JUDGMENT
Pramod Kumar, Accountant Member
1. These two appeals, filed by the assessee, are directed against the consolidated order dated august 23, 2000, passed by the commissioner of income-tax (appeals)-ii, bhubneshwar, in the matter of orders under section 144 read with section 147 of the income-tax act, 1961 (hereinafter referred to as “the act”), for the assessment years 1986-87 and 1987-88. Although the assessee has raised eight identical grounds in each of the appeals, on merits, solitary and common grievance of the assessee is against the assessing officer’s making the additions of rs. 3,51,75,429 and rs. 3,17,89,100, respectively, for the assessment years 1986-87 and 1987-88, on account of subsidy received by the assessee-company from the state government. In the ground of appeal number 3, the assessee has also challenged the reassessment proceedings, but this ground was not pressed before us. As a matter of convenience, we are disposing of both the appeals by this consolidated order.
2. The assessee, a public sector undertaking all the shares of which are held by the state government was set up under the orissa government’s resolution dated august 28, 1980 (published in government of orissa gazette dated september 12, 1980 ; copy placed at pages 26-27 of the paperbook) which is reproduced below for ready reference :
“government of orissa,
Food and civil supplies department.
Resolution
27th august, 1980.
with a view to implementing the scheme of distribution of essential commodities and to ensure easy availability of some selected articles of mass consumption at reasonable prices, the question of establishment of a state level civil supplies corporation was under active consideration of the government for some time past. After a careful consideration, the government have been pleased to decide that a corporation known as ‘orissa state civil supplies corporation limited’ should be formed with the following broad objectives.
objectives
to engage either on its own or as agents of the government of any firm, company, or institution in production, purchase, processing, storage, transport, distribution and sale of food grains, food stuffs, and such other essential
Commodities as it may choose and to provide assistance, advice and service therefor including capital resources, technical, managerial and other, services. This corporation will be also be responsible for procurement of essential commodities and to deal in these for equal distribution.”
3. As to the exact role played by this corporation and financial aspects of the business transacted by it, a letter dated july 30, 1982, written by shri s. R. Pal, the then secretary (food and civil supplies) to the government of orissa, addressed to shri h. N. Das mohapatra, the then chairman of the corporation (copy placed at page 28 of the paper-book) throws some light on this aspect of the matter. This letter is also reproduced below :
“s. R. Pal, i.a.s., orissa 8th finance commission
Secretary to government, government top priority
F & c s department
Bhubneshwar date : 30th july, 1982.
d. 0. No. Fin-iim-5/82 (pt.) 21699
dear shri das mohapatra,
it is contemplated to project before the 8th finance commission the loss sustained by the state civil supplies corporation for the transactions of essential commodities like rice, wheat and sugar through public clistribution system. Since the corporation has been entrusted with the task of procurement, purchase and distribution of these commodities to consumers at controlled or subsidised rates, there is bound to be deficiency in the receipts against the expenditure incurred thereon. The net loss is to be made good by way of subsidy. To convince the commission, adequate data for quantifying the same with necessary details and explanatory notes may have to be placed in a short time. For the purpose, detailed note indicating the loss sustained on this account item-wise during the financial years 1980-81 and 1981-82 is required.
you are, therefore, requested to direct the managing director of the corporation to give detailed account of transactions done through the corporation during the said years along with the profit and loss account and balance-sheet to find out the actual loss for the years 1980-81 and 1981-82 for claim of subsidy before the commission with necessary projections for the years 1982-83 to 1988-89. The financial results of the corporation may also be made available in the form xviii and xix enclosed herewith.
this may kindly be treated as top-priority.
with regards,
yours sincerely,
(sd.) S. R. Pal,
shri h. N. Das mohapatra, chairman,
orissa state civil supplies corporation ltd.,
bhubneshwar.” (emphasis supplied by us by way of underlining)
4. We may also reproduce contents of a certificate dated february 14, 2001, issued by shri a. K. Tripathy, principal secretary to the government of orissa (finance department), bhubneshwar. It may also be stated that the aforesaid certificate was admitted by us as an additional evidence since, in our considered view, it is necessary to take this into account for proper disposal of the appeals.
