Kesaria Tea Co. Ltd. vs Commissioner of Income Tax

Paripoornan, J.—At the instance of the applicant/assessee, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the cash assistance of Rs. 9,79,341 given to the assessee for promotion and encouragement of exports is taxable business income ?"

The applicant is an assessee to Income Tax. The respondent is the Revenue. We are concerned with the assessment year 1979-80. The assessee received during the previous year a sum of Rs. 9,79,341 as cash assistance from the Government of India. The said cash assistance was given to customers like the assessee in order to help them to carry on the export business in a profitable manner. The cash assistance was given at 10% of the f.o.b. value of instant tea, packet tea and tea bags. The sole question that arose for consideration was whether the said cash assistance could be considered to be income for the purpose of assessment to Income Tax. It was so held by the assessing authority. The said decision was upheld in appeal by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. At the instance of the assessee, the question of law formulated hereinabove has been referred to this court for decision, by the Income Tax Appellate Tribunal u/s 256(1) of the Income Tax Act.

We heard counsel. It is agreed that the assessee was carrying on export business in tea. It is further common ground that the cash assistance was given at 10% of the f.o.b. value of instant tea, packet tea and tea bags. The entitlement to cash assistance at 10% sprang from the business carried on by the assessee. The amount was received during the course of conduct of the business. The subsidy or cash assistance was given by reference to the amount of goods exported. The payment of subsidy or cash assistance was directly proportionate to the quantity of the goods exported. In these circumstances, the Appellate Tribunal was justified in holding that the said subsidy received by the assessee (cash allowance) is a supplementary income which can be brought to tax. The assistance received by the assessee is by way of additional payment for the goods exported. It cannot be considered to be a capital receipt This is not a case where the subsidy was given or the assistance was given for a specific or specified purpose. In this view of the matter, we are of the view that the decision of the Appellate Tribunal, holding that a sum of Rs. 9,79,341 received by the assessee by way of subsidy or cash assistance can be included in the taxable income, is justified.

We answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue. We are fortified in taking this view in the light of the following decisions in Pontypridd and Rhondda Joint Water Board v. Ostime [1946] 14 ITR 45 , Dhrangadhra Chemical Works Ltd. Vs. Commissioner of Income Tax, Bombay City II, and Commissioner of Income Tax Vs. Swadeshi Cotton Mills Co. Ltd., .

The Income Tax referred case is disposed of as above.

A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.