section 28(i)/income-tax act

[2004] 140 taxman 249 (MP)

HIGH COURT OF MADHYA PRADESH, INDORE BENCH

Shreejee Chitra Mandir

v.

Commissioner of Income-tax

A.M. SAPRE AND ASHOK KUMAR, JJ.

IT APPEAL NO. 117 OF 2003

APRIL 26, 2004

Question whether a particular subsidy received by assessee is a
capital receipt or a revenue receipt is required to be decided
keeping in view nature of subsidy received by assessee and
scheme pursuant to which same has been received

Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as - Assessment year 1994-95 - Whether question whether a particular subsidy received by assessee is a capital receipt or a revenue receipt is required to be decided keeping in view nature of subsidy received by assessee and scheme pursuant to which same has been received - Held, yes - Tribunal by merely referring to decision of Supreme Court held that entertainment subsidy received by assessee constituted revenue receipt in hands of assessee - Whether since Tribunal only referred to judgment of Supreme Court without even referring to law laid down and taking note of scheme in question, order passed by Tribunal deserved to be set aside - Held, yes - Whether, therefore, case required to be decided afresh by Tribunal keeping in view law laid down by Supreme Court in Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 - Held, yes

Section 254 of the Income-tax Act, 1961 - Appellate Tribunal - Procedure of - Whether it is duty of Tribunal that being highest Appellate Tribunal exercising appellate jurisdiction under Act, to examine issue, both of law and fact, in right perspective and in detail - Held, yes - Whether mere reference of a citation by Tribunal in order to record a finding is not enough - Held, yes

Facts

The assessee was engaged in the business of exhibiting the films. It received certain amount by way of an entertainment subsidy pursuant to rules framed by the State, called, MP Naye Cinema Gharon Ke Nirman Ko Protsahan Yojna Ke Sahayata Anudan Niyam, 1982 for disbursement of subsidy. The assessee claimed the said amount as capital receipt. The Assessing Officer disallowed the assessees claim and treated the said amount as revenue receipt and, accordingly, added the same in the income of the assessee. On appeal, the Commissioner (Appeals) placing reliance upon a decision of the Tribunal rendered in the case of Ajanta Talkies [IT Appeal No. 486 (Indore) of 1994] deleted the addition. On further appeal, the Tribunal by merely referring to the decision of the Supreme Court rendered in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 decided the issue in favour of the Department.

On appeal :

Held

The question whether a particular subsidy is a capital receipt or a revenue receipt is required to be decided keeping in view the nature of subsidy received by the assessee, and the scheme pursuant to which the same has been received. In other words, it is obligatory upon the taxing authorities before they record a finding one way or the other to examine the nature of subsidy, and the object of scheme pursuant to which it has been received by the assessee, etc. [Para 7]

In the instant case, the Tribunal only referred to the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra) without even referring to the law laid down and taking note of the scheme in question and proceed to decide the issue. The Tribunal did not even take care to read, much less examine the scheme pursuant to which the assessee claimed to have received the subsidy amount. [Para 9]

It is the duty of the Tribunal that being the highest Appellate Tribunal exercising the appellate jurisdiction under the Act, to examine the issue, both of law and fact in right perspective and in detail. It must appear from the order passed by the Tribunal that sincere efforts were made to decide the issue that fell for examination, keeping in view the law laid down by the Apex Court in its right earnest. Mere reference of a citation in the order for recording a finding is not enough. It is never regarded as a case observing judicial discipline. Any finding whether on facts or in law, if recorded cursorily and without assigning reasons, can never be regarded as judicial finding. It is incapable of being sustained in higher Courts in hierarchy. [Para 10]

It is not for the High Court to examine the facts of the case de novo and record its findings. It is essentially the job of the Tribunal to examine the issue and then record a finding one way or the other. [Para 12]

Therefore, the order passed by the Tribunal was set aside and the case was remanded to it to decide the appeal afresh keeping in view the law laid down by the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra) and the observations made by High Court. It was further directed that the Tribunal, only after examining the characteristics and nature of the scheme pursuant to which the assessee claimed to have received the entertainment subsidy and the law on the subject, would record a finding on merits, as to what is the true character of the subsidy - capital or revenue ? and whether the assessee is entitled to claim deduction or not? [Para 13]

Cases referred to

Ajanta Talkies [IT Appeal No. 486 (Indore) of 1994] [Para 5] and Sahney Steel & Press works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 (SC) [Para 5].

Nazir Singh for the Appellant. R.L. Jain for the Respondent.

Order

A.M. Sapre, J. - This is an appeal filed by the assessee under section 260-A of the Income-tax Act against an order dated 24-6-2003 passed by ITAT in ITA No. 48/Ind/98.

2. It is admitted on the following substantial questions of law :

1. Whether the Tribunal was justified in holding that a sum of Rs. 2,19,399 received by the assessee towards entertainment subsidy cannot be regarded as a revenue receipt in the light of a decision rendered by the Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253 ?

2. Whether in the absence of any detailed discussion/examination of nature of subsidy received by the assessee by way of entertainment subsidy could Tribunal record a finding against the assessee, by merely relying upon the law laid down by the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra) ?

