M/s. State Farms Corporations of India Ltd., New Delhi V. DCIT, New Delhi

CO 322/DEL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6789 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 16-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P N MEHTA
• Assessee Lawyers: NIRANJAN KAULI
• Keywords: Gift; Business income; Depreciation; Opportunity of being heard; Revenue expenditure
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.C.MEENA , ACCOUNTANT MEMBER ITA NO: 3912/DEL/2011 A.Y. : 2008-09 DY.CIT, CIRCLE 9 (1) VS. M/S STATE FARMS CORPS. OF INDIA LTD. NEW DELHI 14-15, FARM BHAWAN, NEHRU PLACE NEW DELHI 110 019 PAN/GIR NO: AAAHCS 0113 N C.O. NO: 322/DEL/11 (IN ITA NO: 3912/DEL/2011) A.Y. : 2008-09 M/S STATE FARMS CORP.OF INDIA LTD. VS. DCIT, CIRCLE 9(1) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NIRANJAN KAULI, CIT, D.R. RESPONDENT BY : SH.P.N.MEHTA, C.A. O R D E R PER DIVA SINGH, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DT. 24.5.2011 OF CIT(A)-XII, NEW DELHI PERTAINING TO A. Y. 2008-09 ON THE FOLLOWING GROUNDS. 1. LD.CIT(A) ERRED, IN LAW AND ON FACTS AND CIRCU MSTANCES OF THE CASE, IN DIRECTING THE AO TO DETERMINE THE NET TAXABLE INCOME AFTER VERIFYING AND ALLOWING REVENUE EXPENDI TURE TO BE SET OFF AGAINST QUANTUM OF SUBSIDY RECEIPTS FROM TH E GOVERNMENT DISCLOSED AT RS. 6,02,85,677/-. 2 2. LD.CIT(A) ERRED, IN LAW AND ON FACTS AND CIRCU MSTANCES OF THE CASE, IN HOLDING THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS NOT COVERED U/S 14A OF THE I.T.ACT AS THE SAME I S MERELY A REIMBURSEMENT OF EXPENSES BY THE GOVERNMENT AND IS NOT IN THE NATURE OF INCOME OF THE ASSESSEE. 3. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, AD D OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL . 2. THE ASSESSEE HAS ALSO FILED A CROSS OBJECTION ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE SUBSIDIES RECEIVED FR OM THE GOVERNMENT OF INDIA ARE IN THE NATURE OF REVENUE RE CEIPT LIABLE TO TAX. 2. THE LDCIT(A) OUGHT TO HAVE HELD THAT THE SUBSIDI ES RECEIVED WERE AGRICULTURAL IN NATURE IN SO FAR AS T HE SAME WERE FOR THE RECOUPMENT OF THE EXPENSES INCURRED BY THE CORPORATION AND AS SUCH ARE PART OF THE AGRICULTURA L INCOME. 3. THE LDCIT(A) OUGHT TO HAVE HELD THAT IT IS THE NATURE OF SUBSIDY RECEIVED BY THE ASSESSEE AND THE PURPOSE FO R WHICH IT IS RECEIVED DETERMINES THE NATURE OF INCOM E WHETHER LIABLE TO TAX UNDER THE INCOME TAX ACT OR N OT. SINCE THE SUBSIDIES RECEIVED WERE FOR RECOUPMENT OF AGRICULTURAL EXPENSES, THE SAME OUGHT TO HAVE BEEN TREATED AS INCOME FROM AGRICULTURE. 3. THE RELEVANT FACTS AVAILABLE ON RECORD ARE THAT THE ASSESSEE IS A CENTRAL GOVERNMENT UNDERTAKING ENGAGED PRIMARILY IN AGRICULTURAL ACTIVITIES AND THE MAIN SOURCE OF INCOME IS FROM AG RICULTURE WHICH HAS BEEN CLAIMED AS EXEMPT U/S 10 OF THE I.T.ACT AND HA S THEREBY NOT BEEN INCLUDED IN THE COMPUTATION OF INCOME FILED WITH TH E INCOME TAX RETURN. 