Madras High Court
Indopel Garments (P) Ltd. vs Deputy Cit on 17 May, 2001
Equivalent citations: (2001)72TTJ(MAD)702
ORDER
M.M. Cherian, A.M. This appeal has been filed by the assessee, M/s. Indopel Garments (P) Ltd., Sydenhams Road, Chennai, against the order of the Commissioner (Appeals) VI, Chennai, for the assessment year 1991-92. The assessee is a private limited company engaged in the business of export of skins and hides.
2. The first ground in this appeal is in regard to the addition of a sum of Rs. 23,688 on account of difference in sales. At the time of hearing of this appeal this ground was not pressed. Hence, this ground of appeal by the assessee is treated as dismissed.
3. The next ground is to the effect that the Commissioner (Appeals) erred in confirming the disallowance of the commission payment to the foreign concern M/s. Esopelli & Co. SAS, Italy. In computing the income for the year ending 31-3-1991,the assessee claimed deduction for a sum of Rs. 15,09,290 as sales commission payable to Esopelli & Co. SAS, Italy. The assessing officer was of the view that the assessee ought to have deducted tax at source under Chapter XVII-B of the Income Tax Act on the sum payable outside India and as there was default in regard to tax deduction the commission amount was not deductible as provided in section 40(a)(i) of the Act. The assessing officer did not accept the assessees explanation that the entire services had been rendered by the foreign party outside India and that there was no income arising in India on which tax was deductible as provided in Chapter XVII-B, and that in any case the remittance outside India had been made with the permission of the Reserve Bank of India. Accordingly, in the assessment the assessing officer added back the sum of Rs. 15,09,290 under section 40(a)(i). The Commissioner (Appeals) concurred with the assessing officer and held that the assessee ought to have deducted tax on the sales commission remitted outside India and that in view of the default, section 40(a)(i) was to be applied and so the disallowance was in order. Aggrieved with the order of the appellate authority confirming the disallowance, the assessee has filed this appeal before the Tribunal.
4. On behalf of the assessee, Sri G. Narayanaswamy, chartered accountant, submitted before us that the assessing officer as also the Commissioner (Appeals) had erred in holding that the assessee ought to have deducted tax on the sales commission payable outside India and that as there was default regarding tax deduction at sources, the provisions of section 40(a)(i) were applicable. The learned Representative explained that the foreign concern M/s. Esopelli & Co. SAS, Italy, was acting as a selling agent for the assessee for canvassing orders outside India particularly in Italy and that there was no service rendered by them within the taxable territory. Drawing our attention to section 195 Sri Narayanaswamy stated that the liability to deduct tax at source would arise only if any sum chargeable to tax under the Income Tax Act was paid outside India. In the present case, according to him the amount payable as sales commission was not liable to tax as income arising or accruing to the foreign concern in India. The learned Representative reiterated that the foreign agent had not carried on any operation in India and so no part of the commission amount would be attributable to Indian operations, to attract liability under the Indian tax laws. Sri Narayanaswamy added that the non-resident had no office in India, and there was also no payment made in India. The entire commission amount was remitted outside India with the permission of the Reserve Bank through banking channels only. He also referred to section 9 of the Income Tax Act dealing with income deemed to accrue or arise in India, and submitted that only income accruing or arising, inter aha, through or from any business connection in India could be considered as income liable to tax in the hands of a non-resident. Sri Narayanaswamy relied on the decision of the Supreme Court in the case of CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC) for the contention that the non-resident acting as an agent outside India did not carry on any business operation in India. It was pointed out that in the above case the Supreme Court had held that sales commission which were earned by the non-resident for services rendered outside India could not be deemed to be income which had either accrued or arisen in India. Sri Narayanaswamy added that in the present case the non-resident became entitled to receive commission for services rendered outside India as a selling agent of the assessee. Reliance was placed on the Circular No. 163 issued by the Central Board on 29-5-1975, clarifying that no income would be deemed to accrue or arise in India through or from operations which were confined to purchase of goods in India for the purpose of export. Further, the mere existence of an agency established by a non-resident would not be sufficient to make the non-resident liable to tax if the sole function of the agency was to purchase goods for export. Reference was also made to the Circular No. 786 issued subsequently on 7-2-2000, with the contention that the question of deduction of the tax at source under section 195 would arise only if payment of commission to the non-resident was chargeable to tax in India. According to Sri Narayanaswamy, if the assessee found that sum payable to the non-resident was not chargeable to tax there was no need for deduction under section 195. For that proposition he