dock. They had obtained Parliamentary power to increase their debenture issue by about pound 75,000, but they found that there was at least as much again that would be required to enable them to carry out their work. In those circumstances they wrote to the Unemployment Grants Committee asking that assistance might be rendered through the medium of that Committee, and as a result of their application, the Unemployment Grants Committee wrote on the 6th November, 1923, a letter which has turned out to be one of the most critical matters in the present dispute. That letter, after stating that careful consideration had been given to the application for State assistance in connection with the extension of the harbour, continued in these words : 'I am directed to state that the Committee are prepared to sanction grant equivalent to half the interest at a rate not exceeding an average up to 5 1/2 per cent per annum on approved expenditure met out of loan (not exceeding pound 1,52,000) for a period of two years from the date or dates on which the payments are made.' I think that the pound 1,52,000 was arrived at by doubling the pound 75,000 and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received de hors the normal trading activity, the same conclusion, in law, would not follow. Thus, there is an essential distinction between a grant and subsidy received on revenue account to make good the loss and grant the subsidy received for certain specific purpose and the obligation attached thereto. 9. Bearing in mind the above principles, let us revert to the facts of the case. The assessee is dealing in handicrafts and handlooms. It is a company wholly owned by the State Government. Now under the scheme for intensive development of handloom industries, the State Government by various resolutions (copies of which are placed on record) sanctioned various amounts from time to time under certain terms and conditions. It was not only required to utilise the amounts, which were sanctioned by the Government from time to time, in carrying out the development activities particularly in regard to tribal handicrafts but was also required to return the unutilised portion to the Government when there was a failure to spend it. Secondly, the subsidies were granted with the condition that the same will have to be utilised only for the purposes for which they are given. Any deviation fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Emporium styled Gurjari. Similarly there were discrepancies, alterations and erasures in the stock register. The stock registers were not maintained properly from time to time and there was omission to record the stock of Ahmedabad and Delhi Emporium properly in the light of these defects, the ITO concluded that the stocks deficit as disclosed by the assessee was not subject to verification. Therefore, he declined to allow the claim of the assessee for shortage of goods amounting to Rs. 2,86,975. 11. The matter was carried in appeal before the Commissioner (Appeals). It was contended that even assuming that the stock registers were not maintained properly and that physical verification has not been carried out or that the valuation has not been properly made, the fact that the shortage has occurred due to breakage and pilferage in transport could not be ruled out. The assessee dealt with thousands of items of small articles of fragile nature and loss or breakage was inevitable. Thus, having regard to the value of closing stock which was over Rs. 40 lakhs, the shortage claimed by the assessee was reasonable and there was no reason to disallow the same. It was also explained that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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