Income Tax Appellate Tribunal - Chandigarh
A.C.I.T. vs Steel Strips Ltd. on 14 December, 2005
Equivalent citations: [2007]108ITD720(CHD)
ORDER
N.K. Saini, Accountant Member
1. This is an appeal by the department against the order of Ld. CIT(A), Chandigarh dated 30.9.97.
2. The following grounds have been raised in this appeal:
1. The Ld. CIT(A) has erred both in law and on facts of he case in deleting the addition of Rs. 23,58,000 made on account of non charging of interest on the loans advanced free of interest to sister concern, when the assessee had paid interest to the banks on such borrowings.
2. The Ld. CIT(A) has erred both in law and on facts of the case in deleting the addition of Rs. 1,19,27,429 made by the Assessing Officer on account of transport subsidy received from State Govt. treating the same as revenue receipt.
3. As regards to the ground No. 1 is concerned, Ld. Counsel for the assessee at the very outset stated that the issue is covered in favour of the assessee and against the department by the order of Tribunal dated 16.10.2003 in assessee's own case in ITA Nos. 1167 & 1168/Chandi/97 for Assessment years 1992-93 and 1994-95 respectively and vide order dated 12.102004 in ITA No. 929/Chandi/2000 for Assessment year 1996-97.
4. The aforesaid contention of the Ld. Counsel for the assessee was not controverted by the Ld. D.R. for the revenue.
5. After considering the rival submissions and the material available on record, it is noticed that for the year under consideration the assessee made certain advances to Steel Strips & Alloys Ltd, sister concern. The Assessing Officer was of the opinion that the funds had been diverted to the sister concern for non business consideration. He, therefore, calculated the interest @ 18% on the funds given to the sister concern and made the addition of Rs. 23,58,000.
6. When the matter was taken to the Ld. CIT(A), addition so made was deleted by following the earlier orders for Assessment year '1990-91 to 1992-93 and 1994-95.
7. The aforesaid orders of Ld. CIT(A) were subject matter of the appeal by the department before the I.T.A.T. and the Tribunal confirmed the action of he Ld. CIT(A) vide order dated 1G.10,.2003 for Assessment year 1992-93 and 1994-95 in ITAs No. 1167& 1168/Chandi/97. The said order had also been followed for Assessment year 1996-97 in ITA No. 929/Chandi/2000 vide order dated 12.10.2004. In that view of the matter, and respectfully following the earlier orders of the Tribunal, the issue involved in this ground of appeal taken by the department is decided in favour of the assessee and against the department accordingly the order of Ld. CIT(A) in this regard is upheld.
8. As regards to ground No. 2 is concerned, the relevant facts as appearing from the orders of authorities below, in brief are that the assessee claimed in computation of income, a deduction of Rs. 1.19 crores on account of transport subsidy credited and receivable from HP Govt. The assessee treated this amount as capital receipt in its books of account for the first time. It was stated before the Assessing Officer that in earlier years, the assessee was not aware of such claim and claim had been made in view of the judgment of Hon'ble Gauhati High Court in the case of CIT v. Assam Asbestos Ltd reported at 215 ITR 847 and of Hon'ble Kerala High Court in the case of CIT v. Ruby Rubber Works Ltd and Ors. reported at 178 ITR 181. The Assessing Officer after considering the submissions of the assessee observed that transport subsidy scheme by HP Govt. revealed that it was originally available in respect of raw -material which was brought in and for the finished goods which were taken out of the area. He further observed that in the cases cited by the assessee, the facts were distinguishable and were not directly related to the facts of the assessee's case. He further observed that the transport subsidy was recurring benefit and was reimbursed to the assessee against freight paid (revenue expenditure) so it was in the nature of revenue receipt as no new asset comes into existence. Accordingly total subsidy claim made in computation of income at Rs. 1,19,27,429 was not allowed and was treated as revenue receipt.
9. The assessee carried the matter to the Ld. CIT(A) and relied on the judgment of Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals 210 ITR 830 (S.C) and on the case of CIT v. Assam Asbestos Ltd reported at 215 ITR 847 (supra). The Ld. CIT(A) observed that in the case of P.J. Chemicals a subsidy had been given by the State Govt. as a specified percentage of the fixed cost and it had been held that the amount of subsidy was not to be deducted from the actual cost Under Section 43(1) for the purpose of calculation of depreciation etc. Ld. CIT(A) further observed that since the High Court decision available was on the exact point to which the issue related, so, it would be proper to follow the judgment of Hon'ble High Court. According to him, the issue involved in the case decided by the Hon'ble Gauhati High Court in the case of CIT v. Assam Asbestos Ltd reported at 215 ITR 847 (supra), was also related to the transport subsidy. He, therefore, directed the Assessing Officer to treat the transport subsidy as capital receipt. Now the department is in appeal. 10 Ld. D.R. for the revenue strongly supported the order of Assessing Officer and submitted that the assessee incurred freight expenses and then lodged claim with the State Govt. for getting reimbursement of freight expenses on period cal basis and the State Industry department had powers to check proper use of that subsidy, it was not a generous Act or a gift by the State Govt. which fact was clear from the Gazette Notification dated 29th Sept 1995 by Government of India. He further submitted that the transport subsidy was recurring benefit and was reimbursed to the assessee against the freight paid which was of revenue nature so the transport subsidy received was in the nature of revenue receipt as no new asset came into existence.
