Income Tax Appellate Tribunal - Nagpur
Assistant Commissioner Of Income-Tax vs Maharashtra State Seeds Corporation ... on 19 July, 1993
Equivalent citations: (1994)48TTJ(NAG)341
ORDER
H. C. SHRIVASTAVA, A.M. :
As all the appeals concern the same assessee and the issues involved are common, the same are being disposed of together for the sake of convenience.
2. The assessee-company is a public sector undertaking in which most of the shares are held by the Govt. of Maharashtra, National Seeds Corporation, Govt. of India and some farmers. The Govt. of Maharashtra by their resolution dt. 18th November, 1981 decided that the assessee should be helped with the finance under the scheme for financing carry over of seeds. In the resolution dt. 18th November, 1981, the Govt. of Maharashtra took into consideration the fact that there was an acute shortage of seeds in 1980 particularly of Hybrid Jowar and H-4 cotton seeds. The private traders took the advantage of shortages and the farmers were required to pay exhorbitant prices for seeds. Such a shortage also had its effect on the States agricultural production. In order to suggest measures to avoid the recurrence of such shortage in future, it was decided to appoint committee under the chairmanship of Minister of Agricultural.
3. In para 2 of the said resolution, the Government took into consideration the factor that seeds production could fluctuate from year to year. It was also recognised that the programme for seed production which sought to fully meet the seeds requirements of the farmer would, therefore, inevitably carry with it the possibility of carry over stock of seeds. They, therefore, decided to make a financial provision in the plan for such carry over to stocks.
4. In para 3 of this resolution, it was mentioned that the certified seeds of Hybrid Jowar, Hybrid Bajra, H-4 Cotton and Hybrid Maize, left unsold with this assessee at the end of the selling season, would be covered by the scheme of financing carry over stock of seeds. In paras 4 to 7, a methodology has been discussed under which the payments could be made to this assessee. In para 6, it was provided that the assessee, in due course, should render the detailed account to the Government of the expenditure incurred on the carry over stock of seeds. The grants were kept at disposal of the Director of Agricultural who was authorised to make payment of Rs. 1,23,47,058 to this assessee. This order pertains to carry over stock of certified seeds of Kharif 1981 season only. The orders regarding the seeds for the later years were to be issued separately.
5. After the above resolution was passed, there was a rethinking in the Govt. of Maharashtra and on 6th February, 1982, a further resolution was passed by which the resolution dt. 18th November, 1981 was cancelled. This resolution appears on page 9 of the assessees paper book. On 15th March, 1982, however, another resolution was passed which makes a reference to the cancelled resolution of 18th November, 1981. It does not mention anything about the resolution dt. 6th February, 1982 by which the earlier resolution dt. 18th November, 1981 was cancelled. It observes, "as a result of Govt. policy regarding carry over stocks on certain specified varieties of seeds, the expenditure to be incurred by the Maharashtra State Seeds Corporation Ltd. has to be reimbursed by the Govt. In view of the change in Govt. policy, it has been decided that the grants already sanctioned to the Maharashtra State seeds Corporation should be treated as interest free loan and transferred to the Budget Head "705-Loans for Agricultural, etc."
6. There is another resolution of Govt. of Maharashtra dt. 3rd March, 1983 on record which makes no reference to the resolution dt. 18th November, 1981, but refers to resolution dt. 15th March, 1982. It also refers to the various D.O. letters written by the Managing Director of the assessee and the Dy. Director of Agriculture, Maharashtra State. In this resolution, the Govt. placed an amount of Rs. 2,41,53,000 at the disposal of the assessee for executing the scheme for carry over stock of seeds. This resolution mentions that no additional claims for 1981 were made; Rabi claims for 1981 were made at Rs. 7,34,000 and the claims for Kharif 1982 were made at Rs. 2,34,19,000. In para 2 of the resolution, it has been mentioned that the amount was to be treated as interest free loan to the assessee.
7. During the assessment proceedings before the Assessing Officer, the main issue was as to whether the various sums given by the Govt. of Maharashtra to the assessee constituted the income in the hands of the assessee or not. According to the Assessing Officer, the payments were made for compensating the Corporation for the losses on revalidating of carry over stock of seeds for expenses incurred on the same. It was also mentioned in the order that though the amounts so given were taken to the balance sheet as loans to the Corporation, nothing was paid out of the same to the Govt. It was, therefore, held that the amounts received under the scheme for financing carry over stock of seeds was trading receipts in the hands of the assessee and, therefore, assessable to tax. Regarding the year of taxability, it was observed that the assessee sent the bills for expenses incurred by it, the bill was processed by the Govt. of Maharashtra and then the GR was issued authorising the placement of fund to the assessee. The actual payment took place only after that. Since the Corporation maintains its accounts on the basis of mercantile system, the year of taxability could be the year in which the assessee got the right to receive the amount. This right arises to it only when the GR of the State Govt. is issued. According to the Assessing Officer, the amounts received by the assessee has to be taxed in the year in which the GR authorising the placement of fund with the Corporation was issued by the State Govt. Accordingly, the sums advanced by the State Govt. in different years were taxed. The order of the Assessing Officer was upheld by the CIT(A). When the matter was taken to the Tribunal originally, it was pleaded on behalf of the assessee that a loan of Rs. 1,23,47,058 was repaid on 19th September, 1988. The Tribunal was of the opinion that since the payment was made on 19th September, 1988 and it was not an evidence which called for either probing into any facts about the genuineness, the same was very important for deciding the issue involved in the appeal. The Tribunal, therefore, admitted this ground and set aside the assessment on limited ground and restored the same to the file of the CIT(A) with the direction to him to look into this aspect and decided the matter afresh.