3 3.1. THE ASSESSEE IN THE COURSE OF THE ASSESSMENT D ECLARED THE FOLLOWING INCOMES AS LIABLE TO TAX AND HAS THEREBY SHOWN THEM SEPARATELY IN THE COMPUTATION OF INCOME FILED. A) INCOME FROM HOUSE PROPERTY RS. 72,78,039/- B) BUSINESS INCOME RS. 12,91,45,707/- C) INCOME FROM OTHER SOURCES RS. 33,86,644/- 3.2. THE A.O. TAKING NOTE OF THE FACT THAT THE ASSE SSEE HAD RECEIVED SUBSIDY TO THE TUNE OF RS.6,02,85,677/- FROM THE CE NTRAL GOVERNMENT REQUIRED THE ASSESSEE TO EXPLAIN WHY THE SUBSIDY RE CEIVED WAS NOT SHOWN AS TAXABLE. 3.3. THE ASSESSEE IN REGARD THERETO EXPLAINED THAT IT HAD RECEIVED A SUM OF RS. 10,93,98,213/- OUT OF WHICH A SUM OF RS. 4,9 1,12,536/- IS SUBSIDY WHICH WAS RECEIVED ON ACCOUNT OF GROWERS PROGRAMME WHICH HAS BEEN OFFERED FOR TAX ALREADY IN THE RETURNED INCOME. TH E BALANCE AMOUNT OF RS. 6,02,85,677/- REPRESENTS THE SUBSIDY WHICH HAS BEEN RECEIVED FROM THE GOVERNMENT OF INDIA ON ACCOUNT OF THE FOLLOWING REASONS. A) SUBSIDY ON SALE OF AGRICULTURE COMMODITIES TO TH E FARMERS AT SUBSIDIZED RATES. B) FOR THE MAINTENANCE OF SEED BANK. C) FOR THE PRODUCTION OF OIL SEEDS, PULSES AND VEGE TABLES. D) FOR PURCHASE OF BREEDERS SEEDS E) TRANSPORTATION OF GOODS TO THE NORTH EASTERN AND OTHER STATES. 3.4. IN REGARD TO (A) TO (E) OF THE ABOVE REASONS T HE ASSESSEE EXPLAINED THEM SPECIFICALLY AS UNDER: . AS FAR AS 'A' IS CONCERNED THE ASSESSEE CORPORATION SELLS SEEDS TO THE FARMERS AT THE SUBSIDIZED RATE AT THE REQUEST OF THE VARIOUS STATE GOVERNMENTS. WE ARE ENCLOSING COPIES OF THE VARIOUS STATE GOVERNMENT ORDERS FOR THE REIMBURSEME NT OF 4 SUBSIDY TO THE CORPORATION. YOU WILL FIND FROM THE SE ORDERS THAT THE SUBSIDY HAS BEEN ALLOWED AT VARIOUS RATES. THIS SUBSIDY IS ACTUALLY A PART OF THE SALE PRICE. IN THIS RESPECT WE INVITE YOUR ATTENTION TO THE DECISION OF THE INCOME TAX APPELLA TE TRIBUNAL, JAIPUR BENCH IN THE CASE OF ARVIND GUPTA 318 ITD 3 46. THE HONBLE TRIBUNAL HAS HELD THAT A PART OF SALE PRICE AMOUNT HAS BEEN PAID BY THE GOVERNMENT IN THE FORM OF SUBSIDY TO THE FARMERS. AS FAR AS 'B' IS CONCERNED THE GOVERNMENT OF INDIA HAS GOT A SCHEME UNDER WHICH THE PART OF THE PRODUCE HAS TO B E KEPT IN THE GODOWN FOR THE PURPOSE OF DISTRIBUTION TO THE F ARMERS AT THE TIME OF THE CALAMITIES AND OTHER UNFORESEEN CIRCUMS TANCES. THE ASSESSEE IS TO KEEP THIS PRODUCE FOR A PERIOD OF SI X TO TWELVE MONTHS AND IN CASE OF ANY CALAMITY THESE SEEDS ARE USED IN THE MARKET SO THAT THE FARMERS DO NOT SUFFER. AFTER SIX TO TWELVE MONTHS THE SEEDS ARE SOLD IN THE MARKET FOR WHICH T HE ASSESSEE SUFFERS LOSS. TO COMPENSATE THE CORPORATION THE GO VERNMENT GIVES SUBSIDY FOR THIS LOSS ON SALE. THE ASSESSEE D URING THE YEAR SUFFERED A LOSS OF RS. 75,82,669/- AGAINST WHICH T HE GOVERNMENT OF INDIA COMPENSATED THE CORPORATION TO THE EXTENT OF RS. 62,23,165/-, THUS THE ASSESSEE SUFFERED A LOSS OF R S. 13,59,504/-. AS