relied on a decision of the Tribunal, C-Bench, Mumbai, in the case of Srikumar Poddar v. Deputy CIT (1997) 59 TTJ (Mum-Trib) 304. It was stated that in the earlier years also the assessee had remitted sales commission outside India but there was no disallowance made under section 40(a)(i). He filed before us a paper book containing copy of the assessment order for the assessment year 1989-90. It was pointed out that in the assessment order dated 21-2-1991, there was no disallowance of the sales commission by applying section 40(a)(i). Sri Narayanaswamy added that for the current year, i.e. the assessment year 1991-92 the assessing officer made an attempt to make a direct assessment on M/s. Esopelli & Co. SAS, Italy, through the assessee M/s. Indopal Garments (P) Ltd. as their agent. But that assessment was cancelled by the Commissioner (Appeals) by his order in IT No. 142/1996-97 dated 30-1-1997. It was pointed out that in that order the appellate authority held that the non-resident had not rendered any service in India and further the assessing officer had not brought on record any evidence to show that services had been rendered in India. The Commissioner (Appeals) also held that the entire income accruing to the non-resident as selling commission was taxable in Italy only as per the provisions of the Double Taxation Agreement between India and Italy. Referring to the Double Taxation Agreement (vide 160 ITR (St) 25) Sri Narayanaswamy submitted that only if the foreign entity had a permanent establishment in India, the income would have been taxable in India, after the Agreement. It was nobodys case that the Italian concern had a permanent establishment in India, the learned Representative stated. Arguing on the above lines, Sri Narayanaswamy made an earnest plea for reversing the finding of the revenue authorities and allowing the assessees claim of the selling commission payable to the non-resident concern.
5. Per contra, Sri G.S.D. Babu, the Departmental Representative supported the order of the Commissioner (Appeals) and submitted that there was clear default on the part of the assessee in regard to deduction of tax at source as required under section 195 on the sum payable outside India and so, section 40(a)(i) was rightly applied for making the disallowance. Sri Babu stated that the assessee was remitting money outside India as sales commission and it was not for the assessee to take suo motu decision that there was no income arising to the non-resident and so no tax was to be deducted under section 195. If the assessee felt that there was no income accruing or arising to the non-resident to attract the liability under section 195, the assessee ought to have made an application before the assessing officer under section 195(2) for determination of the income, if any, on which tax was to be deducted. The learned Departmental Representative added that in this case the assessee had not made an application under section 195(2) for determination of the taxable income of the non-resident. He contended that if every person remitting money outside India was determining on his own that no tax was to be deducted on such remittances, the very purpose of section 195 would be defeated and then there would be huge loss to the country. Sri Babu also referred to the decision of the Hyderabad Bench of the Tribunal in the case of Cheminor Drugs Ltd. v. ITO (2001) 21 DTC 388 (Hyd-Trib) : (2001) 76 ITD 37 (Hyd-Trib). It was stated that in that case the Tribunal had held that a person making payments to a non-resident could not take a unilateral decision that the amount was not chargeable to income-tax and so the payment could be made without deduction of tax at sources, without the concurrence of the assessing officer as provided in section 195(2). Drawing our attention to the assessment order, the learned Departmental Representative submitted that though the assessing officer wanted the assessee to show that the non-resident had no office in India and they had also not rendered any service in India, the assessee had not furnished any evidence. Only a letter was filed on 13-2-1994, with copies of the agreement between the assessee and M/s. Babu & Co., Vepery High Road, Madras-3. It was pointed out that as per the agreement for the services rendered by M/s. Babu & Co. commission was payable at 2 per cent and there was the stipulation to pay commission at 5 per cent to M/s. Esopelli & Co, SAS, Italy. As regards the Double Taxation Agreement Sri Babu submitted that though there was such an agreement between India and Italy that would not exonerate the assessee from the liability under section 195. So long as there was the default in deducting tax under section 195 sales commission payable outside India could be disallowed under section 40(a)(i), that was the contention of the learned Departmental Representative. In any case, in view of the fact that there was no evidence furnished by the assessee to show that the non-resident had no permanent establishment in India, the assessee could not take advantage of the Double Taxation Agreement. According to him, the fact that for the earlier years there was no disallowance made under section 40(a)(i) would not entitle the assessee for the deduction in the current year, as the assessee could not claim any advantage out of a mistake or an omission on the part of the department in respect of an earlier year. The learned Departmental Representative thus urged us to uphold the order of the Commissioner (Appeals) confirming the disallowance of the sales commission payable to M/s. Esopelli & Co. SAS, Italy.
