IN THE HIGH COURT OF JHARKHAND AT RANCHI
Tax Appeal No.35 of 2008
Commissioner of Income Tax ... .. .. ..Appellant(s)
-Versus-
Bharat Refractories Ltd... .. .. .. ...Respondent(s)
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CORAM: HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE D.K.SINHA
For the Appellant(s): Mr. K.K. Jhunjhunwala, Advocate
For the Respondent(s): Mr. Ananda Sen, Advocate
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06/ 27.11.2008
This appeal has been filed by the Commissioner of Income
Tax, Hazaribagh against the order passed by the Income Tax Appellate
Tribunal, Circuit Bench, Ranchi dated 23.11.2007 by which the learned
Tribunal was pleased to allow the appeal filed by the assessee-
respondent and consequently was pleased to set aside the order passed
by the CIT(A), Jamshedpur and confirmed the action of the Assessing
Officer who had accepted receipts on account of subsidy as trade receipts
which was meant to liquidate the outstanding interest which was claimed
payable by the respondent-assessee along with penal interest. The
Tribunal was of the opinion that by providing such a subsidy in regard to
which the receipts were in existence, no working capital of trading receipts
had come to the benefit of the assessee company in the sense that it was
not in the nature of subsidy to assist the assessee company to carry on its
trade or business but was a subsidy meant for restructuring its capital
base and to liquidate its outstanding dues.
The counsel for the appellant-Revenue submitted that the
view taken by the Tribunal was clearly erroneous as the receipts of the
amount by way of subsidy to the assessee company ought to have been
treated as capital gain for the purpose of enhancing its business which
amounted to capital gain and the said subsidy ought to have been held
taxable and the amount towards subsidy added to the revenue of the
respondent-assessee and therefore ought to have been held taxable. In
support of his submission the counsel relied upon the authority of Sahney
Steel and Press Works Ltd. & others versus Commissioner of Income Tax,
reported in (1997) 228 I.T.R. and invited the attention of this Court to the
views expressed by the learned Judges in the aforesaid case. In the said
case, although the deductions were claimed to have been allowed in
favour of the Company on account of the subsidy, the same was not
accepted by the Apex Court and it was held that as the subsidy had not
been granted for production or for bringing into existence any new asset
and the subsidies were granted year after year only after the setting up of
the new industry and commencement of production, such a subsidy could
only be treated as assistance given for the purpose of carrying on of the
business of the assessee. Learned Judges of the Supreme Court,
therefore, applied the test of Viscount Simon in the case of Ostime(1946)
14 ITR (Suppl.) 45 (HL) and held that subsidies are of revenue character
and will have to be taxed accordingly. Hence the counsel for the appellant-
revenue submitted that as in the case relied upon by the appellant, the
subsidies were treated as revenue and had to be taxed, the learned
members of the Tribunal were not correct in holding that the subsidies
were not taxable.
Having heard the counsel for the appellant and having
perused the judgment relied upon by the counsel for the appellant it is
quite clear that as a bald proposition amount of subsidy under all
circumstance cannot be held non-taxable nor it would be correct to
assume that in all cases subsidies have to be treated as revenue and has
to be held taxable . Thus subsidies, although, received by way of subsidy
may be treated as taxable receipts for enhancing the capital revenue of
the assessee company, yet the same will have to be examined whether
the subsidy was for increasing the capital gain of the company or it was
meant for restructuring the business of the assessee.
In so far as the instant matter is concerned, it is clear from
the impugned order of the Tribunal that the subsidy had been allowed to
the respondent-assessee in order to discharge the liability of outstanding
interest along with penal interest so that it could sustain its business and
thus the subsidy could not be construed to have been granted to the
respondent-assessee in order to increase its capital for the purpose of
earning profit. Thus, if the subsidy was granted to the respondent-
Company merely to sustain its existence and to liquidate its outstanding
interest along with penal interest, the view taken by the Tribunal by
treating such subsidy as working capital cannot be faulted as such,
subsidy was meant for restructuring its capital base and to liquidate its
outstanding dues. Thus the decision relied upon by the counsel for the
appellant-revenue is clearly not applicable in the facts of this case.
We thus find no reason to interfere with the order passed by
the Tribunal. Consequently, this appeal is dismissed at the admission
stage itself.
[Gyan Sudha Misra, C.J.]
[D.K.Sinha,J.]
S.B./Sarda