3. With the consent of the parties, the appeal was heard finally.

4. The issue arises out of the assessment year 1994-95. The assessee is engaged in the business of exhibiting the films. They claim to have received a sum of Rs. 2,19,399 by way of an entertainment subsidy pursuant to rules framed by the State called M.P. Naye Cinema Gharon Ke Nirman Ko Protsahan Yojana Ke Sahayata Anudan Niyam, 1982 (Ex.P/1) for disbursement of subsidy.

5. The question arose in the assessment proceedings before the Assessing Officer as to whether assessee is entitled to claim deduction of this amount. In other words, the question arose before the Assessing Officer as to whether amount in question can be regarded as a capital receipt or a revenue receipt. This enquiry was necessary because depending upon the finding so given, assessee was entitled to claim deduction. The Assessing Officer considered it to be a case of revenue receipt and made addition. This addition was deleted by the CIT (Appeals) placing reliance upon a decision of Tribunal rendered in the case of Ajanta Talkies [IT Appeal No. 486 (Indore) of 1994]. When the matter was carried in appeal by the revenue to Tribunal, the Tribunal by merely referring to the decision of Supreme Court rendered in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 2531  decided the issue in favour of the department. It is against this finding of the Tribunal, the assessee is in appeal under section 260A of the Income-tax Act, 1961.

6. Heard Shri Nazir Singh, learned counsel for appellant and Shri R.L. Jain, learned Sr. Advocate for respondent.

7. Having heard the learned counsel for the parties and having perused the record of the case, we are not satisfied the way the Tribunal has decided this issue. The question whether a particular subsidy is a capital receipt or a revenue receipt is required to be decided keeping in view, the nature of subsidy received by the assessee, and scheme pursuant to which the same has been received. In other words, it is obligatory upon the taxing authorities before they record a finding one way or the other to examine the nature of subsidy, the object of scheme pursuant to which it has been received by the assessee, etc. in the words of Their Lordships of Supreme Court in the case of Sahney Steel & Press Works Ltd.s case (supra) :

What is material and decisive is the character of subsidy in the hands of recipients whether revenue or capital will have to be determined having regard to the purpose for which, the subsidy is given. Moreover, if the purpose is to keep the assessee to set up its business or complete a project, the money must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.

8. In our considered opinion, it is only when the taxing authorities examine the object, purpose and characteristic of scheme and the nature of amount received by the assessee in hand pursuant to such scheme, in the light of law laid down in Sahney Steel & Press Works Ltd.s case (supra), a finding can be recorded one way or the other as to whether it is in the nature of capital or revenue and whether assessee is entitled to get the benefit of a deduction from his total income or not ?

9. What we find by mere perusal of the impugned order of the Tribunal, which is contained in paragraph 5 is that learned Members of the Tribunal only referred to the judgment of the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra) without even referring to the law laid down and taking note of the scheme in question and proceed to decide the issue. As observed supra, the Tribunal did not even take care to read much less examine the scheme (Ex.P/1) pursuant to which the assessee claimed to have received the subsidy amount. In our opinion, in the absence of any examination of the facts in the light of law laid down by the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra), we cannot uphold such finding and the view taken by the Tribunal on this issue.

10. In our considered opinion, it is the duty of the Tribunal that being the highest appellate Tribunal exercising the appellate jurisdiction under the Income-tax Act to examine the issue, both of law and fact in right perspective and in detail. It must appear from the order passed by the Tribunal that sincere efforts were made to decide the issue that fell for examination, keeping in view the law laid down by the Apex Court in its right earnest. Mere reference of a citation in the order for recording a finding is not enough. It is never regarded as a case observing judicial discipline. Any finding whether on facts or in law if recorded cursorily and without assigning reasons can never be regarded as judicial finding. It is incapable of being sustained in higher Courts in hierarchy.

11. In our considered opinion, since the Tribunal in this case, committed manifest error of law while recording a finding in the most cursory and perfunctory manner, it is not liable to be withheld. Indeed, the Tribunal failed in their duty while exercising their appellate powers to examine the issue in the manner suggested by Their Lordships of Supreme Court in Sahney Steel & Press Works Ltd.s case (supra). This Court thus, cannot subscribe to such casual finding so recorded.

12. It is not for us to examine the facts of the case de novo and record our findings. It is essentially the job of the Tribunal to examine the issue and then record a finding one way or the other. We have, therefore, refrained ourselves from going into the factual aspect of the matter for want of any categorical finding recorded by the authorities at least in the light of the law laid down by the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra).

13. We, therefore, allow the appeal and set aside the order passed by the Tribunal dated 24-6-2003 passed in I.T.A. No. 148/Ind/98. As a necessary consequence, we remand the case to the Tribunal to decide the aforesaid appeal afresh, keeping in view the law laid down by the Supreme Court in Sahney Steel & Press Works Ltd.s case (supra) and the observations made by us. It is only after examining the characteristic and nature of the scheme pursuant to which the assessee claimed to have received the entertainment subsidy and the law on the subject the Tribunal will record a finding on merits, as to what is the true character of the subsidy - capital or revenue ? And whether the assessee is entitled to claim deduction or not ? Let the appeal be decided within six months from today.

14. We may make it clear that we have not examined the issue on facts nor applied our mind to the facts and hence the Tribunal will decide the appeal strictly on its merits, un-influenced by any of our observations if made on the controversy.

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 [S1]1. 94 Taxman 368.