6. Section 40 of the Income Tax Act provides that notwithstanding anything to the contrary in sections 30-39 certain amounts shall not be deducted in computing the income chargeable under the head profits and gains of business or profession. In clause (i) it is provided that in the case of an assessee :
"any interest (not being interest on a loan issued for public subscription before the 1-4-1938) royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B."
Before the assessing officer the assessee claimed that the sum of Rs. 1,50,190 paid to the non-resident M/s. Esopelli & Co, SAS, Italy, during the previous year was towards sales commission for their services outside India. Admittedly, no tax was deducted on the amount, even though money was remitted outside India. Section 195 requires that any person responsible for paying to a non-resident any interest (not being interest on securities) or any other sum chargeable under the provisions of the Act (not being income chargeable under the heads salaries or dividends) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by any other modes, whichever is earlier, deduct income-tax at the rates in force. The assessing officer took the view that tax was deductible under section 195 on the commission payable to the non-resident and so in view of the default, the same was disallowable under section 40(a)(i). The proposition strongly canvassed before us by the learned representative Sri Narayanaswamy is that the liability to deduct tax under section 195 would arise only if the sum was chargeable to tax under the provisions of this Act and that if the sum was not chargeable under the provisions of the Act, there was no obligation on the payer to deduct tax. We are in agreement with the learned representative of the assessee that for settling the dispute in this case what is to be considered is whether the sum of Rs. 15,09,290 was chargeable to tax in the hands of the non-resident under the provisions of the Income Tax Act.
7. In the context of the scope of total income it is provided in sub-section (2) of section 5 "(2) subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year."
In the present case sales commission was not paid in India. The payment was made outside India only. As a matter of fact, section 40(a)(i) has application in respect of any amount chargeable under the Act which is payable outside India. The sales commission paid to the assessee could be included in his total income under section 5(2)(b) only if it is income accruing or arising or deemed to be accruing or arising to him in India. Section 9(1)(i) provides the following incomes as deemed to accrue or arise in India :
"(i) all incomes accruing or arising, whether directly or indirectly through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset in India." By way of Explanation, clause (a) gives the clarification that in the case of a business in which all the operations are not carried out in India, the income of the business deemed under clause (i) to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. In other words, in the case of a non-resident income is deemed to accrue or arise in India only if any part of the income is reasonably attributable to the operation carried out in India. If no operations are carried out in India by the non-resident, there would be no income deemed to accrue or arise in India. If the sales commission received by the non-resident is to be deemed as income accruing or arising in India, it is to be shown that it was attributable to the operations carried out in India. According to the assessee, the non-resident Italian concern was paid sales commission for rendering service in finding the purchasers for their goods outside India and for canvassing orders and then attending to other matters relating to the sales. All such activities could have been conducted outside India only. In other words, the non-resident did not carry out any operations in India to entitle them for the sale commission. If that is the case, then no part of the income by way of sales commission would be attributable to any operations in India and in that sense it would not qualify as income deemed to accrue or arise in India. In the case of CIT v. Toshoku Ltd. (supra) relied on by the learned representative, the assessee exported tobacco to Japan and France through non-resident sales agents. The question was whether the commission earned by the non-resident sales agents could be taxed in India, treating the assessee as a representative assessee under section 161 of the Income Tax Act. In deciding the matter in favour of the assessee, the Supreme Court held as under :
"The non-resident did not carry any business operations in the taxable territories, they acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad did not amount to an operation carried out by the non-resident, in India as contemplated by clause (a) of the Explanation to section 9(1)(i) of the Income Tax Act. The commission amounts which were earned by the non-resident for services rendered outside India could not be deemed to be income which had either accrued or arisen in India."