“this is to certify that orissa state civil supplies corporation is not a profit making organisation. It is engaged in the distribution of essential commodities to the common people through pds.
the rate of purchases and sale of essential commodities are fixed by the government of orissa. Since the sale of commodities is made at subsidised rates, there is bound to be a loss. The government of orissa has undertaken to recoup the loss incurred by the orissa state civil supplies corporation ltd. To the extent of loss incurred by them. This loss can be determined only after finalisation of audited accounts. Subsidies are given on ad hoc basis which are to be adjusted against actual loss incurred after taking into account all the income and expenses as per the audited accounts. The excess amount of subsidy paid is in the nature of balancing advance which is refundable to the government by the oscs ltd. Or adjustable against future subsidy payable to the corporation. The corporation plays an important role in poverty alleviation programmes by providing the much required food subsidy to the poorest of poor. There is no profit in its operations.”
5. Having set out the brief facts about the functioning of the corporation, let us take a careful look at the circumstances leading to this litigation before us. The original assessments of both the years were completed at nil figure under section 144 of the income-tax act (hereinafter referred to as “the act”), but later the assessing officer found that the assessee had received subsidies amounting to rs. 3,29,36,000 for the assessment year 1986-87 and rs. 3,17,89,095 for the assessment year 1987-88 which have not been brought to tax. Accordingly, notices under section 148 were issued but as timely compliance was not made, both the assessments were completed based on the material on record. During the assessment proceedings, the assessing officer noted that the two immediately preceding years, similar subsidies received by the assessee were treated as revenue receipts in the hands of the assessee and such taxability was also upheld by the tribunal. In this background, the assessing officer required the assessee to show cause as to why the subsidy receipts should not be treated as taxable revenue receipts. In response to this show cause notice, it was explained that the assessee-corporation was a fully state government owned corporation, exclusively dealing in essential commodities through public distribution system throughout the state. It was also submitted that the assessee procures essential commodities at the rates fixed by the government and sells the same–again at the rates fixed by the
Government, which is mostly below the cost price. It was also submitted that the state government allows provisional subsidy to the corporation to bridge the gap between procurement prices and sales realisation, which means that subsidy is not income of the corporation but essentially a benefit to the consumers of the state channalised through the corporation. It was specifically submitted that the subsidy received from the state government is always provisional subject to the finalisation of accounts for the year and it is always corporation’s liability to the government, to refund the subsidy after adjusting the same to the extent of loss actually incurred. It was thus contended that the subsidy received during the year has been taken credit of, to the extent of loss and the balance shown as liability of the corporation to be refunded to the state government. It was thus argued that the treatment of unadjusted subsidy in the accounts as liability is proper and, in no circumstances, it should be treated as a revenue receipt exigible to tax. However, the assessing officer was far from impressed and dismissed these submissions as having “no relevance in the facts and in the circumstances of the case”. He noted that, apart from enclosing a copy of the earlier letter dated february 6, 1993, from the government of orissa, no material/documentary evidences were furnished by the assessee in support of the facts claimed about the scheme of subsidy. He further observed that “the copy of letter dated april 16, 1996, of the government of orissa, requesting for refund of advance subsidy, furnished by the assessee, would be of no help since the nature of any particular receipt is determined at the time of receipt. A reference was then made to the findings in the order of the tribunal wherein identical subsidy receipts were held to be taxable, and to the judgments of the supreme court in the case of v. S. S. V. Meenakshi achi v. Cit [1966] 60 itr 253 and reported in cit v. Sun engineering works p. Ltd. [1992] 198 itr 297 and the decision of the madras high court in saroja mills ltd. V. Cit [1996] 220 itr 626. The assessing officer, thus, proceeded to tax the subsidies received by the assessee, as assessee’s revenue receipts exigible to income-tax. Aggrieved, the assessee carried the matter in appeal before the commissioner of income-tax (appeals) but without any success. Relying upon the order dated november 17, 1994, passed by this tribunal, in the assessee’s own case, the commissioner of income-tax (appeals) dismissed the appeals with the following observations :
