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Income Tax Appellate Tribunal, “C” BENCH, CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
The assessee filed these appeals against the orders of the Commissioner of Income Tax (Appeals)- Salem, in dated 30.01.2015 & ITA No. 104/13-14 dated 27.09.2016 against the assessment orders passed u/s. 143 & u/s. 143(3) r.w. 147, respectively, for assessment year 2007-08.
:-2-: & 3245/Chny/2016
The AR submitted that The Dharmapuri District Co-operative Milk Producers Union Ltd., the assessee, is a co-operative society engaged in procurement of milk, manufacturing by-products and distribution of milk and related items. While making the assessment for assessment year 2007-08 u/s. 143(3), the Ld. Addl. CIT(A) disallowed Rs. 12,71,248/-u/s.
43B, the excess provision of bonus. Further, Rs. 3,50,00,000/- received as grant in aid was treated as revenue receipt. Against which the assessee filed an appeal and the Ld. CIT(A) upheld them and hence the assessee filed the appeal in ITA No. 621/2015.
The AR submitted that the assessee made a provisions of Rs. 42,29,800/- towards bonus to staff. Out of which, it paid Rs. 29,58,602/.
The Assessing Officer disallowed the balance provision of Rs. 12,71,248/, wrongly u/s. 43B. When the Bench raised a query as to how provisions for the next year can be allowed this year, the AR submitted that the assessee would not be having grievances if the bonus is allowed to be claimed on actual payments in the year of payment.
With regard to the addition of Rs. 3.15 crores as revenue receipts, the AR submitted that it was received as subsidy from Central & State Government. It is in the nature of rehabilitation plan. The Ld. CIT(A) failed to appreciate that the grand in aid received by the assessee from :-3-: & 3245/Chny/2016 the Government was under a scheme to make the entity an economically sustainable one and ensuring that it continues to market the milk produced by its member-farmers and hence it is a capital receipt, not liable to taxed in the hands of the assessee. The Ld. CIT(A) failed to appreciate that applying the purposive test, the receipt of subsidy was capital in nature, since the subsidy guaranteed the continued existence of assessee in the interests of the milk producers, the utilisation of the amount of subsidy for discharge of the outstanding dues to the milk farmers was akin to the Ponni Sugars case where the subsidy granted for repayment of loans, which was held by the Supreme Court to be a Capital Receipt. The Ld. CIT(A) failed to appreciate that it is well settled that subsidy from the Government, intended with the specific object of bringing the unit out of financial doldrums and to serve the cause for which it was formed is always on capital field and hence cannot be subject to tax in the assessee’s hands. He ought to have considered the contentions of the assessee in the proper perspective and seen that the issue stands covered in a catena of decisions holding such receipt as outside the purview of taxable income. Per contra, the Ld. DR supported the orders of the lower authorities.
We heard the rival submissions. On the issue of disallowance on excess provision towards bonus, we are of the view that the actual bonus
:-4-: & 3245/Chny/2016 paid to the assessee should be allowed as a deduction during the year in which it is actually paid. Hence, we direct the Assessing Officer to verify this issue and allow the actual bonus paid to the employees as a deduction in the year of payment. With regard to the subsidy, the Ld. CIT(A) has held that grant has been given to clear up the dues of the milk suppliers, so as to enable the assessee to run his business more profitably and hence he sustained the tax. Before us, the assessee relies on the decision of the Apex Court in the case of CIT vs Ponni Sugars and Chemicals Ltd., and others reported in 306 ITR 392. The head note in 219 CTR 0105 is extracted as under:
“Income—capital or revenue receipt—Subsidy for setting up or expansion of sugar mills—Test to be applied for determining the nature of subsidy is purpose test—If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account—On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account—Form or the mechanism through which the subsidy is given is irrelevant—As per Incentive Schemes, benefit was available only to new or substantially expanded sugar factories which benefit had to be utilised for repayment of term loans, and free sale sugar quota depending on increase in the production capacity—As the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, the same was capital in nature—Fact that the subsidy was routed through the mechanism of price and duty differentials is immaterial”
:-5-: & 3245/Chny/2016
From the above, even if we apply the purpose test, the object of the grant was to enable the assessee to run the business more profitably and hence, it is falling in the realm of Revenue. Therefore, the ratio of the Ponni Sugars and Chemicals Ltd., supports the Revenue than the assessee. Hence, the assessee’s grounds of appeal fail. In the result, the assessee’s appeal in for assessment year 2007-08 against order u/s. 143(3) is treated as partly allowed.
7. This appeal is against the order passed u/s. 143(3) r.w. 147 for assessment year 2007-08. On an appeal, the Ld. CIT(A) refused to condonation the delay in filing the appeal for 76 days and dismissed the appeal. Before us, the AR submitted that the appellant being a co- operative society of the State Government, there were change in administrative set up which caused the delay in filing the appeal. It was pleaded in that the interests of justice, the delay may be condoned.
8. We heard the rival submissions and on the above plea and in the interests of justice, the delay is condoned. The Ld. CIT(A) is directed to dispose the impugned appeal on merits after affording due opportunity to the assessee.
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In the result, the assessee’s appeal in & are treated as partly allowed.
Order pronounced in the open court on 24th October, 2018 at Chennai.