10.1 As regards to judgment of Hon'ble Kerala High Court in the case of CIT v. Ruby Rubber Works Ltd 178 ITR 181 (supra) relied on by the assessee before the Assessing Officer, it was stated that the same stood at a different footing because in that case replanting subsidy was given by the Board which was explicitly received to acquire an asset by replanting high yield variety of rubber trees. It was further submitted that subsidy was related to reimbursement of expenses so it was revenue in nature and the Assessing Officer rightly treated the same as revenue receipt. It was further slated that the nature of scheme in the state should be seen to decide whether the subsidy was of revenue nature or of capital nature. It was further stated that the subsidy was available to the assessee after commencement of the business and only after completion of the finished goods. It was emphasized that the reimbursement of the expenses was made to the assessee after incurring expenditure on the purchase of raw material and the sale of finished goods. So, it was revenue in nature. Reliance was placed on the following case laws:
Merinoply Chemicals Ltd v. CIT Sarda Plywood Industries Ltd v. CIT Sahney Steel and Press Works Ltd and Ors. v. CIT 228 ITR 253 (S.C) DCIT v. Assam Asbestos Ltd 263 ITR 357 (Gau) ITO v. Kiran Enterprises (2005) 92 TTJ 104 (Chandigarh) CIT v. Meat Products of India Ltd 238 ITR 987 (Ker) Shreejee Chitra Mandir v. CIT (2004) 269 ITR 55 (M.P)
11. In his rival submissions, Ld. Counsel for the assessee submitted that the subsidy received in backward area to set up industry was capital receipt, therefore, Ld. CIT(A) rightly deleted the addition made by the Assessing Officer. It was further submitted that the State Govt. had allowed entrepreneurs to set up new industrial units and for that purpose subsidy was granted, as such it was capital receipt. Reliance was placed on the following case laws:
DCIT v. Reliance Industries Ltd (2004) 88 ITD 273 (Mum) (SB) Kalpana Palace v. CIT Bhushan Steel and Strips v. DCIT (2004) 91 TTJ 108 Abhishek Industries Ltd Ludhiana v. ACIT, C.C. Ill Ludhiana (ITA No. 1081/Chandi/97 for Assessment year 1 993-94 order dated 27.2,2004) JCIT v. Sidheshwari Paper Udyog Ltd (2005) 94 ITD 187 (Delhi)(TM) Arvindbhai v. ACIT (2004) 91 ITD 101 (Ahd) (SB) Shreejee Chitra Mandir v. CIT CIT v. Assam Asbestos Ltd reported at 215 ITR 847 (Gau) Virender Agro Chemicals Ltd, Ludhiana v. ACIT, C.C. III, Ludhiana ITA No. 19, 142. 347/Chandi/97 Assessment year 1992-93, 1993-94 and 1994-95 order dated 26.5.2004.
12 We have considered the rival submissions and carefully gone through the material available on record. In the present case as regards to the facts of the case are concerned, there is no dispute that the assessee received transport subsidy against the transport cost of raw material and finished goods. The issue to be decided is whether the subsidy was of capital nature or of revenue nature To ascertain the nature of the subsidy it is relevant to discuss the nature of scheme under which the subsidy had been granted. 12.1 The present scheme had been notified on 23.7.71 and had been published in Part I Section 1 of the Gazette of India, Extra ordinary dated 27.7.1971 (No. 102) vide Notification No. F. 6(26) 71- 1C dated 23.7.71 and amended vide Notification no. 6(26) 71-1C dated 28,2.1974 (NO, 103) and Notification No. 6/3/15 RD dated 19.7.78 Notification No, 11/1/90 DBA-II dated 28.7.93 and 29.9.97. According to the said notification, the scheme has its application to the selected areas which also included the state of Himachal Pradesh where the business premises of the assessee is situated. This scheme is applicable to the industrial units where the manufacturing programme is carried on by the assessee. According to clause xviii of the said scheme, existing industrial units in the selected areas were also eligible for transport subsidy. The said clause reads as under:
Existing industrial units in the selected areas are also eligible for transport subsidy in respect of the additional transport costs of raw materials and finished goods arising as a result of substantial expansion or diversification effect by the them after the commencement of the scheme. Transport subsidy in such case will be restricted to per cent of the transport costs of the substantial expansion or diversification.
From the above clause, it is very much clear that the scheme works at disbursement/reimbursement basis. The industrial unit can claim transport subsidy on expenses incurred on the purchase of raw material and also on the transportation of finished goods. Since the purchase of raw material and the sale of goods is a trading activity and no new asset came into existence, so, nature of the expenditure incurred for their transportation is revenue in nature and the subsidy relating to the reimbursement of revenue expenditure is definitely a revenue receipt. So, it cannot be considered as a capital receipt, 12.2 Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd and Ors. v. CIT 228 ITR 253 (S.C) held as under:
If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The character of the subsidy in the hands of the recipient- whether revenue or capital will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.
In the present case also the payment of subsidy had been made to the assessee to assist it in carrying on its trade, so the subsidy was trade receipt. The purpose of giving the subsidy was to reduce the cost of raw material, since the expenditure incurred on purchase of the raw material had been reimbursed, the another purpose was to reduce the cost of sale since the expenditure incurred on freight of the goods sold had been reimbursed. So the nature of receipt was of revenue and not capital.
12.3 On a similar issue Hon'ble Calcutta High Court in the case of Merinoply and Chemicals Ltd v. CIT has held as under:
That the Tribunal had carefully examined the Transport Subsidy Scheme. The Scheme was available not only to a new unit but also to existing units which had made substantial expansion or diversification after the commencement of the scheme. The Tribunal noted, in particular, the mode of computation of the transport charges as the clue to the intention underlying the scheme. The scheme required strict check to ensure actual consumption of the raw materials and finished goods for transport of which the subsidy had been given. If required a system of scrutinising the construction of the raw materials and the output of the finished goods. So, this showed that the scheme was related not only to the transport charges incurred but indirectly also to consumption of raw materials and the ultimate output of the final product. The totality of the circumstances, i.e. subsidy being expenditure related and again paid recurrently, obviously furnished the key factor to resolve the issue. There was no perversity in the Tribunal's finding that the scheme of transport subsidy was inseparably connected with the business carried on by the assessee. It was a fact that the assessee was a manufacturer of plywood, it was also a fact that the assessee had its unit in a backward area and was entitled to the benefit of the scheme. The transport expenditure was an incidental expenditure of the assessee's business and it w as that expenditure which the subsidy recouped and the purpose of the recoupment was to make up possible profit deficit for operating in a backward area. Therefore, the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such decision on facts the Tribunal committed no error. The Tribunal was justified in holding tat the transport subsidy granted by the Director of Industry, Assam, in terms of notification of the Government of India, Ministry of Industrial Development, dated July 23, 1971 represented receipts of revenue nature and were rightly added to the income of the assessee.
