High Court Of Madhya Pradesh : Indore Bench
CIT vs. G.M. Mittal Stainless Steel Ltd.
Sections 4, 254(1)
Asst. Year 1988-89
A.M. Sapre & Ashok Kumar Tiwari, JJ.
IT Ref. No. 34 of 1998
21st September, 2004
Counsel Appeared
R.L. Jain, for the Applicant : None, for the Respondent
JUDGMENT
A.M. Sapre, J. :
This is an IT reference made under s. 256(1) of the IT Act at the instance of Revenue (CIT) to answer following question of law referred to this Court by the Tribunal which arises out of the order of Tribunal, dt. 28th Aug., 1997, passed in ITA No. 426/Ind/1993 : “Whether, on the facts and in the circumstances of the case, Tribunal was justified in law in holding that the assessee was correct in claiming power subsidy as capital receipt ?” Heard Shri R.L. Jain, learned counsel for the applicant. None, for the assessee despite service and S.P.C. having been sent for hearing of the reference. The question arises out of asst. yr. 1988-89. The assessee being a limited company at the relevant time was engaged in the business of manufacture of stainless steel in their manufacturing unit. In its manufacturing activity, the assessee received in the relevant assessment year a power subsidy amounting to Rs. 13,22,884 from the State. The question, therefore, arose before the taxing authorities as to whether amount received by the assessee from the State by way of power subsidy is a capital receipt or revenue receipt in the hands of assessee. It was the contention of assessee that it is in the nature of capital receipt and hence, not liable to tax whereas the contention of Revenue i.e., taxing authorities was that it is in the nature of revenue receipt and hence liable to tax. It is this issue which was debated before AO, then before CIT(A) and lastly before the Tribunal. The AO and CIT(A) held the amount received by assessee to be in the nature of revenue receipt and accordingly proceeded to tax in the hands of assessee. However, the Tribunal while reversing the view taken by AO and CIT(A) held it to be in the nature of capital receipt. As a consequence, thus, accepting the contention of assessee the amount was not held liable to tax being regarded in the nature of capital receipt. It is against this finding of the Tribunal rendered in the second appeal filed by assessee, the Revenue prayed to Tribunal for a reference to be made to this Court under s. 256(1) of the Act. As observed supra, the Tribunal acceded to the request so made by the Revenue in reference application No. 128/Ind/1997 which, as stated supra, arose out of an order dt. 28th Aug., 1997, passed in ITA 426/Ind/1993 by the Tribunal. This is how the aforementioned question has been referred to this Court for answer.
At the outset, we may take note of the fact that Tribunal, while deciding the appeal in favour of assessee by their order dt. 28th Aug., 1997 (Annex. C), did not discuss any issue much less legal issue on the question referred and which really arose out of the controversy. Indeed, the learned Member of the Tribunal only referred to and placed reliance on some earlier decisions of the Tribunal rendered in ITA 704 of 1994, dt. 25th Jan., 1995, and ITA No. 684/685 of 1984, dt. 8th Oct., 1997, and ITA 102/1025 of 1995, dt. 26th Oct., 1993. It is on the basis of the view so taken by the Tribunal, the issue was decided in favour of assessee. We cannot countenance the manner in which the Tribunal decided the issue. Indeed, the slipshod manner in which the Tribunal proceeded to decide the issue can never be upheld. In the first place, the Tribunal should have first detailed the factual aspect of the case, then it should have examined the nature of subsidy granted to assessee by State. Secondly, the Tribunal should have examined the issue in the context of law laid down by Supreme Court and High Court on the subject rather than the view taken by the Tribunal in some earlier decision. Thirdly, it is the duty of the Tribunal to decide the cases on the basis of law laid down by Supreme Court/High Court and not what the Tribunal decided on the particular issue. Every effort must be made by the Tribunal being the last appellate Tribunal on facts and law to decide the issue by taking help from the decisions of Supreme Court and if there is no direct authority of Supreme Court on the point, then of jurisdictional High Court and lastly of any other High Court. Not taking note of facts of the case, nor legal position and not even referring to the facts of the case involved in those decisions on which the reliance is placed for deciding the appeal amounts to non-exercise of appellate powers by the Tribunal. It equally results in total non-application of judicial mind resulting in setting aside of the so-called view taken by the Tribunal in such cases.
Now, coming to the issue involved, in our opinion, the issue is squarely covered in favour of Revenue by the authoritative decision of Supreme Court reported in the case of Sahney Steel & Press Works Ltd., etc. etc. vs. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC). It is in this case their Lordships held as to how and on what basis and by which criteria, the taxing authorities should decide that a particular amount received by an assessee as a subsidy be regarded in his hand as capital receipt or revenue receipt. Their Lordships, inter alia, ruled that it is necessary to see and examine the true character of the subsidy given to assessee by the State. It was, inter alia, held that if it is for setting up of a plant/industry then it can be regarded as capital receipt but if it is granted for running the industry/business, then it can be regarded as revenue receipt. In the case of Sahney Steel (supra), one of the incentives provided to assessee was a subsidy on power consumed for production of goods. Their Lordships held it to be in the nature of revenue receipt. When we examine the nature of subsidy granted to assessee in this case in the light of law laid down in Sahney Steel (supra), then we have no hesitation in holding that it is in the nature of revenue receipt and not capital receipt as held by Tribunal. Indeed, the power subsidy granted to an assessee for running the industry is already held to be in the nature of revenue receipt by the Supreme Court and hence, in our opinion, the view taken by the Tribunal by holding that it is in the nature of capital receipt cannot be upheld. Accordingly and in view of aforesaid discussion, we answer the question referred to us in affirmative and in favour of Revenue. In other words, we hold by answering the question that Tribunal was not right in holding that power subsidy is a capital receipt. Instead we hold by answering the question that power subsidy received by the assessee is a revenue receipt. No costs.
[Citation : 271 ITR 219]
