SEN, J - (1.) THE Judgment of the court was delivered by .-
(2.) THE question in this case is whether the subsidy received by the assessee-Company from the A. P. government is taxable as revenue receipt or not. It appears from the notification issued by the Andhra Pradesh government that certain facilities and incentives were to be given to all the new industrial undertakings which commenced production on or after 1/1/1969 with investment capital (excluding working capital) not exceeding Rs. 5 crores. THE incentives were to be allowed for a period of five years from the date of commencement of production. Concession is also available for subsequent expansion of 50.00 per cent and above of existing capacities provided in each case, the expansion was located in a city or town or panchayat area other than that in which the existing unit is located. THE incentives were: "(a) Refund of sales tax on raw materials, machinery and finished goods, levied by the State government subject to a maximum of 10% of the equity capital paid up in the case of public limited companies and the actual capital in the case of others. (b) Subsidy on power consumed for production to the extent of 10% in the case of medium and large-scale industries and 12/% in the case of small-scale industries. This concession will not apply to cases where concessional tariffs are allowed by the Electricity Board. (c) Exemption from payment of water rate on water drawn from sources not maintained at the cost of government or any local body; (d) Refund of water rate in respect of water drawn from a government source or from a source maintained by any local body but returned purified to it; (e) Liability on account of assessment of land revenue or taxes on land used for establishment of any industry, shall be limited to the amount of such taxes payable immediately before the land is so used. (f) THE following additional incentives will be allowed to new industrial units set up in the ayacut areas of Nagarjunasagar, Pochampad 768 and K.C. canal in the Ramagundam-Kothagudem areas and in the following eight backward districts: . The salient feature of the scheme formulated by the A. P. government was that the incentives were not available unless and until production had commenced. The availability of the incentives would be limited to a period of five years from the date of commencement of production. The incentives were to be given by way of refund of sales tax and also by subsidy on power consumed for production to the extent stated in the notification. Exemptions were given also from payment of water rate Refund was also provided for water rate in respect of water drawn from government sources. There were certain additional incentives with which we are not concerned in this case. . The important point to note is that all the incentives are production incentives in the sense that the Company will be entitled to these incentives only after it goes into production. The scheme was not to make any payment directly or indirectly for setting up of the industries. It is only after the industries had been set up and production had been commenced that the incentives were to be given.
(3.) . The second important thing to note is that the manner in which the incentives were given is of no consequence for determination of the question raised in this case. Incentives were given by way of refund of sales tax on raw material, machinery and finished goods. Similarly, subsidy on power was confined to "power consumed for production". In other words, if power is consumed for any other purpose like setting up the plant and machineries the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operational subsidies. These subsidies were given to encourage setting up of industries in the State of A. P. by making the business of production and sale of goods in the State more profitable. . Mr. Ganesh appearing on behalf of the assessee has contended that the incentive scheme was for setting up new industrial undertakings in the State and also for the purpose of stimulating substantial expansion of the industries. The primary object was rapid industrialisation of the State. This object was sought to be achieved by the various incentives. It was further contended that the subsidy given by the State was up to 10% of the capital investment in the undertakings. Since the subsidy was calculated on the basis of quantum of investment in capital such subsidy cannot be considered to have been received by the assessee on revenue account.;