COMMISSIONER OF INCOME TAX Vs. CHITRA KALPA

JUDGEMENT

(1.) I agree with the answer proposed by my learned brother, Y. V. Anjaneyulu J. (printed below) but for a different reason. I agree with the Tribunal that the subsidy granted by the Government in terms of G.O. Ms. No. 1290 dated 31/12/1971, was granted for producing a capital asset - a firm is a capital asset in the hands of the producer - and, therefore, the true character of the receipts in the hands of the assessee was on capital account, the Tribunals finding is that the subsidy is granted "for the production of the assets". I agree that that is the dominant purpose of the G.O. The subsidy is meant for defraying partly the cost of production of films produced in Andhra pradesh. The several requirements of the G.O. - detailed in the order of my learned brother - all pertain to the stage of production, one this is so, the decision of this court in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39, becomes clearly distinguishable. That was a case where the subsidy was given after the plant had started production, there the subsidy was given to assist the business of the assessee in the initial five years after production is commenced. The subsidy consisted in refund of sales tax paid by the assessee on rax material, etc., besides some other minor subsidies. Indeed, it was clearly held in that decision that of the State gives a subsidy to a person to set up a new plant, it would not be a trading receipt but a capital receipt, the present case is of such a nature. On this short ground, I answer the question referred in favour of the assessee. Y.V. Anjaneyulu, J.

(2.) At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal made this reference to this court under section 256(1) of the Income-tax Act, 1962 (for short the "Act"), this reference relates to the income-tax assessment year 1972-73 and the question referred for the consideration of this court is: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the subsidy of Rs. 50,000 is not taxable as a revenue receipt ?"

(3.) The relevant facts may be noticed, in the previous year relevant to the income-tax assessment year 1972-73, the assessee was paid a sum of Rs. 50,000 by way of subsidy by the Government of Andhra Pradesh pursuant to G.O. Ms. No. 1290, General Administration (IPR&T) Department, dated 31/12/1971. The subsidy was paid to the assessee in connection with a feature film produced in the State of Andhra Pradesh for public exhibition, the Income-tax Officer held that this subsidy is in the nature of income and taxed it. The Appellate Assistant Commissioner of Income-tax before whom an appeal was filed by the assessee upheld the Income-tax Officers view that the subsidy received by the assessee is liable to tax. The assessee filed a second appeal before the Income-tax Appellate Tribunal. Considering all the facts and circumstances, the Tribunal came to the opposite conclusion and held that the subsidy is not in the nature of income and cannot, therefore, be assessed to tax under the Act. The Commissioner of Income-tax applied for and obtained the present reference to this court for consideration of the question referred above.