12.4 A similar view had been taken by the Hon'ble Calcutta High Court in yet another case of Sarda Plywood Industries Ltd v. CIT wherein at page 35G it has been held as under:
That the Transport subsidy Scheme came into force for the purpose of granting subsidy on the transport of raw materials and finished goods to and from certain selected areas with a view to promoting growth of industries there. The subsidy was granted only for the purpose of recouping or reimbursing a portion of the transport costs incurred by an owner of a manufacturing unit set up in a backward area, so as to enable him to recoup the loss which he may suffer by way of additional transport costs. It was a revenue receipt.
The ratio laid down by the Hon'ble Calcutta High Court is squarely applicable to the facts of the present case. Therefore, Ld. CIT(A) was not justified in treating the subsidy received by the assessee as capital in nature.
12.5 As regards to the judgment of Hon'ble Gauhati High Court in the case DCIT v. Assam Asbestos Ltd 263 ITR 357 (Gau) (supra) followed by the Ld. CIT(A), is concerned, the facts were that the Tribunal held that the subsidy was generous Act of the State rather grant of gift to the assessee for the sole purpose of assisting the assessee for the growth of industry and therefore, could not be considered as trading or revenue receipt liable to be taxed. It is also noticed that in the said case, judgment of Hon'ble Supreme Court in the case of Sahney Steel and Press Works Ltd and Ors. v. CIT 228 ITR 253 (S.C) had not been considered. Moreover, it is not clear from the facts of the case of Assam Asbestos Ltd (supra) whether a new Industry was set up and the transport subsidy was in respect of new assets purchased, but in the present case the transport subsidy was related to freight paid for purchase of raw material and the sale of finished goods. Therefore, the subsidy was definitely related to the trading activities so it was revenue in nature.
12.6 As regards to the decision relied on by the Ld. Counsel for the assessee is concerned, ITAT Mumbai Bench 'J' (SB) in the case of CIT v. Reliance Industries Ltd (2004) 88 ITD 273 held that The purpose and objective of the scheme under which subsidy is given is of more fundamental importance than the fact that the subsidy is received after the commencement of production or conditional upon it. Hence, the Tribunal in the case of the assessee for the Assessment year 1985-86 had correctly interpreted and understood the ratio of the judgment of the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd's case (supra).
In the present case also the objective of the scheme under which the transport subsidy has been given, was to reduce the cost incurred by the assessee in respect of transportation charges on the raw material as well finished goods. So the case goes against the assessee since in the said case referred to herein above it has been held that if monies are given for assisting the assessee in carrying on the business operation only after, and conditional upon, the commencement of production, it will be revenue receipt. In the present case also the subsidy had been given to the assessee after commencement of business for assisting the assessee in carrying out the business operations and since the subsidy was in the shape of reimbursement of transportation charges related to purchases as well as sale of finished goods. So the character of the subsidy was revenue in nature.
12.7 As regards to the decision of ITAT Chandigarh Bench in the case of Bhushan Steel and Strips Ltd. 91 TTJ 108 (supra) and the cases of M/s Virendra Agro Chemicals Ltd and Abhishek Industries Ltd (supra) is concerned, in those cases subsidy was granted to the assessee by the State Govt. not for the purpose of carrying on its business in a more profitable manner but merely in consideration of setting up the production unit in the backward area and the subsidy related to the sales tax while in the present case, the subsidy was granted to the existing unit and the nature of the subsidy was such that the assessee could have earned more income since the expenditure incurred by the assessee were to be reimbursed. So the nature of subsidy was definitely revenue in nature.
12.8 As regards to the decision of ITAT Delhi Bench 'C in the case of JCIT v. Sidheshwari Paper Udyog Ltd. (2005) 94 ITD 187 (Delhi) (TM) is concerned, in the said case it has been held as under:
So far as transport subsidy was concered, it w s given by the Government in recoupment of the transport expenditure incurred by the assessee and at best it could only be said that a part of the expenditure had been reimbursed It could not be considered as income in the first instance. Certainly, it could not be considered as income derived from the industrial undertaking. The immediate source of the income was the transport subsidy scheme and not the industrial undertaking.
From the above, it is crystal clear that the view had been taken that at the best by receiving the transport subsidy it can only be said that part of expenditure had been reimbursed. It is true that nature of the expenses relating to transportation of purchase of raw material and sale of finished goods, is revenue in nature and so the reimbursement of those expenses definitely is of revenue nature. Therefore, the decision of the Third Member in the aforesaid referred to case, goes against the assessee. Moreover, in the said case the issue related to deduction Under Section 80 IA wherein it has been held that the transport subsidy received by the assessee will have to be included in the qualifying amount for the purpose of deduction Under Section 80IA. Since the deduction Under Section 80 IA is always claimed towards income of the assessee and by including the transport subsidy, the income will increase which clearly establishes that the transport subsidy is of revenue nature. So, the case relied on by the assessee supports the department and not the assessee.
12.9 As regards to the judgment of Hon'ble Allahabad High Court in the case of Kalpana Palace v. CIT 275 ITR 365 (Supra), is concerned, in the said case Hon'ble High Court held as under:
Even though the grant-in-aid was given after the business had been set up, it would still be relatable to the construction of cinema halls. Thus it would be a capital receipt.
However, in the present case, the subsidy was received against the expenses and not for an asset. So, the facts are distinguishable.
13. In the case of CIT v. Meat Products of India Ltd. 238 ITR 987 Hon'ble Kerala High Court has observed as under:
The test to distinguish between subsidy of capital nature and subsidy of revenue nature is the purpose of the subsidy. If the purpose is to help the assesses to set up its business or complete a project, the monies must bo treated as having been received for capital purposes. If the monies are given to the assessee for assisting him in carrying on the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade and as revenue receipts.
