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(5) Business activity was always going on in the division concerning production of oil. Earlier it was under the control of NDDB and now it is with the assessee company. The production and the business of the unity continue. Therefore, grant was received for the start of production.

(6) It is incorrect to say that grant was not given for corpus of the assessee company but towards the normal business activity. Further the concept of corpus is in the context of contribution made to charitable trust for charitable purposes. It has no application to a commercial enterprise carrying on activity in the nature of business.

loan would bear interest at the rate of SBIPLR plus 1.5%.;

(iv) interest free loan of Rs.135 crores as support funds; and

(v) Research and Development Grants of Rs.30 crores specifically for research and development in oilseeds, oil and food related activities. Rs.5,55,61,594/- in the form of fixed assets and balance in the form of Fixed Deposit as corpus fund.

13. The ld. Authorised Representative drew our attention to clause 10 of the agreement according to which assessee had agreed to amount received in cash as a earmarked corpus and keep the amount invested in the long term financial instrument. The assessee also agreed to utilize the amount of interest earned thereon for the research and development activities. Thus the grant of Rs.24.44 crores was out of capital funds of NDDB and transferred to the assessee company for carrying out research and development activities out of interest earned from the investment of such cash. There is specific stipulation in the agreement to use the interest for the said purpose. Interest earned thereon has been treated as income and taxed accordingly while expenditure incurred for research and development has been shown as expenditure, claimed as deduction and allowed accordingly by the Department. NDDB has given other capital grant as a loan to the assessee. Every item so given cannot be treated as revenue receipt. Once there is a control of NDDB and direction to the assessee company to use only interest from the investment of the cash funds for the purpose of research and development then there is no discretion left with the assessee company to use it the way it would have liked otherwise. Corpus has to be kept intact, invested in the long term investments and only interest from such investment have to be used for the purpose of research and development. He submitted that reliance of the Assessing Officer and CIT(A) on the decision of Supreme Court in Sahaney Steel & Press Works India Ltd. Vs. CIT 228 ITR 253 (SC) is misplaced. Payments received in that case were in the nature of supplementary trade receipts. The assessee in that case was free to use the money in its business entirely as claimed. Subsidy was given after commencement of production for carrying out their business activities. But in the present case grant was given with specific agreement that it would be invested in longterm investments, only interest would be utilized in research and development. Further no production was started till the receipt of the grant by the assessee company. Further funds as such did not become the property of the assessee company as it is only 100% subsidiary of NDDB. The ld. Authorised Representative relied on the following authorities :-

17. The arguments of ld. Authorised Representative cannot be brushed aside that grant given to the assessee company is a liability and is refundable to the NDDB. The liability cannot be treated as income except in accordance with the provisions of law i.e. only after invoking section

68.

18. Arguments of ld. Departmental Representative that it is unilaterally assured by assessee company to the NDDB and hence such assurance cannot alter the character of receipt, is not acceptable because last sentence of clause -10, 'DOFCO will utilize the amount of interest earned thereon for the research and development' clearly gives mandate by the NDDB to assessee company only to utilize interest. Thus strings are attached to the fund meaning thereby that NDDB intended to retain control over the corpus and permits discretion to the assessee company in respect of interest earned from such long term investments. Hon'ble Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd. (supra) has clearly laid down the purposive test to determine the nature of subsidy given by the Government to its subsidiary. The character of receipt of a subsidy in the hands of assessee under a scheme should be determined with respect to the purpose for which subsidy is granted. The point of time when the subsidy is paid is not relevant. Thus the Hon'ble Supreme Court has taken a different line of the argument that what was given in Sahney Steel & Press Works Ltd. Vs. CIT (supra) when it was held that point of time of giving subsidy is relevant. Thus source and the point of time is not material. If the object of the subsidy is to enable the assessee more profitable then the receipt is of revenue account. If the object of the subsidy is to enable the assessee to set up a new unit or to extent its existing unit then the receipt of the subsidy would be on capital account. In the Ponni Sugars & Chemicals Ltd. (supra) case subsidy was given only for repaying the loan which was taken by the assessee to set up a new unit or substantial expansion of the existing unit. The subsidy received by the assessee was not in the course of trade but was of a capital nature. In the present case purpose for which grant is given by NDDB is research and development but the right of the assessee company is restricted to utilize only interest on the principal in such activities. Therefore, in fact it is an interest on such long term investment which is the subsidy of revenue in nature and not the principal sum over which NDDB has kept a direct control by not permitting the assessee company to utilize it at its free will.