Kapur, J. -
(1.)This is an appeal by special leave against the judgment and order of the High Court of Calcutta and arises out of an Income-tax Reference which was decided against the assessee.
(2.)The appellant - Bengal Textiles Association - now in liquidation (which for the sake of convenience will hereinafter be termed the Association) was a statutory corporation incorporated under the Central Ordinance No. 32 of 1945 which was promulgated on September 8, 1945, "for the purpose of improving the procurement and wholesale distribution of" cotton piece goods in the Province of Bengal. The membership of the Association was restricted to dealers who were engaged in wholesale trade in piece goods. Its Board of Control consisted of nine members, all nominated by the Government. By an agreement between the Government of Bengal and the Association, certain privileges were conferred upon the Association. By one of the clauses the Government agreed to be responsible and pay every month to the Association the administrative expenses which had been incurred in the previous month including establishment charges, office advertising, salaries and wages not exceeding Rs. 6,00,000, per year less the salary and expenses of the Liaison Officer. At the request of the Association the Central Board of Revenue by a letter dated November 13, 1945, agreed that the profits of the Association should not be assessed to Income-tax, Super-tax or Excess Profits tax, but every member of the Association was to be assessed on his full share of the profits of the Association and not only on the dividends received from it, and for that purpose the members were required to furnish to the Commissioner of Income-tax, Bengal, undertakings in the form which was annexed and it was further stated in the letter that in the event of any member resiling from the undertaking given, the assessment of the Association for the previous years was liable to be reopened and the Association itself would be assessed. Undertaking to this effect was given by the members. The Association carried on its business and as a matter of fact it was not assessed to Income-tax, Super-tax and Excess Profits tax.
(3.)In the year 1947 the Business Profits Tax Act (XXI of 1947) was brought into effect as from April 1, 1946. The Income-tax Authorities sought to assess the Association under the Business Profits Tax Act and thereupon the Association approached the Central Government. By its letter dated July 16, 1948, the Central Government informed the Association that it was unable to accede to its request for exemption from Business Profits Tax because that was a different tax which was not covered by the exemption. The Association was then assessed to Business Profits Tax for three chargeable accounting periods ending December 31, 1946, March 31, 1947 and December 31, 1947. The Association claimed exemption from tax and also claimed that Rs. 6,00,000 which had been paid by the Government to the Association during the first chargeable accounting period was excluded under the provisions of S. 4, proviso (c) of the Business Profits Tax Act, being a subsidy. These contentions were rejected by the Income-tax Officer and by the Appellate Assistant Commissioner as also by the Income-tax Appellate Tribunal. The Tribunal held that the Business Profits Tax did not fall within the exemption granted; that the exemption granted did not have the force of law and it also held that the amount of Rs. 6,00,000 paid by Bengal Government was not a subsidy and was not exempt under S. 4, proviso (c) of the Business Profits Tax Act. At the instance of the Association a case was stated to the High Court under S. 66(1) of the Income Tax Act and the following three questions were referred for its opinion:
1. "Whether on the above facts and circumstances of this case, the profits of the Assessee were exempt from taxation under the B. P. T. Act of 1947 -
2. "Whether the Business Profits Tax Act in so far as it enacts to bring into charge profits made with effect from the 1st of April, 1946, is ultra vires of the powers of the Central Legislature -
3. "Whether the sum of Rs. 6,00,000 paid by the Government of Bengal during the chargeable accounting year ending on 31st December, 1946, is in the nature of subsidy and as such exempt from Business Profits Tax under Cl. (c) of the proviso to S. 4 of the Business Profits Tax Act -
The second question was not pressed in the High Court. The other two questions were answered against the Association. It was held that the profits of the Association were not exempt from Business Profits Tax Act either under the provisions of the Act or under the exemption granted by the letter dated November 13, 1945, and that the sum of Rs. 6,00,000 was not paid by the Government as a subsidy but towards the expenses of the Association. The question whether the amount was paid by the Central Government or the Government of Bengal was not allowed to be argued in the High Court as it was nor raised before the Tribunal. After analysing the terms of the agreement, the functions performed by the Association and the manner and the mode in which the business was transacted, the High Court held that though the Association might be separate from the Government the payment by the Government seemed to be payment to itself. But even if the Association was a third party the payment was a consideration for services to be rendered by the Association under the terms of the very agreement under which the payment was to be made. Therefore "it was not help but price". Against this judgment the Association has come in appeal to this Court by special leave.