13.1 Similarly the observations of Hon'ble Madhya Pradesh High Court in the case of Shreejee Chitra Mandir v. CIT (2004) 269 ITR 55, were the following:
The question whether a particular subsidy is a capital receipt or a revenue receipt is required to be decided keeping in view the nature of subsidy received by the assessee and the scheme pursuant to which the same has been received. In other words, it is obligatory upon the taxing authorities before they record a finding one way or the other to examine the nature of subsidy, the object of the scheme pursuant to which it has been received by the assessee. The Hon'ble Supreme Court held in Sahney Steel and Press works Ltd v. CIT that if the purpose is lo keep the assessee to set up its business or complete a project, the money must be treated as having been received for capital purposes, But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production such subsidies must be treated as assistance for the purpose of the trade.
From the above observations, it is crystal clear that if subsidy is given to the assessee for assisting him in carrying out different business operations and the money is given only after and conditional upon commencement of production such subsidies must be treated as assistance for the purpose of trade.
13.2 In the present case also, since the assessee was carrying on the business and money was given as subsidy for the transportation of raw material so that would decrease the cost of raw material and assistance was also given against freight incurred for sale of finished goods that will also reduce the expenses, therefore, nature of subsidy in the instant case was revenue in nature and the Ld. CIT(A) was not justified in deleting the addition made by the Assessing Officer.
13.3 In the case of Shreejee Chitra Mandir v. CIT , Indore Bench of Hon'ble Madras High Court has held as under:
The question whether a particular subsidy is a capital receipt of a revenue receipt is required to be decided keeping in view the nature of subsidy received by the assessee and the scheme pursuant to which it has been received. In other words, it is obligatory upon the taxing authorities before they record a finding one way or the other to examine the nature of subsidy, and the object of the scheme pursuant to which it has been received by the assessee It is he duty of the Tribunal being the highest Appellate Tribunal exercising appellate jurisdiction under the IT. Act to examine issues, both of law and fact in the right perspective and in detail. It must appear from the order passed by the Tribunal that sincere efforts were made to decide the issues that fell for examination, keeping in view the law laid down by the Hon'ble Supreme Court Mere reference to a citation in the order for recording a finding is not enough. Any finding whether on facts or in law if recorded cursorily and without assigning reasons can never be regarded as a judicial finding. It is incapable of being sustained by higher courts in the hierarchy.
The aforesaid judgment is also of no help to the assessee because the scheme pursuant to which the as had received transport subsidy was very much clear and according to the scheme, the expenditure incurred by the assessee on the purchases of raw material and the finished goods were to be reimbursed. So, those were related to trade and therefore, subsidy so received was revenue in nature.
14 We, therefore, considering the entire relevant facts and the various judicial pronouncements as discussed herein above, reverse the order of Ld. CIT(A) and restore that of the Assessing Officer.
15. In the result, the appeal of the department is partly allowed (M.A. Bakshi) (N.K. Saini) Vice Presidnet Accountant Member M.A. Bakshi, Vice President
1. I have gone through the proposed order of my learned brother Shri N.K. Saini. Whereas I agree with the conclusion arrived by my brother, I would like to give my own reasoning for arriving at the conclusion in regard to the issue relating to transport subsidy.
2. Relevant facts in this case are that the assessee had filed the return of income for assessment year 95-96 on 30.11 95 declaring loss of Rs. 59,37,599 The said return was revised on 2 9.1.96 declaring loss of Rs. 47,85,067. Return was again revised on 14.8.96 declaring loss of Rs. 1,11,26,004. The return had been processed Under Section 143(1)(a) and subsequently notices Under Section 143(2) and 142(1) were issued and assessment made Under Section 143(3) at an income of Rs. 7,14,45,062 and after adjustment of brought forward loss of Rs. 6,79,92,417, the balance income was determined at Rs. 34,52,645/-. Deduction Under Section 80I and 80HH restricted to the amount of Rs. 34.52,645 and accordingly the income was assessed at nil.
3. During the course of assessment proceedings, the AO observed that in the computation of income, the assessee had claimed deduction of Rs. 1.19 crores on account of transport subsidy credited and receivable from the Himachal Pradesh Government under the Transport Subsidy Scheme, 1971 of Govt, of India. The said amount included claim of Rs 8 5 50 lacs for the year under appeal and the claim of earlier years of Rs. 33.86 lacs The assessee treated this amount as capital receipt in the books of account for the first time. In earlier years, the transport subsidy was treated as a revenue receipt. It was claimed by the assessee that in earlier years, the assessee was not aware of the correct position of law. The assessee had referred to the decision of the Guahati High Court in the case of CIT v. Assam Asbestos Ltd. 215 ITR 847, and that of the Kerala High Court in the case of CIT v. Ruby Rubber Works Ltd. 178 ITR 180, to support the claim that the transport subsidy received was a capital receipt. The AO has held that assessee is incurring freight expenses and lodges the claim with the State Govt. for getting reimbursement of freight expenses on periodical basis. The AO has referred to the Gazette Notification No. 174 dated 29.9.95 by the Govt, of India and held that the transport subsidy is a recurring benefit and reimbursed to the assessee against the freight paid. It has been held that since the fright paid is a revenue expenditure, its reimbursement by the Govt, is also a revenue receipt. The AO observed that the Kerala High Court decision in the case of CIT v. Ruby Rubber Works Ltd., (supra) is distinguishable on facts insofar as the subsidy in that case was given to acquire an asset by replanting high yield variety of rubber trees. The AO has referred to another decision of the Kerala High Court in the case of CIT v. Uday Pictures Pvt. Ltd. 225 ITR 394, where the subsidy received during the course of conduct of business was held to be a revenue receipt. The AO accordingly treated the amount of Rs. 1,1 9,27,429 as a revenue receipt.
4. Assessee appealed to the CIT(A) and the latter relying upon the decision of the Guahati High Court in the case of CIT v. Assam Asbestos Ltd. (supra) and the decision of the Supreme Court in the case of CIT v. P.J. Chemicals Ltd. 210 ITR 830 (SC), held that the transport subsidy received from the Govt. constitutes capital receipt. Revenue is in appeal before us against the decision dated 30.9.97 of the CIT(A).
