- (1.) The Court :- An interesting question is raised in this appeal as to whether a subsidy allowed by the State Government on account of power consumption, by its very nature, will make the subsidy a revenue receipt and not a capital receipt, irrespective of the purpose of the scheme under which such incentive or subsidy is made available to a business unit. The appeal is at the instance of the Department.
(2.) There was a difference of opinion between the judicial member and the accountant member on the Appellate Tribunal. The judicial member relied on the dictum in the Supreme Court judgment (Sahney Steel & Press Works v. CIT, 1997 228 ITR 253). The accountant member, however, relied on a more recent decision of the Supreme Court (CIT v. Ponni Sugars & Chemicals Ltd., 2008 306 ITR 392) to hold that the purpose of the grant of the subsidy would be the overwhelming consideration in ascertaining whether the subsidy or the money was to be treated as a capital receipt or as a revenue receipt. Upon the difference being referred to a referee, the assessee's point of view was accepted and the purpose of the scheme was regarded to be one for setting up a new unit or expanding an existing unit and, as such, the subsidy had to be treated as a capital receipt notwithstanding the mode and manner of the subsidy.
(3.) The issue had been decided in Sahney Steel where the Court was of the opinion that when a benefit was received by an assessee for the purpose of carrying on its business, it was a benefit incidental to its business and, as such, it had to be regarded as a revenue receipt. The matter was seen from a completely different perspective in Ponni Sugars though, at first blush, the manner in which the subsidy or the incentive was to be utilised in Ponni Sugars appeared to be the distinguishing feature of that case and the dictum therein not relatable to the present facts. In Ponni Sugars, the incentive was in reduced duty and in larger allocation for sale of sugar. Clearly, these would amount to revenue receipts. However, the additional amount generated by a unit by virtue of the reduced duty and larger allotment for sale of sugar was required by the applicable scheme to be exclusively utilised for the purpose of repaying the term loans obtained in setting up the unit or expanding the same. The nature of treatment of the additional revenue in the hands of the assessee, thus, made it a capital receipt since the additional money went to repay the term loans obtained for setting up the unit or expanding it.;