“on a careful consideration of facts of the case, i find the issue of taxability of subsidy received by the appellant from the government has already been decided by the income-tax appellate tribunal, cuttack bench, cuttack, in their order dated november 17, 1994, in i. T. A. Nos. 165 and 166/ctk of 1994 for the assessment years 1984-85 and 1985-86. In the said order, the income-tax appellate tribunal has held that the subsidies received by the appellant are in the nature of trading receipts. The income-tax appellate tribunal, while deciding the case of the appellant for the assessment years 1984-
85 and 1985-86, had occasion to consider letter of the government referred above and they had concluded that the subsidy received is not in the nature of loan or capital received or payment received to offset the capital depletion. I am not inclined to agree with the contention of the authorised representative that the subsidy received by the appellant is only a receipt and not to be treated as income. The subsidy granted by the government is intended to offset the trading loss and, therefore, is in the nature of revenue receipt. I am further inclined to agree with the assessing officer that apart from enclosing a copy of the letter dated february 6, 1993, from the government of orissa, no material and documentary evidences have been furnished in explaining the scheme of subsidy received by the appellant during both the years and the letter dated april 16, 1996, of the government requesting refund of subsidy cannot override the nature of any particular receipt which is determined during the year of receipt. Further, contents of letter dated april 16, 1996, of the government of orissa, in a sense, is similar to that of letter dated february 6, 1993, which has already been considered by the income-tax appellate tribunal while deciding the taxability of subsidies received. The income-tax appellate tribunal has also approved the order of the commissioner of income-tax (appeals) in the case of the appellant for the assessment years 1984-85 and 1985-86 in respect of the taxability of subsidy and has held that the liability for refund of subsidy, if any, were contingent in nature and if the amount is refunded in a future date, the same would be considered as a revenue expense for that year. Keeping in view the decision of the income-tax appellate tribunal in the case of the appellant, i am inclined to agree with the contention of the assessing officer that subsidies received during the year are receipts subject to taxation. In the result, income determined by the assessing officer at rs. 3,51,75,249 for the assessment year 1986-87 and rs. 3,17,89,095 for the assessment year 1987-88 are found to be sustainable and the same are confirmed.”
6. Aggrieved by the order of the commissioner of income-tax (appeals) also, the assessee is in further appeal before us.
7. At this stage, we also deem it necessary to briefly touch upon the findings, and conclusions arrived at, in the tribunal’s order dated november 17, 1994, in the assessee’s own case. At page 11 of this order, our distinguished colleagues, then constituting this bench of the tribunal, inter alia, observed as follows :
“28. We have carefully considered the rival submissions. As far as the question of setting aside the matter for providing further opportunity to the assessee, to lead the evidence, is concerned, we are of the opinion that sufficient opportunities have already been allowed at earlier stages. We have already noticed that the assessment orders were set aside twice by the commissioner of income-tax (appeals). Further, we have also noted that the
Commissioner of income-tax (appeals) has recorded in para. 6.4 of his order that he gave repeated opportunities to the assessee to furnish evidence regarding specific terms and conditions for grant of subsidy by the state government but it was not forthcoming. In the circumstances, we are of the view that no further opportunity is required to be given to the assessee in this regard.”
8. Our distinguished colleagues then examined whether or not the subsidy in question is of revenue receipt in nature, and in the absence of “any evidence to the contrary” confirmed the findings of the commissioner of income-tax (appeals) that the subsidy receipt is a revenue receipt. They, then, went on to observe that :
“30. The next question we consider is whether the subsides were loans and whether the assessee was holding them as trustees and not as owners. As far as these years are concerned, we do not find any merit in the assessee’s contention. The commissioner of income-tax (appeals) has rightly pointed out that the liabilities, if any, were contingent and the assessing officer has already observed that if the subsidy received during the year is refunded in any future date, the same would be considered as revenue expenses for that year. The quantification of refund, if any, is not available. Learned counsel for the assessee was asked whether the debit of rs. 5,97,62,647 in the profit and loss account for the assessment year 1988-89 included the subsidy received for these two years. Learned counsel stated that the information was not available but it was unlikely since it included the subsidy received of rs. 4,74,672,647 for this year alone. Thus nothing has been established before us to show that even the subsidy received for these two years was later refunded to the government of orissa. We, therefore, hold that the amounts were not loans or held as trustees and we further hold that they were trading receipts of the assessee.”