5. The contentions advanced on behalf of the revenue and on behalf of the assessee have been noted by my learned brother in his proposed order and, therefore, the same need not be repeated. I, therefore, proceed to dispose of the issue on the basis of the rival contentions, judicial precedent and material on record. The dispute in this case is relating to nature of the receipt of subsidy granted by the Govt. of India known as Transport Subsidy Scheme, 1971. It is well known fact that the Govt. of India is granting subsidy in various manners for promoting the growth of industries in various areas. Several schemes have been framed from time to time. Whereas the basic purpose for grant of subsidy is promoting the growth of industries, the nature of the subsidy varies. It cannot be disputed that all the schemes formulated by the Govt. of India are intended to luring the entrepreneurs for setting up industries, which generates production as well as employment. Since nature of the subsidy granted by the Govt. of India varies from scheme to scheme, it is necessary to examine the scheme under which the subsidy is received by the assessee for determining the nature of the receipt for the purpose of taxation under the provisions of Income-tax Act, 1961
6. In the case of CIT v. P.J. Chemicals Ltd. 210 ITR 830, their Lordships of Hon'ble Supreme Court had the occasion to consider as to whether the subsidy granted to the assessee for setting up an industry in backward area could be considered as cost of assets met by the Govt. for setting up the industry. The issue in that case was to determine the actual cost with reference to Section 43(1) of the Income-tax Act, 1961 for the purposes of grant of depreciation. Their Lordships of the Supreme Court in that case held that the character and nature of the subsidy has got to be determined with reference to the scheme under which the subsidy has been granted. On examination of the scheme in that case, it was found by their Lordships that the incentive was intended to encourage entrepreneurs to move to backward areas and establish industries and specified percentage of the fixed capital cost which was the basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid. Their Lordships of the Supreme Court referred to the decision of the Andhra Pradesh High Court in the case of CIT v. Godavari Plywoods Ltd. 168 ITR 632, with approval. In the said case, their Lordships of the Andhra Pradesh High Court held that unless the subsidy received had a nexus, direct or indirect, to meet a portion of the actual cost of any specific capital asset, it could not be brought within the purview of Section 43(1) of the Income-tax Act, 1961. Therefore, the subsidy could not be deducted from the actual cost of the asset to the assessee and depreciation should be allowed without reducing the same by the amount of subsidy granted. Reference was also made to the decision of the Gujarat High Court in the case of CIT v. Grace Paper Industries Pvt. Ltd. 183 ITR 591, with approval. In the said case, their Lordships of the Gujarat High Court held as under:
The basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy and the subsidy was not given for the specific purpose of meeting any portion of the cost of the fixed assets. Consequently, the subsidy did not form part of the actual cost of plant and machinery within the meaning of Section 43 of the Income-tax Act, 1961.
7. In the case of P.J. Chemicals Ltd. (supra), the decision of the Punjab & Haryana High Court in the case of CIT v. Jindal Brothers Rice Mills 179 ITR 470, was not approved. It is evident from the judgment of the Hon'ble Supreme Court in the case of CIT v. CIT v. P.J. Chemicals Ltd. (supra) that the issue involved in that case was totally different. The issue as to whether the subsidy granted by the Govt. of India was a capital receipt or a revenue receipt was not the subject matter of decision before the Hon'ble Supreme Court. It may also be pertinent to mention that even the obiter dicta of the Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. (supra) does not support the view expressed by the CIT(A). In the case of CIT v. P.J. Chemicals Ltd. (supra), their Lordships held as under:
The Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the "actual cost". We should prefer the reasoning of the majority of the High Courts to the one found acceptable by the High Court of Punjab & Haryana.
From the above observations, it appears that if the subsidy is granted for the purpose of meeting a portion of the cost of the assets, then a different conclusion would follow. Therefore, in my considered view, the decision of the Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. (supra) does not support the view expressed by the CIT(A) and on the contrary supports the view of the Assessing Officer.
8. As pointed out earlier, the issue before the Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. (supra) was not similar to the one involved in the present case before us. On the contrary there is a direct decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT 228 ITR 253, where the issue about the nature of subsidy was subject matter of the decision of the Hon'ble Supreme Court and it will be quite useful to refer to the said decision in detail so as to arrive at a fair conclusion in regard to the issue involved in the present appeal. In the said case, their Lordships of the Supreme Court held, "If payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The character of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade."
9. Calcutta High Court, in the case of Merinoply And Chemicals Ltd. v. CIT 209 ITR 508 (Cal), had the occasion to consider nature of transport subsidy received by the assessee in terms of notification of the Govt. of India, Ministry of Industry, Department of Industrial Development dated July 23, 1971, known as Transport Subsidy Scheme, 1971. The assessee's contention before the ITO in that case was that the subsidy in question was granted for the specific purpose of encouraging the setting up and development of industries in the backward region and, therefore, these grants were of capital nature not liable to tax under the Income-tax Act, 1961. The plea did not find favour with the ITO. The transport subsidy was added to the income of the assessee. The CIT(A) held that the subsidy being of revenue account was taxable. The Tribunal also upheld the view of the revenue authorities. On reference to the Hon'ble High Court, it was held as under:
Every entrepreneurship has two-fold hazards. One hazard is in the capital outlay. If the business by virtue of being set up in a backward area fails, the capital investment will be lost to the entrepreneur. So, if the State shares the burden of the capital outlay the same cannot but be brought to capital account because the capital sum if expended solely on the entrepreneur's own account would not be a revenue expenditure. Therefore, the reimbursement could not be a revenue receipt. This is a simple and forthright view. Thus, the advantage which the entrepreneurs would secure by the subsidy is on capital account and has to be treated as such, but where the State decides to give a running support to hold the stability of the revenue of the unit set up and run in backward areas, the support will be part of the profit. Taxing such supporting revenue would not result in inequity to such unit in a backward area as the support is intended to maintain the return to the entrepreneur year by year in line with the return to a similar unit in a non-backward area. The inequity or the demerit of the situation having been mitigated, it can be no more fair to seek for immunity from taxation.
