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3. The first issue regarding addition on account of power subsidy, is common to all the three assessment years under consideration. During the years under consideration, the assessee received subsidy from Andhra Pradesh State Electricity Board (hereinafter called APSEB for brevity) as under :

  Assessment year                Subsidy received
                                      Rs.
1984-85                            67,01,570
1985-86                            76,87,863
1986-87                            28,13,523

 

The assessee, in the returns of income filed before the ITO, had claimed that the subsidy received from APSEB was capital in nature and hence it was not assessable to tax under the provisions of the Income-tax Act. The assessee had in its books of account, transferred the subsidy to the Capital Reserve Account from Revenue Account. The ITO, however, noticed that APSEB had in fact deducted the subsidy from the electricity bills and had collected only the net amount. The ITO also discovered that for assessment year 1983-84, similar claim of the assessee had been negatived. The ITO was of the view that the subsidy was revenue in nature and, therefore, he did not accept the contention of the assessee that the power subsidy received by the assessee was a capital receipt. He, therefore, treated the subsidy received as an income of the assessee for all the three years under consideration.

4. Aggrieved, the assessee filed appeals before the CIT (Appeals). The CIT (Appeals), during the course of the hearing, noticed that the power subsidy was granted to the assessee in terms of G.O. Ms. No. 455, dated 3-5-1971. The CIT (Appeals) further noticed that the power subsidy was one of the incentives offered by Government of Andhra Pradesh for rapid industrialisation, that the mere method of computation of the quantum of subsidy on power consumption could not by itself make the subsidy a revenue receipt. The CIT (Appeals) considered the applicability of the judgment of the Andhra Pradesh High Court in the case of CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39, wherein it was, inter alia, laid down that there was no room or basis for dissociating the subsidy from the business of the assessee, inasmuch as the subsidy was given for development of business and not for any other unrelated purposes. The payment was not a subsidy for setting up the plant but a subsidy given for the efficient and profitable running of the industry and its growth. In the said judgment, the Andhra Pradesh High Court held that the subsidy was revenue in nature. The CIT (Appeals) was, however, of the view that the said decision is distinguishable on facts and hence he came to the conclusion that the power subsidy received by the assessee from APSEB was a capital receipt and was to be excluded in the computation of income of the assessee for all the three years under consideration. In this regard, the CIT (Appeals) followed the decision of the Madhya Pradesh High Court in the case of CIT v. Dusad Industries [1986] 162 ITR 784. He accordingly treated the subsidy received from APSEB as a capital receipt and deleted the additions made by the Assessing Officer.

13. The learned counsel further states that it is not disputed and it cannot be, that power subsidy granted by Government of Andhra Pradesh is one of the incentives which are passed on by the State through APSEB. In other words, the source of subsidy is Government of Andhra Pradesh while the medium of disbursement of subsidy is chosen to be APSEB.

14. On the aforesaid facts, it is urged that the question is whether the subsidy granted to the assessee under G.O. Ms. No. 654 read with G.O. Ms. No. 224 is capital or revenue in nature. The learned counsel asserts that firstly the objective behind the grant of concessions under G.O. Ms. No. 224, as further extended by G.O. Ms. No. 654, is for bringing about rapid industrial growth in the State and for stimulating the entrepreneurial development. It is an accepted fact that so far as the investment subsidy is concerned, the Central Investment Subsidy is a capital receipt. This has bern accepted by the Central Board of Direct Taxes in the Board's circular No. 142 dated 1-8-1981, in ITR 151 (St.). On the same pattern, the investment subsidy which is granted by the State Government under G.O. Ms. No. 224 would also be capital in nature and not assessable to tax, as held by the Income-tax Appellate Tribunal in ITO v. S.V. Earths and Chemicals (P.) Ltd. [1986] 18 ITD 196 (Hyd.). Insofar as the interest subsidy granted to educated self-employed is concerned, it has been held in Seaham Harbour Dock Co. v. Crook (Inspector of Taxes) 16 TC 333 that subsidy for mitigating unemployment is capital in nature. There can be little room for doubt that the interest-free sales tax loan, which is granted by the State Government, cannot be on the revenue account at all. It is submitted that one of the fundamental principles of interpretation is that the meaning of a word should be gathered from the meaning of the other words with which it keeps company. Likewise, the nature of one subsidy must be construed in the same manner as the other subsidies which are granted under the Government Order. The investment subsidy, the interest subsidy to educated unemployed and the Interest-free sales tax loan being clearly capital in nature, the power subsidy cannot be dissociated and treated as revenue in nature. In the opinion of the learned counsel, it was a package of incentives and what applies to one must apply to all. This principle, the learned counsel asserts, is supported by the decision of the Madras Bench of the Tribunal in Vispro Foundry Engineers (P.) Ltd. v. ITO [1984] 7 ITD 721. It cannot be that out of, say, five incentives granted under one scheme, four are capital in nature and one is revenue in nature, when the common objective is to pursue industrialisation.