Gujarat High Court Case Information System
Print
TAXAP/530/2010 4/ 4 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 530 of 2010
=================================================
COMMISSIONER
OF INCOME TAX, GANDHINAGAR - Appellant(s)
Versus
GUJARAT
WATER RESOURCES DEVELOPMENT CORPORATION LTD - Opponent(s)
=================================================
Appearance
:
MRS
MAUNA M BHATT for Appellant(s) : 1,
None for Opponent(s) :
1,
=================================================
CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
MS JUSTICE SONIA GOKANI
Date
: 04/07/2011
ORAL
ORDER
(Per
: HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue
is in appeal against the judgment of the Tribunal dated 16.10.2009
raising following question for our consideration:-
“Whether
the Appellate Tribunal is right in law and on facts in reversing the
order passed by CIT(A) and thereby deleting the addition of
Rs.12,97,46,000/- made on account of subsidy received from Govt. of
Gujarat?”
2. The
question arises in following factual background:-
2.1 The
respondent assessee is a statutory Corporation involved in the
activity of water resource development. It implements various schemes
by digging tube wells, lift irrigation, laying down pipes,
sanctioning loans etc. to ensure that there is adequate and proper
water supply to the people of the State.
2.2 In
the year under consideration i.e. for the assessment year 1996-97 the
assessee received certain Government assistance in the form of
subsidy to enable it to repay the loans taken from NABARD. The
Revenue was of the opinion that receipt was a revenue receipt and
should, therefore, be taxed in the hands of the assessee.
2.3 The
issue reached Tribunal. The Tribunal by the impugned judgment,
allowed the assessee’s appeal. The Tribunal noted the facts as
emerging on the record, namely, that the Government had released the
subsidy to enable the assessee to repay the borrowing from NABARD. A
tripartite agreement was entered into by NABARD, the assessee and the
State Government. The Tribunal noted that NABARD had provided finance
to the assessee to enable the assessee to execute projects comprising
schemes for construction of deep tube wells, laying down of pipelines
and other allied works of the State Government. The State Government
undertook to give grants to the assessee to enable the assessee to
repay such loans. Relevant Government resolutions and circulars
clearly stipulated that the grants should be utilized only for the
purpose for which they were given.
2.4 It
was also not in dispute that such condition was fulfilled by the
assessee. There was sufficient evidence to establish that the loans
were utilized for the purpose of construction of tube wells, for
laying down pipelines etc. for irrigation projects.
2.5 The
Tribunal also noted that the department objected to such payments by
the Government only when subsidy was granted to the assessee to
enable it to pay the borrowing from NABARD. Whenever Government
grants were made available directly to the assessee for meeting
similar costs, the department did not object to the same being
treated as capital receipt.
3. In
view of the above factual findings, the Tribunal, relying on the
decision of the Apex Court in the case of Sahney Steel and Press
Works Ltd. and others vs. Commissioner of Income-Tax reported in
[1997] 228 ITR 253(SC) and in the case of Commissioner of Income-tax
vs. Ponni Sugars and Chemicals Ltd. reported in [2008] 306 ITR
392(SC) was of the opinion that the receipts cannot be treated as
revenue receipts.
4. In
the case of Sahney Steel and Press Works Ltd. and others vs.
Commissioner of Income-Tax (supra), the Apex Court held and observed
that if payments in the nature of subsidy from public funds are made
to an assessee to assist him in carrying on his trade or business,
they are trade receipts. The character of the subsidy in the hands of
the recipient, whether the revenue or capital, will have to be
determined, having regard to the purpose for which the subsidy is
given. The source of the found is quite immaterial. However, if the
purpose is to help the assessee to set up its business or complete a
project, the monies must be treated as having been received for
capital purposes. But if monies are given to the assessee for
assisting him in carrying out the business operations and the money
is given only after and conditional upon commencement of production,
such subsidies must be treated as assistance for the purpose of
trade.
5. In
the case on hands before the Apex Court the assessee could not
utilize the money for distribution as dividend to its shareholders.
However, the assessee was free to use the money in its business
entirely as it liked and was not obliged to spend money for a
particular purpose. In this background the Apex Court held that the
subsidies was of revenue nature and would be taxed in the hands of
the recipient.
5. The
decision of Sahney Steel and Press Works Ltd. and others vs.
Commissioner of Income-Tax (supra) was considered by the Apex Court
in the case of Commissioner of Income-tax vs. Ponni Sugars and
Chemicals Ltd. (supra), wherein the assessee cooperative society
which was running sugar mills was granted subsidy by the Government
to be utilized only for repaying loans since it was economically not
viable to run sugar factories and due to high finance costs,
financial institutions did not come forward to advance loans to
entrepreneurs. In that background, the Apex Court held that the main
eligibility condition in the schemes was that the incentive had to be
utilized for repayment of loans taken by the assessee to set up new
units or for substantial expansion of existing units. The subsidy
received by the assessee was not in the course of a trade but was of
a capital nature. The Apex Court noted difference in facts in the
case of Sahney Steel and Press Works Ltd. and others vs. Commissioner
of Income-Tax (supra), wherein the assessee could utilize the subsidy
the way it liked for the purpose of the business.
6. In
the present case, we find that the subsidy came with a specific
rider. It had to be utilized for repayment of loans to NABARD. Such
loans were taken by the assessee for a specific purpose of
construction of tube wells, laying down of pipe lines and providing
lift irrigation system for providing water for the people of the
State.
7. We
are of the opinion, therefore that the Tribunal correctly held that
the subsidy was not for the purpose of enabling the assessee to do
the business better or more profitably but it was for the purpose of
repaying loans utilized for acquiring capital assets. The assessee’s
main object appears to be to carrying out such water schemes. In
furtherance of such object, the assessee had constructed tube wells,
laying down pipelines and providing lift irrigation system. It was
for this purpose the assessee had taken loan from NABARD, which
through the subsidy received from the State Government was being
repaid.
8. In
view of the above, we do not find any error in the judgment of the
Tribunal. The Tax Appeal is, therefore, dismissed.
(Akil
Kureshi, J. )
(Ms.
Sonia Gokani, J.)
sudhir
Top