8. In the assessment order the assessing officer states that when the assessee was asked to prove that they did not render any service in India, they did not furnish any evidence in support of that claim. The assessing officer was asking the assessee to prove the negative. It is not the case made out by the assessing officer that the non-resident was rendering services for local sales i.e., for the sales within India, or that any part of the sales commission was attributable to services rendered in India. As early as on 23-7-1969, the Central Board issued a circular (circular No. 23) wherein the tax liability of foreign agents of Indian exporters was considered. It had been clarified in that circular that where non-resident agent operated outside India, no part of the income arose in India. Further, since the payment was usually remitted directly abroad it could not be held to have been received by or on behalf of the agent in India. Such payments were to be held as not taxable in India. It may be mentioned here that in their Audit Report for 1997-98 (D.P. No. 79(IT) the Comptroller & Auditor General raised an objection that the assessing officer in a case in computing the profits and gains of a business had wrongly allowed a deduction in respect of a payment to a non-resident where tax had not been deducted at source. The nature of the payment in that case was export commission and charges payable for services rendered outside India. The view of the Comptroller & Auditor General was that in accordance with the provisions of s, 40(a)(i) the expenditure should have been disallowed. After settling the objection with the Comptroller & Auditor General, the Board issued Circular No. 786 on 7-2-2000, for the benefit of the officers of the department stating that "The relevant section namely section 5(2) and section 9 of the Income Tax Act, 1961, not having undergone any change in this regard, the clarification in Circular No. 23 still prevails. No tax is, therefore, deductible under section 195 and consequently the expenses on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being appraised of this position, the Comptroller & Auditor General has agreed to drop the objection referred to above.
3. The contents as above should be brought to the notice of all the officers in your region."
Regarding the relevance of the circulars issued by the department, this is what the Supreme Court held in Paper Products Ltd. v. CCE (2001) 19 DTC 735 (SC) : (2001) 247 ITR 128 (SC) :
"Apart from the fact that the circulars issued by the Central Board of Customs and Excise in exercise of its power under section 37B of the Central Excise Act, 1944, are binding on the department, the department is precluded from challenging the correctness of the said circulars even on the ground of the same being inconsistent with the statutory provision. So far as the department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force on the relevant point of time."
When the Boards circular says that no tax is deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India is allowable expenditure, the assessing officer is bound to follow that circular and not to make any disallowance under section 40(a)(i).
9. In the present case, the assessing officer disallowed the expenditure by way of sales commission on the reasoning that "as per the facts of this case, all the services are rendered by the resident viz., M/s. Babu & Co." It appears that before the assessing officer the assessee furnished a copy of an agreement between the non-resident M/s. Esopelli & Co, SAS, Italy, and a resident concern M/s. Babu & Co., Vepery High Road, Madras-3. This is an agreement dated 10-1-1984 (vide p. 21 of the paper book). In this agreement it is provided "M/s. Esopelli will get their commission which will be mutually fixed from time to time, if necessary, depending on the articles negotiated, by way of D/D drawn on M/s. Esopelli DI. M.N. Santarnechi & Co. which will be remitted by shippers as soon as bills are negotiated by them.
M/s. Babu & Co. will obtain their commission from shippers as soon as bills are negotiated by them."
The assessing officer found that in terms of the agreement for the services rendered by M/s. Babu & Co., the shippers had to pay 2 per cent commission locally. The commission payable by the shippers to the non-resident M/s. Esopelli was at 5 per cent. Though the assessing officer states that as per the agreement all the services are rendered by the resident M/s. Babu & Co. according to the assessing officer even otherwise it could be taken that M/s. Esopelli had rendered services through M/s. Babu & Co. It is difficult to believe that Babu & Co. a firm in Chennai was rendering services for the sale of the assessees products in Italy and other places outside India. As explained by the learned representative of the assessee M/s. Esopenlli was contacting the assessee and other exporters through M/s. Babu & Co. only and then negotiating with the purchasers in Italy. In the paper book filed before us, copies of the letters issued by M/s. Esopelli with the assessee are available. We have gone through the letters dated 24-7-1990, 25-7-1990 and 21-9-1990, all relating to the assessment year 1991-92. The learned representative states that there are only a few letters shown as samples and that there were letters available with the assessee in respect of all the sales effected through M/s. Esopelli. The letter dated 24-7-1990 reads as under :
"Contract No. 106/1990Dear Sirs, We have pleasure in confirming you the sale made for your account, as agents only, of the following goods :
Buyers : Ms. New Pel S.p.A.Via Orme 200, Martignana (F1) Mark : "I.P.G."