10. In the case of Sarda Plywood Industries Ltd. v. CIT 238 ITR 354 (Cal.), the assessee had been granted a subsidy of Rs,3,26,912 under the Transport Subsidy Scheme, 1971. This amount was held to be a revenue receipt by the Tribunal agreeing with the departmental authorities. On a reference, the Hon'ble Calcutta High Court held as under:
Held, that the Transport Subsidy Scheme came into force for the purpose of granting subsidy on the transport of raw materials and finished goods to and from certain selected areas with a view to promoting growth of industries there. The subsidy was granted only for the purpose of recouping or reimbursing a portion of the transport costs incurred by an owner of a manufacturing unit set up in a backward area, so as to enable him to recoup the loss which he may suffer by way of additional transport costs. It was a revenue receipt.
11. In the case of CIT v. Meat Products of India Ltd. 238 ITR 987 (Cal.), the assessee was engaged in the business of meat and meat products. It had received a sum of Rs. 5 lakhs from the State Govt. as subsidy. The AO assessed the amount as receipt of revenue nature. On appeal, the CIT(A) held that the subsidy received was in the nature of capital receipt. On further appeal, the Tribunal held that the subsidy was meant for low cost high quality pig feeds for distribution to farmers and affirmed the order of the CIT(A). Their Lordships of the Calcutta High Court held as under:
The test to distinguish between subsidy of capital nature and subsidy of revenue nature is the purpose of the subsidy. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as having been received for capital purposes. If the monies are given to the assessee for assisting him in carrying on the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade and as revenue receipts.
Since in that case, the Tribunal had not recorded clear finding, whether the subsidy was granted to the assessee for establishing a new unit for manufacturing or for starting some other activity or for successful running of an already established unit, hence the matter was remanded to the Tribunal for recording a clear finding as to what was the purpose for which the subsidy was granted and therefore for deciding the appeal afresh.
12. In the case of CIT v. Assam Asbestos Ltd. 263 ITR 357 (Gauhati), the assessee was engaged in the business of manufacture of asbestos sheets. It claimed transport subsidy as capital receipt on the ground that it was granted with reference to the cost of transporting raw materials and finished goods to and from the backward area and it had to be excluded from the total income. Their Lordships of the Gauhati High Court held as under:
Where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, then it is capital expenditure. The question where the expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment, can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to producing profits it is revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure whether it is capital expenditure or revenue expenditure. The source or the manner of the payment would then be of no consequence.
In this case, since the facts were not investigated at the lower level, the matter was remitted to the AO for taking a decision in the light of the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT 228 ITR 253.
13. The ITAT, Mumbai Bench 'J' (Special Bench) in the case of DCIT v. Reliance Industries Ltd., Bombay, 88 ITD 273 (Mum.) SB, reiterated the principle laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra) and held that if subsidy is given for setting up or expansion of industry in a backward area, it will be capital, irrespective of modality or source of funds through or from which it is given and that if monies are given for assisting assessee in carrying out business operations only after, and conditional upon, commencement of production, it would be revenue. The Special Bench of the Tribunal on examination of the scheme came to the conclusion that the subsidy in that case was granted for setting up of the industry in backward area and was, therefore, capital in nature. A perusal of the decision of the Special Bench reveals that the decision is based on the basis of the interpretation of subsidy scheme in the light of the tests laid down by the Hon'ble Supreme Court. Needless to mention that Special Bench of the Tribunal could not lay down a proposition of law in conflict with the law laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra). Therefore, it is necessary to keep in mind that the Special Bench decision cannot be followed blindly without looking at the context and ignoring the principle of law laid down by the Hon'ble Supreme Court.
14. In the case of Kalpana Palace v. CIT 275 ITR 365 (All), the assessee had received grant in aid from State Govt, for construction of cinema theatre in backward area. The Hon'ble Allahabad High Court held that the grant-in-aid given for construction of permanent cinema house during a specified period even if received after the construction of the cinema hall was a capital receipt.
15. On the analysis of the aforementioned decisions it becomes abundantly evident that the nature of the subsidy has got to be determined with reference to the scheme under which the subsidy is received by the assessee. All the decisions referred to above are based on the principle laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra). The principle laid down by the Hon'ble Supreme Court and reiterated by various High Courts may, therefore, be summarized as under:
The character of the subsidy in the hands of the recipient, whether revenue or capital, will have to be determined having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project, the moneys must be treated as having been received for capital purposes. But if the subsidy is given to the assessee for assisting him in carrying out the business operations and money is given only after and conditional upon commencement of production, such subsidy is to be treated as assistance for the purpose of trade. If the intention of the Govt. is to grant subsidy to share the burden of capital outlay, the same has got to be treated as on capital account. However, where the State decides to give a running support to hold the stability of the revenue of the unit set up and run in backward area, the support will be part of the profit.
16 It may not be out of place to mention that all the subsidies granted by the Govt. are for the purpose of promotion of industry and, therefore, no conclusion can be arrived at about the nature of the subsidy merely on the basis of the fact that the subsidy is granted for the growth of the industry in a particular area. This principle can be better appreciated if we go into the below mentioned facts, in the case of Sahney Steel & Press Works Ltd. v. CIT (supra):
A notification was 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 January 1, 1969, with investment capital (excluding working capital) not exceeding Rs. 5 crores. The incentives were to be allowed for a period of the years from the date of commencement of production. Concession was also available for subsequent expansion of 50 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 I which the existing unit was located. The salient features of the scheme formulated by the Andhra Pradesh Government were 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 subsidy on power consumed for production to the extent stated in the notification; exemptions were given from payment of water rate; refund was also provided for water rate in respect of water drawn from Government sources. The assessee-company, S, set up a factory at P which went into production in the year 1973. The assessee maintained its accounts according to the calendar year. It was, therefore, entitled to the benefits of the said Government order in the calendar year 1973, which meant the assessment year 1974-75. In the said accounting year, the assessee obtained refund totalling Rs. 14,665. 70 being refund of sales tax on purchase of machines, purchase of raw materials and sale of finished goods. The Income-tax Officer, while making the assessment for the year 1974-75, included the said amount in the assessable income of the assessee which was confirmed on appeal by the Commissioner of Income-tax(Appeals). On further appeal, however, the Tribunal upheld the assessee's contention and held that the amount of Rs. 14,665.70 refunded to the assessee in terms of the said Government order "did not represent refund of sales tax" but was a development subsidy in the nature of a capital receipt. The High Court held that the amount was assessable.