8. When the matter was taken to the CIT(A) he allowed both the parties an opportunity of being heard. He held that the assessee had no right to get the money as it was a State Undertaking. The Government decided to give it financial assistance. This assistance was given by way of subsidy as well as loans. The subsidy was offered for taxation. He also found that, in fact, the repayments were made. Even in later years the various repayments were made. He, accordingly, held that such amounts received from the Government were not subsidy but loans and which raised a liability against the assessee. He, therefore, directed that the amounts so taxed be deleted. The Department is in appeal before us.
9. The Senior Departmental Representative, Shri M. Mani, very ably, took us through the various resolutions which have already been discussed by us supra. In particular, he submitted that though the resolution dt. 6th February, 1982 mentions about the cancellation of the resolution dt. 18th November, 1981, the resolution dt. 15th March, 1982 does not make any mention of the resolution dt. 6th February, 1982 but only mentions resolution dt. 18th November, 1981. It was submitted that by the first resolution, the State Govt. permitted certain payments to the assessee as reimbursement of certain expenses. It was estopped by the rule of "promissory estopped" in cancelling the said resolution. He submitted that whatever may be the resolutions passed by the Govt. of Maharashtra from time to time, we have to judge the assessee not by the resolutions passed by the Government but by its conduct. When it was realised that such reimbursement of expenses would be treated as revenue receipts in the hands of this assessee and would be liable to be taxed, then a resolution was adopted on 6th February, 1982 to cancel the resolution dt. 18th November, 1981. He invited out attention to the decision of the Bombay High Court in the case of Dhrangadhra Chemical Works Ltd. vs. CIT (1977) 106 ITR 473 (Bom). He submitted that under the similar circumstances, the Bombay High Court, replying upon certain House of Lords decisions, held that the receipts in the hands of that assessee were liable to be taxed. He, further, proceeded to invite out attention to the two House of Lords decisions in the case of IRC vs. Corporation of London 34 Tax Cases 331 and Inspector of Taxes vs. Lincolnshire Sugar Co. Ltd. 20 Tax Cases 646. He submitted that we should not be guided by the nomenclature given to such payment. An amount said to be given as loan which is not expected to be paid back has to be treated as revenue receipts. Our attention was invited to the bills submitted by the assessee to the Govt. of Maharashtra appearing on pages 16 to 18 of the paper book. He submitted that these bills were submitted to get the reimbursement only and as such, the amounts should be treated as reimbursements only.
10. The counsel for the assessee submitted that reliance of the Department on (1977) 106 ITR 473 (Bom) (supra) case is not correct. In that case, the Government granted the subsidy of Rs. 1 per ton with a view to enable the Indian companies to overcome to problems created by cheaper Soda Ash imported in India. It was a case where the payment was made to cover the expected loss of the assessee and as such, that subsidy granted by the Government was nothing but reimbursement of loss suffered by the assessee. It was also submitted that the CIT(A) has clearly brought out the facts that a sum of Rs. 1,23,47,058 was paid on 19th September, 1988. It was also submitted that further a sum of Rs. 1.27 crores was paid on 22nd May, 1989. It is, therefor, obvious that the Government did not act upon the resolution dt. 18th November, 1981 but acted upon the revised resolution dt. 15th March, 1982 and 3rd March, 1983. All these resolutions were passed in the normal course of working by the Government and no mala fide can be attributed to such an action. He also submitted that the decision of the Bombay High Court in the case of CIT vs. C. K. Thakore (1982) 136 ITR 464 (Bom) is relevant. Action of the assessee is paying back the amounts by the State Govt. would always relate back to the relevant years when the amount were received by assessee. Inviting our attention to the decision of the Supreme Court in Union of India vs. Godfrey Phillips India Ltd. (1986) 158 ITR 574 (SC) it was submitted that the rule of promissory estoppel will not apply to the facts of this case. Our attention was also invited to the decision of the Kerala High Court in the case of CIT vs. Kerala State Drugs & Pharmaceuticals Ltd. (1991) 192 ITR 1 (Ker).
11. We are of the opinion that the assessee deserves to succeed and the Departmental appeals may be dismissed. The Govt. Resolution dt. 18th November, 1981 though cancelled by the Government on 6th February, 1982, is most important piece of document which gives the very basis for which the assessee was created and funds were made available to it. It is notable that the head note of the GR dt. 18th November, 1981 reads as under :
"Release of Finance to the Maharashtra State Seeds Corpn., Akola under the scheme for financing carry over stocks of seeds."