9. It was in the backdrop of the above observations that our distinguished colleagues dismissed the assessee’s appeals and decided the matter in favour of the revenue.
10. The rival contentions are conscientiously heard, the orders of the authorities below carefully perused, and applicable legal position duly deliberated upon. Apart from having heard the learned authorised representative and the distinguished senior departmental representative, we have also heard dr. K. S. Ganeshan, a senior i. A. S. Officer and chairman and managing director of the assessee-corporation, who was granted permission to make his presentation on functioning and role of the assessee-corporation.
11. The first thing that we need to deal with is whether it is open to us to take any other view of the matter, than the view taken by our distinguished colleagues in the tribunal’s order dated november 17, 1994, and which has been so strongly relied upon by the revenue.
12. It is fairly well settled in law that there is no res judicata in the income-tax proceedings, though the principle of consistency should normally be maintained, unless there are strong reasons to depart from the stand taken in earlier assessment proceedings and unless the parties have allowed that position to be sustained by not challenging the earlier orders. The supreme court in the case of radhasoami satsang v. Cit [1992] 193 itr 321, has observed that (page 329) :
“we are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”
13. Elaborating upon this principle, sampath iyengar’s commentary on law of income tax (9th edition, page 116) observed that :
“the position would remain unaltered even if assessment is taken in appeal to the deputy commissioner (appeals) or the appellate tribunal. The proceedings in appeal are still merely directed towards ascertaining the income upon which a taxpayer should be charged for the particular year of assessment. The appeal is merely another step taken to determine the amount of tax. In estimating the total income, the appellate authority should necessarily form and express opinion upon various incidental questions of fact or law. But the only thing the appellate authority has jurisdiction to decide directly and as a substantive matter is the amount of taxpayer’s income for the year in question. That being so, its decision upon incidental question of fact or law, however, necessary it may be for ascertaining the income for the year of assessment, cannot be conclusive in reference to the ascertainment of the taxpayer’s income for any subsequent year of assessment. (irc v. Sneath [1932] 17 tc 149, 162 (ca)).
the aforesaid principle holds good even if the assessment of an earlier year had been taken to the high court by way of a case stated under section 256 and the high court has answered the reference. The high court can only express an opinion on question of law. It has no jurisdiction whatsoever to review the facts. Hence, no estoppel can arise by the virtue of an answer to the reference . . .”
14. We are also conscious to the judicial consensus that this tribunal should be extremely slow in departing from the findings given in an earlier order of the tribunal, with a view to ensure that there is finality and certainty in all litigations, including the litigations arising out of the income-tax act. However, it is equally well settled that the tribunal has the liberty of deviating from the stand taken in an earlier order particularly when the earlier decision has! Been
Arrived at without the enquiry and without taking into account all material evidence, particularly in a situation fresh facts are placed before the later bench. To our mind, in the name of adhering to the principles of consistency, we cannot leave any scope for perpetuation of errors. We are, therefore, emboldened to take a view that in deserving cases and for the cogent reasons to be placed on record, this tribunal has the liberty of applying its mind afresh to the matter, irrespective of the decision taken in earlier years in the assessee’s own case and even on the same set of facts, for the cause of substantial justice.
15. The famous judge, cardozo, in his inimitable language, had once observed (the nature of the judicial process, page 29) :
“i own that it is a good deal of a mystery to me how judges, of all persons in the world, should put their faith in dicta. A brief experience on the bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinions when picked up a few months after delivery, and reread with due contrition.”
16. Justice bhagwati, speaking for himself and his colleagues in the supreme court, namely, chandrachud c. J., madan and thakkar jj. In the case of distributors (baroda) p. Ltd. V. Union of india [1985] 155 itr 120 (sc) observed that (page 124) :
“to perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derive comfort and strength from the wise and inspiring words of justice bronson in pierce v. Delameter (a. M. Y. At page 18) : ‘a judge ought to be wise enough to know that he is fallible and, therefore, ever ready to learn : great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead : and courageous enough to acknowledge his errors’.”