Description of Goods : No. 2. 100 leather garments, out of which :
Sizes 46 48 50 52 54 56 58 Model 1625L Col.690 20 60 60 40 20 200
pcs.
US$110xpc.
Model 1625L Col.600 23 27 90 80 26 4 300
pcs.
US$110xpc.
Model 1625L Col.107 22 64 29 71 45 2 284
pcs.
US$118xpc.
Model 1625L Col.693 13 90 68 76 23 1 271
pcs.
US$118xpc.
Model 1511A Col.693 17 35 60 60 30 3 200
pcs.
US$144xpc.
Model 1605A Col.600 50 76 80 54 26 13 300
pcs.
US$130xpc.
Model 1609C Col.350 21 49 51 45 16 8 200
pcs.
US$137xpc.
Model 1610C Col.350 18 80 85 80 35 2 300
pcs.
US$142xpc.
Model 1610C Col.600 4 10 12 12 7 45
pcs.
US$142xpc.
Price : C. & AF. Pisa Airport Delivery : With partial shipments, within 15-11-1990 Terms : Payment by Irrevocable Letter of Credit at 90 days sight documents in Italy to be opened for 100 per cent of value on "Indian Bank, Park Town Branch, Madras."
The Letter of Credit should include the clause : "The amount of 5 per cent as commission is to be remitted to the Agent MS. Esopelli S.A.S., Empoli, by the negotiating bank at the time of negotiating the bills."
Airway bill must be consigned to the L/C opening bank and notify the buyer.
Insurance To be covered by buyer.
Arbitration As per condition of "International Hide & Skin Contract N T come per to condizioni del "Contrallo Internationate N "I".
sd/-sellers sd/-agent sd/-buyers."
9.1. It can be seen from the above that it was for the sales made through M/s. Esopelli that they were paid commission at 5 per cent. There is no basis for the view taken by the assessing officer that all the services were rendered by the resident M/S. Babu & Co. In the Circular No. 163 issued by the Central Board of Direct Taxes on 29-5-1975, it is clarified that the mere existence of an agency established by a non-resident in India will not be insufficient to make the non-resident liable to tax if the sole function of the agency is to purchase goods for export. From a reading of the agreement between M/s. Babu & Co. and M/s. Esopelli and also from the letter of M/s. Esopelli to the assessee, what can be seen is that, M/s. Babu & Co. and M/s. Esopelli were acting as agents for each other and that in respect of the goods from the Indian exporters like the assessee, M/s. Babu & Co. would make offers to the non-resident who would then negotiate with the foreign buyers and then sell the goods outside India. In the transaction Babu & Co. would get 2 per cent commission from the exporters and M/s. Esopelli would get 5 per cent commission. Such commission payable to the non-resident can be considered only as charges for services rendered by them in respect of the sales outside India. Merely because there is an agreement between M/s. Babu & Co. and M/s. Esopelli, regarding the commission receivable by them from the exporters it would not be correct to say that the non-resident was rendering services in India through M/s. Babu & Co. for which they received sales commission. The assessing officer is not correct in his view that the commission payable to the non-resident was for the services rendered in India through the resident concern M/s. Babu & Co. It is our considered view that the assessee had to pay sales commission to M/s. Esopelli for the services rendered outside India in connection with the export sales only. In the light of the decision of the Supreme Court cited above we hold that there was no income arising or accruing to the non-resident out of the sales commission payable outside India. In accordance with the circulars issued by the Board no tax was to be deducted under section 195 on such remittances outside India. Further, as clarified in the Boards circulars no disallowance is to be made under section 40(a)(i) in respect of the sales commission payable to the non-resident concern.
