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TMI Blog1987 (5) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment implements certain schemes from time to time to promote the development of handicrafts and export sector of the State. The assessee is made a nodal agency for coordinating various activities on this behalf. The State Government issues specific orders highlighting the objectives and laying down the modus operandi for the implementation of the various schemes to attain such objectives. The State Government allocates funds for the implementation of the schemes. The funds sanctioned by the Government are placed at the disposal of the assessee in the form of grants to be utilised in the manner laid down in the particular Government order. During the year, the assessee received a total sum of Rs. 66,14,544 by way of grants as under :--- Rs. 1. Grant for Carpet Weaving Training Scheme (U.P. Govt.) 44,84,000.00 2. Grant for Development of Chikan Training Scheme 4,55,000.00 3. Grant for Retail cum outlet of Warehouse Scheme at Bhadohi 10,10,000.00 4. Grant under Export Award Scheme 1,00,000.00 5. Grant under Buyer Seller Meet Scheme 1,00,000.00 6. Grant under Overseas Handloom Exports Scheme 2,50,000.00 7. Grant under Export Overseas Publicity Scheme 2,10,000.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Against the order of the IAC (Asstt.) in respect of certain issues, the assessee had gone in appeal before the CIT(A). When the CIT(A) heard the appeal, he felt that an enhancement of the total income, as determined by the IAC (Asstt.), was called for in so far as the grants received by the assessee from the State Government were required to be included in the computation of the total income of the assessee. He gave a notice of enhancement to the assessee. He did not accept the contentions of the assessee that these amounts did not constitute his income. In all, the assessee had received a total sum of Rs. 66,44,544 by way of various grants. Out of this amount, the assessee had merely spent a sum of Rs. 2,60,015 during the year, as mentioned above. The CIT(A) held that the balance amount of Rs. 63,84,529 was required to be included in the computation of the income of the assessee. Being aggrieved by this decision of the CIT(A), the assessee has come up in appeal before us. 5. It was pointed out by the authorised representative of the assessee at the time of the hearing of the appeal that a similar question had arisen in its assessment for the assessment year 1978-79. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een stated by the assessee that these grants had not been given to him outright. It was pointed out that the State Government had specified the scheme and a particular grant was given by the State Government to the assessee for the purpose of implementing the scheme. It was stated that whatever amount remained unspent was required to be returned by the assessee to the State Government. According to the assessee, when the amount had not become the property of the assessee, it could not be considered to be the income of the assessee. It was pointed out that it was the Government's money which was handed over to the assessee to be spent strictly in accordance with the instructions of the Government and whatever had remained unspent was required to be returned to the Government. It was thus pointed out that the unspent amounts out of the grants received by the assessee could not by any stretch of imagination be regarded as the gain of the assessee. 8. The case of the Department is that these amounts are the trading receipts of the assessee and hence they were required to be taken by the assessee to its profits and loss account. 9. We have considered the matter carefully. The amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntary issues like whether the gain was of capital nature or of revenue nature or whether the gain had arisen in the course of the business of the assessee and hence whether it had constituted his trading receipt or not. But here the basic issue, whether the grants received by the assessee constituted the gain of the assessee or not, itself was first required to be resolved. We find that no attention has been paid by the CIT(A) to this basic issue. Needless to say that the ratio of the decisions, on which the CIT(A) has relied, will be of no help in deciding the question arising in his appeal. 10. Let us glance at some of the cases relied upon by the CIT(A). The CIT(A) has referred to the decision of the Allahabad High Court in the case of Ratna Sugar Mills Co. Ltd. v. CIT [1958] 33 ITR 644. In that case, payment was made by the Government of India in the form of subsidy with the object of compensating the assessee for the loss of profits arising to it from being compelled to pay additional wages to workmen by the order of the Government. It was held that the payment was for the purposes of the business of the company and hence being a trading receipt was taxable. In that case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited the amounts in its accounts under the head ' miscellaneous receipts ' and claimed that the amount received could not be taxed as its income. The assessee claimed that the amount was non-taxable. The assessee's case was rejected by the Allahabad High Court on the ground that the export subsidy would not have been paid to the assessee had he not manufactured cloth and exported it. Hence, as would be apparent, in this case also there was no dispute whether the subsidy received by the assessee had constituted the gain of the assessee. The only issue involved was whether the gain was the business gain and, as such, taxable or not. Hence, the decision of this case will also be of no help in deciding the question with which we are confronted. What we have to decide in the present case is whether on account of the grants, which had been received by the assessee to be spent on specified purposes and which in case of remaining unspent were required to be returned to the Government, would constitute the gain of the assessee. In other cases also, which have been mentioned by the CIT(A) there was no dispute about the fact that the amounts received had constituted the gain of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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