17. In the light of the above discussions, we have no doubt that merely because the matter has been decided against the assessee in the preceding years, we are denuded of our powers to examine the matter afresh and take an independent view of the matter. Accordingly, we proceed to examine, on merits ; the assessee’s liability to pay income-tax on subsidy receipts is concerned and to find out in case there are any strong and cogent reasons to depart from the conclusions arrived at by the tribunal, in its order dated november 17, 1994.
18. Let us now come back to undisputed facts of this case. As evident from the letter dated july 30, 1982, written by the then secretary (food and civil supplies, government of orissa) to the chairman of the assessee-corporation, “since the corporation has been entrusted with the task of procurement, purchase and distribution of these commodities to consumers at controlled or subsidised rates, there is bound to be deficiency in the receipts against the expenditure incurred thereon.” it was in this background that secretary (f&cs) observed that “the net loss is to be made good by way of subsidy”. Similarly,
19. Principal secretary to the government of orissa (finance department) has, vide letter dated february 14, 2001 (reproduced in paragraph 4 above), clarified that the rate of purchases and sale of essential commodities are fixed by the government of orissa and that since the sale of commodities is made at subsidised rates, there is bound to be a loss. It has been further clarified that the sole purpose of the state subsidy is to meet the loss thus incurred by the assessee-corporation but since determination of actual loss can only be done after finalisation of audited accounts, subsidies are to be given on ad hoc basis which are to be adjusted against actual loss after taking into account all the income and expenses as per audited accounts. In our considered view, one cannot simply brush aside these statements by the senior government officials, which clearly contend that any ad hoc subsidy payment, by the orissa government to the assessee-corporation, rightfully belongs to the assessee-corporation only to the extent loss is actually incurred by the assessee-corporation. We have no reasons to disbelieve these statements and the revenue has not pointed out any specific reasons to dispute the same, except for highlighting the fact that these statements were not before the authorities below. Accordingly, we proceed on the basis that these statements are correct and examine the legal position on that premises. The question then arises that if any particular year, the assessee incurs a loss of only re. 1 but receives an ad hoc subsidy of rs. 2 which is essentially advanced on projections only and on actual results/losses, can the assessee be said to have earned an income of rs. 2 by way of subsidy from the government. To give another example, if the assessee incurs a loss of rs. 2 but the subsidy actually received in that year is re. 1, can the assessee be said to have earned a subsidy of only re 1. To our mind, the income-tax liability is in respect of the income actually earned by the assessee and not on the receipts, particularly when the assessee is undis-putedly following the mercantile basis of accounting, as mentioned by the assessing officer himself in column 6 of page 1 of the respective assessment orders. No doubt if the assessee was to follow the cash basis of accounting, situation could have been slightly different but in the cases before us the assessing officer himself has categorically accepted that the assessee was following the mercantile basis of accounting. We may, also mention that even in cash basis of accounting, there is no deviation from the general principle that a contingent income is not the income until the contingency has happened. Until that time, i.e., happening of the contingency, it cannot be postulated that income has accrued or has arisen to the assessee. If the assessee-corporation received an ad hoc subsidy during the year, the conversion of such an ad hoc subsidy into income of the assessee is contingent upon its actually having incurred the loss which the subsidy aims at making good. When the loss is not incurred, and to the extent it has not incurred, where is the question of its having become the income of the assessee-corporation ? As a natural
Corollary to this proposition, on the admitted facts of this case, the assessee-corporation cannot even be allowed any deduction in respect of any refund of the subsidy in the year in which such a refund of excess subsidy received is made. The question of refund of subsidy would only arise in respect of the subsidy which does not legitimately belong to the assessee-corporation but then such a subsidy, following the discussions above, cannot be taken to be the income of the assessee-corporation in the first place. Accordingly, it would appear that in the mercantile method of accounting that is followed by the assessee-corporation, not only that the ad hoc subsidy receipt per se is not in the nature of income of the assessee, even subsequent refund of excess subsidy received is not a tax deductible payment because to the extent of it is in excess of what rightfully belongs to the assessee, it cannot be taken to income in the first place. It leads to the inescapable conclusion that in case the statements made by the orissa government officials, about the nature of subsidy, are indeed correct, the earlier decision of the tribunal will clearly be inappropriate to the facts and circumstances of the cases before us.