This head note gives an idea regarding the reasons for which the finance was made available to the assessee. Incidents which led to creation of this assessee and which led the Govt. of Maharashtra to contribute the fiance to this assessee are very relevant in this regard. From the general reading of the resolution dt. 18th November, 1981, it is clear that the whole scheme was brought out with a view to help the farmers of Maharashtra to tide-over artificial scarcities created by the private traders. As it was realised that the assessee may be saddled with large items of stock at the end of the crop years, the Government decided to advance this assessee the amounts to tide-over such a situation. No doubt that in para 4 of the GR dt. 18th November, 1981 an elaborate procedure was laid down which was to be followed by the assessee before it could claim reimbursement for the expenditure incurred by it. However, it was, later on, realised that this scheme would not have fulfilled the aspiration of the farmers of the Maharashtra. The same was, therefore, cancelled by the resolution dt. 6th February, 1982. It is interesting to note the words of that resolution that "Govt. is pleased to direct that orders issued to Government resolution of even number, dt. the 18th November, 1981 should be treated as cancelled." By this resolution, what was cancelled was the order issued to the Government for incurring the expenditure in this regard. The scheme itself was not cancelled. By a Govt. resolution dt. 15th March, 1982, the Govt. modified the orders contained in the Govt. resolution dt. 18th November, 1981. By this resolution, it was provided that in view of the change in the Govt. policy, the grants already sanctioned to Maharashtra States Seeds Corpn. Ltd. should be treated as interest free loans. The accounting year of the assessee for the assts. yr. 1982-83 and subsequent years was financial year April to March. This resolution was passed on 15th March, 1982. Therefore, the amendment to the Govt. resolution dt. 18th November, 1981 was made within the previous accounting period itself. Being a Govt. resolution, we accept the same on its face value. The Govt. of Maharashtra decided to help the farmers of Maharashtra through the medium of this assessee as a social welfare and economic measure. This social welfare measure not only helped the farmers of Maharashtra but also removed the element of uncertainly prevailing in the seeds market. If an attempt is made to tax the amounts given to the assessee by the Govt. of Maharashtra, then the very purpose for which the Corporation was created would be defeated. We are of the opinion that in any case, as the Govt. resolution dt. 15th March, 1982 amended the Govt. resolution dt. 18th November, 1931 within the previous accounting period itself, it will relate back to 18th November, 1981 Govt. resolution. Therefore, we hold that the decision reported in (1982) 136 ITR 464 (Bom)(supra) relied upon by the assessees counsel, will squarely apply to the facts of these cases. We have also gone through the decision reported in 106 ITR 473 (Bom)(supra) and we find that it does not help the Department. In that case, at no stage, there was any dispute that the payment of Rs. 1 per ton was made to the assessee to cover his loss. The nature of that subsidy never changed. The decisions of the House of Lords in 34 Tax Cases 33 (Supra) also does not help the Department. In that case, the Corporation of London, as a conservators of Epping Forest made contribution which was to make good the deficiency on the income account of the conservators. The Corporation of London deducted the tax at source at the time when the payment was made. In this case, within the accounting period itself, the Govt. of Maharashtra by GR dt. 15th March, 1982 amended the GR dt. 18th November, 1981. That means that what was paid to the assessee was a loan only. Regarding the decision in 20 Tax Cases 646 (supra), we are of the opinion that the same is also not applicable to the facts of this case. In that case, the sugar subsidy was to be paid for 10 years on sugar manufactured in Great Britain from beet grown therein. Under a particular enactment, a further assistance was given to the companies engaged in the manufacture of sugar by way of weekly advances for one year. Certain conditions were laid down under which the assessee in those case were required to repay the amounts within two years. It was, under such circumstances, the Honble Lords of the House of the Lords upheld the plea of Revenue that such would be taxable. In this case, the Government of Maharashtra, within the accounting period passed the resolution by which instead of reimbursement of expenses, the loans were advanced to this assessee. Now we have definite material on record to prove that such loans were paid back atleast on two dates on 19th September, 1988 and 27th May, 1989. The Chartered Accountants who has signed the balance sheet have also treated such payments as unsecured loans. Since such amounts are in the process of being paid back, it cannot be said that the same were Revenue receipts. The rule regarding the promissory estoppel has been clearly brought out in Godfrey Philips Indias case (supra). As this assessee is a public Sector undertaking, entirely dependent on the financial assistance of the Government of Maharashtra, there is no contractual obligations on the part of the Government of Maharashtra to make such payments. Rules of promissory estoppel are therefore, not applicable to the facts of this case. In the case of CIT vs. Birla Gwalior P. Ltd. (1 (1973) 89 ITR 266 (SC), the Honble Supreme Court had upheld the claim of that assessee on the ground that there was no real income in the hands of the assessee. In this case also, when the assessee is not only expected to return to amounts received from the Govt. of Maharashtra but has, in fact, started returning the same. There will be no real income in the hands of this assessee. We, therefore, hold that the CIT(A) was justified in allowing the claim of the assessee. The facts in ITA Nos. 368/Nag/89 and 369/Nag/89 are the same.
12. In the result, the Departmental appeals are dismissed.