On these facts, the Hon'ble Supreme Court dismissing the appeal held that under the notification in question the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts.
17. In that case though the subsidy was also granted with the objective of promoting the growth of the industry, the same was held to be of revenue nature. Therefore, what has to be considered for the purposes of determination of the nature of the subsidy is not the objective behind the grant of subsidy but the kind of subsidy which is granted for the growth of the industry. If the subsidy is granted to enable the assessee to establish the industry i.e. to compensate for the capital expenditure invested for setting up of the industry, whatever may be the measure for determination of the quantum of the grant, such type of subsidy would be on capital account on the basis of the principle laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra). On the other hand, if the type of subsidy granted by the Govt, is to give the running support to hold the stability of the revenue of the unit, the subsidy will be of revenue nature. This distinction has got to be kept in mind in determining the taxability of the subsidy received in a particular case.
18. Their Lordships of the Madhya Pradesh High Court, Indore Bench, in the case of Shreejee Chitra Mandir v. CIT 275 ITR 492, held, "It is the duty of the Tribunal being the highest Appellate Tribunal exercising appellate jurisdiction under the Income-tax Act to examine issues, both of law and fact in the right perspective and in detail. It must appear from the order passed by the Tribunal that sincere efforts were made to decide the issue that fell for examination." Their Lordships further held, "The question whether a particular subsidy is a capital receipt or a revenue receipt is required to be decided keeping in view the nature of subsidy received by the assessee and the scheme pursuant to which it has been received. In other words, it is obligatory upon the taxing authorities before they record a finding one way or the other to examine the nature of the subsidy and the object of the scheme pursuant to which it has been received by the assessee." Their Lordships had remanded the matter back to the Tribunal to examine the issue in the manner suggested by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra).
In the light of the above advice given by the Hon'ble High Court I/we consider it appropriate to consider the Scheme under which the assessee has received the subsidy.
19 As pointed out earlier, the assessee has received the subsidy under the Transport Subsidy Scheme, 1971 of the Govt. of India. This scheme was introduced in July 1971 and has been extended from time to time and is now valid upto 31.3.2007. The Preamble to the Notification No. F.6(26)/71-IC dated 23.7.1971 reads as under:
No. F.6(26)/71-IC - The Government of India are pleased to make the following scheme for grant of subsidy on the transport of raw materials and finished goods to and from certain selected areas with a view to promoting growth of industries there:
The following are the relevant features of the scheme which, in my view, will enable us to determine the nature of the subsidy keeping in view the principles laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra):
1. Short title - The scheme maybe called the transport subsidy scheme, 1971.
2. @ Commencement and duration: It comes into effect from 15.7.1971, for selected areas (A), with effect from 24.6.1973 for selected areas (B), with effect from 1.12.1976 for selected areas (C) and with effect from 5.12.1977 for selected areas (D) and will remain in operation till 31.3.1979.
3. @ It is applicable to all industrial units (barring plantations, refineries and power generating units) I both in the public and the private sectors, irrespective of their size in the selected areas (A), (B), (C) and (D). For a period of 5 years from the commencement of commercial production.
4. Definitions - (a) "Industrial Unit" means an industrial unit where a manufacturing programme is carried on.
(b) 'New Industrial Unit' means a new industrial unit which has set up manufacturing capacity and comes into production on or after the date of commencement of the scheme.
(c) 'Existing industrial unit' means an industrial unit which has set up manufacturing capacity and came into production before the date of commencement of scheme.
(d) 'Substantial expansion' means increase in the production of an industrial unit by 25 per cent or more of the licensed or approved capacity.
(e) 'Diversification' means manufacture of new article or articles by an industrial unit by 25 per cent or more (by value) of the approved or licensed capacity of the article or articles already manufactured by it during the preceding year.
(f)** The Selected Areas (A) means the State of Jammu & Kashmir and the North-Eastern Regional comprising the States of Assam, Meghalaya, Manipur, Nagaland and Tripura and Union Territories of Arunachal Pradesh and Selected Areas (B) means the State of Himachal Pradesh and Hilly areas of Uttar Pradesh State comprising the Districts of Dehradun, Nanital, Almora, Pauri Garhwal, This Garhwal, Pithoragarh, Uttar Kashi and Chamoli, the Selected Areas (C) means the Union Territories of Andeman and Nicobar Islands and Lakshdweep; and the Selected Areas (B) means the State of Sikkim.
(h) 'Raw Material' means any raw material actually required and used by an industrial unit I its manufacturing programme as approved by the government of India and/or by the Government of State/Union Territory in which the industrial unit is located.
(i) 'Finished Goods' means the goods actually produced by an industrial unit in accordance with the manufacturing programme approved by the Government of India and/or the Government of the State/Unit Territory in which the industrial unit is located.
5. %
6. Details of the Scheme:
(i) ...
(ii) ...
(iii)@ In the case of Jammu & Kashmir, Transport subsidy will be given on transport costs between the location of the industrial unit and rail-head of Jammu or Pathankot, whichever is nearer.
In the case of Himachal Pradesh the Transport subsidy will be given on transport costs between the location of the industrial unit in the State and the nearest rail head viz. (i) Pathankot, (ii) Kiratpur Sahibh, (iii) Nangal, (iv) Kalka (v) Ghanauli, (vi) Yamuna Nagar, (vii) Berara and (vii) Hoshiarpur.
In the case of hilly areas of Uttar Pradesh State, the transport subsidy will be given on the transport costs between the location of the industrial unit and the nearest rail-head viz. (i) Dehradun, (ii) Rishikesh, (iii) Moradabad, (iv) Bareilly, (v) Kotdwara, (vi) Shahajahanpur and (vi) Ram pur.
(iv) ...
(v) ...
(vi) ...
(vii) + Freight charges for movement by road/sea will be determined on the basis of transport/transshipment rates fixed by the Central Government/State Government/Union Territory Administration concerned from time to time or the actual freight paid whichever is less.
(viii)L Cost of loading or unloading and other-handling charges to or from railway station to the site of the industrial unit will not be taken into account for the purpose of determining transport costs.