10. The learned Departmental Representative has relied on the decision of the Hyderabad Bench of the Tribunal in the case of Cheminor Drugs Ltd., (supra) for the contention that the assessee could not unilaterally decide not to deduct tax under section 195 and that he should have obtained the concurrence of the assessing officer under section 195(2). Sub-section (2) applies where the person responsible for making the payment to a non-resident considers that the whole of the such payment would not be income chargeable to tax in the hands of the recipient and that only a portion of the amount would be chargeable. In such a case, he may make an application to the assessing officer to determine the appropriate proportion of such sum so chargeable to tax in the hands of the non-resident. In a case where there is no chargeable income as clarified by the circular issued by the Board, we do not think it would still be necessary for the assessee to get the concurrence of the assessing officer under section 195(2). Circulars issued by the Board on the chargeability of the sales commission in the hands of a non-resident were not brought to the notice of the Tribunal. Further, the question of apportionment of the income chargeable to tax in the hands of the non-resident under section 195(2) would arise where, there is no dispute about the chargeability as such and the dispute is with regard to the proportion of the sum which is chargeable. It is our considered view that the question of apportionment by the assessing officer under section 195(2) would not arise in a case where in view of the circular issued by the Board, there is no income chargeable to tax in the hands of the non-resident. The decision in the case of Cheminor Drugs Ltd. (supra) relied on by the learned Departmental Representative is thus not applicable to the facts of the present case, where the assessees claim regarding non-chargeability to tax is supported by the circulars issued by the Board and the decision of the Supreme Court (1980) 125 ITR 525 (SC).
11. In the above circumstances, we reverse the finding of the Commissioner (Appeals) and direct the assessing officer not to disallow under section 40(a)(i) the sales commission payable to the non-resident. Accordingly, this ground of appeal is decided in favour of the assessee.
12. In the next ground the assessee is aggrieved with the direction by the Commissioner (Appeals) to assess as income, the subsidy amount received from the State Government. During the previous year the assessee received a sum of Rs. 1,44,407 as special subsidy as per the proceedings of the Regional Deputy Director of Industries and Commerce, Government of Tamilnadu. The assessing officer adjusted the subsidy amount against the value of the capital assets and allowed depreciation on the reduced cost of those assets. In the assessees appeal the Commissioner (Appeals) held that depreciation was allowable on the actual cost of the assets without adjusting the subsidy amount in view of the decision of the Supreme Court in the case of CIT v. P.J Chemicals (1994) 210 ITR 830 (SC). However, the appellate authority further held that the subsidy amount was assessable as income of the assessee. Accordingly, he gave direction to include the amount in the taxable income following the decision of the Supreme Court in the case of S.V. Meenakshi Achi v. CIT (1966) 60 ITR, 253 (SC) and the decision of the Calcutta High Court in the case of Kesoram Industries & Cotton Mills Ltd. v. CIT (1991) 191 ITR 518 (Cal). The assessee is in appeal before the Tribunal with the plea that the Commissioner (Appeals) was not correct in holding that the subsidy amount was to be added as the income in the hands of the assessee.
13. Before us the learned representative of the assessee Sri G. Narayanaswamy submitted that as per the order of the Regional Deputy Director of Industries & Commerce the assessee was granted the subsidy for the development purposes of the unit and that there was nothing to show that it was to be adjusted against any expenditure or to make good any short-fall in the profit of the business. According to the learned representative the Commissioner (Appeals) was not correct in directing the assessing officer to treat the amount as a revenue receipt without allowing the assessee an opportunity to furnish the relevant documents regarding the subsidy sanctioned by the government. In the paper book filed before us there are copies of the orders issued by the Department of Industries, Government of Tamilnadu. Sri Narayanaswamy admitted that these documents were not placed before the assessing officer and the Commissioner (Appeals).
14. Having regard to the facts of the case we find that the Commissioner (Appeals) was not correct in giving the direction to assess the subsidy amount as a revenue receipt without giving an opportunity to the assessee to furnish the documents in regard to the sanctioning of the special subsidy. As a mater of fact, in the assessment the assessing officer had treated the amount as a capital receipt and adjusted the same against the cost of the capital assets. The nature of the subsidy would depend on the object for which it was granted by the government. As the assessee had not got an opportunity to present their case before the revenue authorities with necessary details and relevant documents, we find it necessary to remit this issue for fresh consideration by the assessing officer. We accordingly modify the order of the Commissioner (Appeals) and direct the assessing officer to consider whether the subsidy received from the industries department could be considered as a revenue receipt includible in the taxable income. The assessing officer will give the assessee a reasonable opportunity to present their case with necessary documents. The assessing officer may also call for the details including copies of the orders passed by the State Government, sanctioning the special subsidy. After considering the relevant materials the assessing officer will decide whether the subsidy amount could be included in the taxable income as a revenue receipt.
15. In the result, this appeal by the assessee is partly allowed. The assessing officer will revise the assessment accordingly.