FAR AS 'C' IS CONCERNED THE GOVERNMENT OF INDIA STARTED A SCHEME BY WHICH THE CORPORATION WAS ASKED TO GROW O ILSEED, PULSES ETC. FOR THIS PURPOSE THE CORPORATION EARMAR KED CERTAIN AREA FOR THE PRODUCTION OF THE SAID ITEMS. THE COST OF PRODUCE OF THESE ITEMS IS MORE THAN THE SELLING PRICE. THE SCH EME HAS BEEN STARTED PRIMARILY TO ENCOURAGE THE LOCAL PRODUCTION AND TO REDUCE THE IMPORTS. TO COMPENSATE FOR THIS LOSS THE GOVERN MENT OF INDIA GIVES SUBSIDY. SIMILARLY, IN THE CASE OF VEGETABLES , THE GOVERNMENT OF INDIA WANTED THE CORPORATION TO PRODU CE FOUNDATION SEEDS AND CERTIFIED SEEDS. THE COST OF P RODUCTION OF THESE SEEDS ARE HIGHER THAT THE SELLING PRICE. THIS IS ON ACCOUNT OF NON-REALIZATION OF UNDERSIZED SEEDS BESIDES EXPENDI TURE ON LABOUR, INSPECTION FEE ETC. TO COMPENSATE THE CORPO RATION THE GOVERNMENT OF INDIA GAVE SUBSIDY. IN THE CASE OF 'D' TO IMPROVE THE QUALITY OF SEEDS AND FOR THE BETTER PRODUCTION OF THE CROPS THE GOVERNMENT OF IN DIA STARTED A SCHEME BY WHICH THE CORPORATION WAS ASKED TO PURCH ASE THE BREEDER SEEDS FROM THE VARIOUS RESEARCH INSTITUTES SO THAT FROM THESE SEEDS THE CORPORATION PRODUCES CERTIFIED SEED S AND FOUNDATION SEEDS. 5 FROM THE BREEDER SEEDS ARE PRODUCED FOUNDATION AN D CERTIFIED SEEDS. DURING THIS PROCESS THE ASSESSEE SUFFERS LOSS WHICH IS COMPENSATED BY THE GOVERNMENT IN THE FORM COST OF BREEDER SEEDS. AS FAR AS 'E' IS CONCERNED THE GOVERNMENT OF INDIA REIMBURSES THE EXPENDITURE FOR THE TRANSPORT ON TH E MOVEMENT OF SEEDS TO JAMMU & KASHMIR, HIMACHAL PRADESH, NORTH EASTERN STATES, UTTARANCHAL & HILLY AREA OF WEST BENGAL. IN THIS CASE NORMALLY THE SEEDS ARE CARRIED BY RAIL. THE GOVERN MENT REQUIRED THE CORPORATION TO SEND GOODS BY ROAD. THE DIFFER ENCE OF THE TWO IS PAID BY THE GOVERNMENT OF INDIA WHICH AMOUNT TO RS. 7.34 LACS. THIS IS ACTUALLY REIMBURSEMENT BY THE GOVERN MENT OF INDIA. IT IS THEREFORE, SUBMITTED THAT AS THE EXPENSES I NCURRED ARE MORE THE SUBSIDY RECEIVED BY THE CORPORATION. THIS AMOUNT OF RS. 6,02,85,677/- IS NOT TAXABLE. AS THIS IS REIMBURSE MENT OF EXPENSES/SELLING OF PRODUCE AT SUBSIDIZED RATES TO THE FARMERS/ACTUAL REIMBURSEMENT OF EXPENSES ON TRANSPO RTS, THEREFORE THE SAME ARE IN THE NATURE OF AGRICULTUR AL INCOME. IN THE ALTERNATIVE AS THE EXPENSE ARE MORE THAN THE INCOME THIS AMOUNT OF RS.6,02,85,677/- IT IS NOT TAXABLE. 3.5. IN REGARD TO EACH OF THE ABOVE REASONS THE FOL LOWING EXPLANATION WAS ADVANCED. THE REPLY FILED BY THE ASSESSEE HAS BEEN CAREFULLY CONSIDERED. IN THE ASSESSEE'S CASE THE SUBSIDY IS GRANTED MAINL Y FOR THE FOLLOWING PURPOSES: A) FOR SELLING THE PRODUCE TO THE CULTIVATORS AT SUBS IDIZED PRICE. FOR THIS PURPOSE THE GOVERNMENT PAYS DIFFERENCE BET WEEN THE PRICE AT WHICH THE CORPORATION SELL THE SEEDS TO TH E OUTSIDERS AND THE SEEDS WHICH THE CORPORATION SELL TO THE FARMERS/CULTIVATORS. THE DIFFERENCE BETWEEN WHAT TH E CORPORATION HAS REALIZED