(ix) L All new industrial units located in the selected areas will be eligible for transport subsidy equivalent to 50% of the transport costs of both raw materials as well as finished goods.
(x) L Existing industrial units in the selected area are also eligible for transport subsidy in respect of the additional transport costs of raw materials and finished goods arising as a result of substantial expansion or diversification effected by them after the commencement of the Scheme Transport subsidy in such cases will be restricted to 50% of the transport costs of the additional raw materials acquired and finished goods produced as a result of the substantial expansion or diversification.
(xi) ...
(xii) L The State Government/Union Territory Administration will set up a committee consisting of the Directors of Industries, - representative reach of the State Industries department and the State Finance Department etc. on which a representative of the Ministry of Industrial Development will also be nominated. The committee will operate at the State/Union Territory level and scrutinize and settle all claims of transport subsidy arising in the State/Union Territory. The claimant should be asked to provide proof of raw materials, 'imported' into and finished goods 'exported' out of the selected State/Union Territory/areas where the unit is situated from the registered chartered accountants. The committee may also lay down the production of any other documents which in their opinion is necessary to decide the eligibility of claimant for the transport subsidy. However, in the case of small units with a capital investment of 1 lakh or less the requirement of production of certificate from Chartered Accountant may be waived subject to the condition that such claims re properly verified b the State Government Authorities before the subsidy is sanctioned/disbursed. After having scrutinized and settled the claims, the amount disbursed to industrial unit should first be adjusted against the outstanding ways and means of advances made to the State/Union Territory Administration for Centrally sponsored scheme in accordance with the procedure outlined in the Ministry of Finance letter No. 2(17)P11/50 dated 12th May, 1958 and the balance, if any, shall be paid in cash to the State/Union Territory Administration.
Provided that in the case of small units with a capital investment of Rs. 1,00,000 and less, the requirement of production of proof of import of raw material and export of finished products from registered Chartered Accountant will be substituted by an appropriate verification by the State Government Authorities.
(xiii) L In order to check any misuse of transport subsidy, Directorates of Industries in the State/Union Territories will carry out periodical checks to ensure that the raw materials and the finished goods in respect of which transport subsidy has been given were actually used for the purpose by a system of scrutinizing of consumption of the raw materials and the Out put of the finished goods.
(xiv) L
(xv) L Directorate of Industries of the Stats and Union Territories concerned will lay down a system of pre-registration of industrial units which are eligible for transport subsidy. At the time of registration the Directors of Industries will fix and indicate the capacity of such units. They will also lay down procedure to ensure regular inflow of information regarding the movement of raw material and finished goods to and from the industrial units. The Directorate of Industries of the States and Union Territories should also lay down that statistics of production and utilization of raw materials should be maintained and kept open for inspection on request by the Directorate of Industries.
(Emphasis supplied)
20. When the above scheme is tested on the principles of law laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra), it becomes abundantly clear that though the intention for grant of subsidy, as in all cases is the growth of the industry in particular areas, yet the giant in the form of transport subsidy is specifically to support the assessee in running the unit in the specified areas. Such type of subsidy on the basis of law laid down by the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. v. CIT (supra) is a revenue receipt.
21. The decisions cited on behalf of the assessee are firstly distinguishable on facts and secondly even assuming for the sake of arguments that any of the decisions of lower courts or tribunal is contrary to the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra), I hardly need to emphasize that the decision of the Hon'ble Supreme Court has got to be followed in preference to any decision which may be contrary to the principle laid down by the Hon'ble Supreme Court.
22. It may be pertinent to mention that our attention was drawn to some of the decisions of the ITAT, Chandigarh Bench, referred to in para 11 of the proposed order by the Id. Accountant Member wherein the sales tax subsidy received by the assessee has been held to be of capital nature. As already pointed out, the nature of the subsidy received by the assessee has got to be determined with reference to the principle of law laid down by the Hon'ble Supreme Court. The decisions in the coses of Bhushan Steel and Strips v. DCIT (2004) 91 TTJ 108, Virender Agro Chemicals Ltd., Ludhiana v. ACIT, C.C.III, Ludhiana ITA No. 19, 142, 347/Chandi/97 order dated 26.5.2004 and Abhishek Industries Lt., Ludhiana v. ACIT, CC.III, Ludhiana ITA. No. 1081/Chandi/97 order dated 27.2.2004 do not relate to transport subsidy. The ITAT, Chandigarh Bench, relying upon the decision of the Mumbai Bench of the ITAT (Special Bench) in the case of DCIT v. Reliance Industries Ltd., Bombay 88 ITD 273, has held that the sales tax subsidy granted is of capital nature. The subsidy, as already pointed out, received by the assessee in this case, is a transport subsidy. The nature of the subsidy is different and, therefore, at this stage it is not necessary for us to consider the aforementioned decisions of our coordinate benches. However, two decisions of the Tribunal referred to by the parties - one of Chandigarh Bench in the case of ITO v. Kiran Enterprises (2005) 92 TTJ 104 (Chd.) and of JCIT v. Sidheshwari Paper Udyog Ltd. 94 ITD 187 (Delhi)(TM), relate to the transport subsidy. So, however, in both the above two cases, there was no dispute about the nature of the subsidy. In both the cases, the assessees had disclosed the receipt as a revenue receipt. The dispute was as to whether the subsidy received was to be treated as income derived from the industrial undertaking. ITAT, Chandigarh Bench held in favour of the assessee by holding that the transport subsidy was the business income of the industrial undertaking. However, ITAT, Delhi Bench (Third Member) though noted the decision of ITAT, Chandigarh; Bench yet differed with the view arrived at by ITAT, Chandigarh Bench. Both these decisions are not of any help to decide the issue involved in the present appeal before LIS insofar as the transport subsidy was disclosed as revenue receipt in both the cases by the respective assessees.
23. Taking the totality of facts and circumstances of this case into consideration, 1/we hold that the CIT(A) was not justified to hold that the transport subsidy received by the assessee is a capital receipt. The order of the CIT(A) in this regard is set aside and that of the AO restored.