20. The revenue’s primary objection to the facts embedded in the above discussions is that all these facts emerge from additional evidences which were not before the authorities below. It has been contended that barring the government notification (reproduced in paragraph 2 (page 22) above), all other evidences are being produced before the tribunal for the first time. Shri panigrahi, distinguished senior departmental representative, has made very elaborate submissions in support of the proposition that these evidences should be not accepted by us and, in case we accept the same, the matter should be restored to the file of the assessing officer for fresh examination of facts in the light of the fresh evidences filed by the assessee. As far as question of admitting the additional evidences is concerned, as we have already announced in the open court, we deem it necessary to examine and admit these additional evidences to enable us to properly appreciate the issue in appeal before us and for the cause of substantial justice. Accordingly, in exercise of our powers under rule 29 of the income-tax (appellate tribunal) rules, 1963, we admit these additional evidences. We may also refer to observations of the then honourable president and while articulating views on behalf of a co-ordinate bench of this tribunal in the case of electra (jaipur) (p.) Ltd. V. Iac [1988] 26 itd 236 (delhi), which are reproduced below (page 239) :
“after going through the evidence placed before us, considering the facts of this case and going through the orders of the authorities below, we are of the view that the assessee should not be disqualified from producing this evidence merely on the ground that the evidence was not placed before the authorities below. The sole purpose of judiciary as well as of the revenue is to get at the truth. If the truth is that the payment of commission was genuine and was dictated by the business needs, such a payment should not be disallowed merely on the ground that the assessee was unable to lead proper evidence or on the ground that the evidence led was of such a nature as to create a very high degree of suspicion. There should be no objection to consider any evidence produced to test its authenticity and relevance and then to act on it. If the evidence is genuine, reliable, proves the assessee’s case, then the assessee should not be denied the opportunity. But, on the other hand, if the evidence led turns out to be spurious, fabricated or of irrelevant nature, such consequences, as are provided for under the law, will ensue. It is, therefore, incorrect to shut out an assessee in the process of administration of justice from leading evidence to prove its case. The earlier inability to lead evidence, should not be held against the assessee unless it is known to the court or suggested to the court or there was evidence to suspect that the evidence was fabricated. There is no such suggestion in this case. We are, therefore, of the opinion that the request of learned counsel of the assessee is reasonable and that the request made by the department for the refusal of its admission is not proper. . . .”
21. We have, however, noticed the fact that the above evidences were not before the assessing officer and, therefore, in all fairness, he should have an opportunity to examine the same. We have also noticed that the assessing officer had completed the assessment proceedings under section 144 of the act, even though there was sufficient time to seek further specific clarifications from the assessee, if the assessing officer so desired. The assessee is a state government corporation and there is no reason for it to withhold any information from the income-tax authorities, on any matters including the matter regarding the nature of subsidy received from the state government. We have also noticed that in the earlier years the matter was decided in favour of the revenue since the assessee was not able to lead evidences in support of its stand, and not because there were any positive findings in support of the stand of the revenue. However, unlike civil disputes, the income-tax proceedings are not adversarial proceedings ; the purpose of the assessment proceedings are to get at the truth and, under the scheme of the income-tax act, the assessing officer has sufficient powers to reach that objective. In case the assessee-corporation was not able to furnish a particular evidence about the nature of the subsidy or in case the assessing officer had any doubts about the nature of subsidy, nothing prevented the assessing officer from requisitioning the relevant details from the authority which grants the subsidy in question. Keeping in view all these factors, we deem it fit to restore the matter to the file of the assessing officer with a direction to pass fresh orders, after examining such evidences as well contentions as the assessee may rely upon, in a fair and objective manner and by way of a speaking order. The assessing officer may also bear in mind the broad principles discussed in paragraph 16 (page 29) above, as they may be applicable on the facts found by
The assessing officer. The assessing officer shall further be at liberty to obtain such information, as he may deem necessary and relevant in adjudication on the issue of taxability of ad hoc subsidy in the hands of the assessee, directly from the government of orissa. We also direct the assessee-corporation to make available such information, as may be requisitioned by the assessing officer, and to fully co-operate with the assessing officer in expeditious disposal of the matter.
22. In the result, the appeals are allowed for statistical purposes.