FROM THE FARMERS/CULTIVATO R AND AT PRICE WHICH THE CORPORATION SELL TO OUT SIDE PARTIE S IS ACTUAL REIMBURSEMENT BY GOVERNMENT. B) TRANSPORT SUBSIDY FOR CARRYING THE GOODS TO NORTH E ASTERN STATES INCLUDING SIKKIM, UTTARANCHAL, JAMMU & KASHM IR ETC. THIS IS ACTUAL REIMBURSEMENT. C) THE GOVERNMENT REIMBURSES THE CORPORATION THE AMOU NT FOR THE PURCHASE OF BREEDER SEEDS. THESE BREEDER SEEDS ARE PURCHASED BY THE ASSESSEE CORPORATION FROM VARIOUS RESEARCH 6 INSTITUTIONS AND THE STATE AGENCIES. FROM THESE BR EEDER SEEDS THE ASSESSEE CORPORATION PRODUCES FOUNDATION SEEDS AND CERTIFIED SEEDS FOR OIL SEEDS, PULSES ETC . D) SUM OF RS. 1,00,40,706/- WAS PAID UNDER A SEED BAN K FUND SCHEME. THIS SCHEME WAS ESTABLISHED BY GOVT. OF IND IA AND THE DESCRIPTION OF ' SCHEME AND ITS OBJECTIVES ARE AS F OLLOWS: I) ESTABLISHMENT OF SEED BANK FOR MAINTENANCE OF FOUNDATION AND CERTIFIED SEEDS OF DIFFERENT TO ENSURE TIMELY AVAILABILITY OF SEEDS TO THE FARMERS. II) TO TAKE CARE OR THE SPECIAL REQUIREMENT OF SEED AT THE TIME OF NATURAL CALAMITY. III) TO EVEN CUT THE SHORTFAL1 IN PRODUCTION PROGRA MME OF SEEDS WHICH SOMETIME ARISE DUE TO NATURAL FACTORS. IV) TO CREATE INFRASTRUCTURAL FACILITIES FOR PRODUC TION AND DISTRIBUTION OF QUALITY SEED'. 4. CONSIDERING THE SAME THE A.O. WAS OF THE VIEW TH AT BECAUSE IT IS A SUBSIDY THE CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE . BEFORE ONE GOES INTO THE MERITS OF THE ASSESSEE'S SUBMISSIONS, IT WOULD BE WORTHWHILE TO GO INTO THE IMPORTANCE OF THE TERM SUBSIDIES. SUBSIDIES AR E IN THE NATURE OF GIFTS OR ASSISTANCE GIVEN BY THE GOVERNME NT, IN A WAY TO PROMOTE THE DEVELOPMENT OF PARTICULAR INDUST RY, DEVELOP A BACKWARD AREA, PROMOTE EXPORTS ETC. HOWEV ER, THIS FACT DOES NOT GO TO REDUCE THE TAX ELEMENT OF THE SUBSIDIES. IF THEY ARE CAPITAL SUBSIDIES, THEY GO T O REDUCE THE ACTUAL COST FOR THE PURPOSE OF DEPRECIATION. IF NOT , THEY MAY EVEN BE TAXABLE AS INCOME. INDEED, BY NO STRETCH OF IMAGINATION, CAN SUBSIDIES BE CONSIDERED TO BE A PA RT OF 'AGRICULTURAL INCOME' AS DEFINED IN SECTION 2 (1A) OF THE INCOME TAX ACT. 1961. THE A.O. WAS OF THE VIEW THAT IF THE ASSESSEE WAS GIVEN THE SAID AMOUNT IN ORDER TO RECOUP REVENUE EXPENDITURE THEN IT WILL BE DEEMED AS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. RELIANCE WAS PLACED ON I) LUDHIANA CENTRAL COOPERATIVE CONSUMERS STORES LTD. VS. CIT ( 1980) 122 ITR 942 (PHC); II) TRIPLICANE URBAN COOPERATIVE SOCIETY LTD. VS CIT ( 1979) 12 CTR (MAD) 379; III) VELIMALAI RUBBER CO.LTD. VS STATE OF TAMIL NADU (M AD.) 7 4.1. CONSIDERING THE EXPLANATION, LEGAL POSITION AN D THE PROVISIONS OF THE LAW THE A.O. WAS OF THE VIEW THAT THE SUBSIDIE S RECEIVED ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES RECEIVED FOR TH E CENTRAL/STATE GOVERNMENT AND THUS REVENUE IN NATURE. RELIANCE WA S ALSO PLACED UPON SAHNEY STEEL & PRESS WORKS LTD. & OTHERS, 22 8 ITR 253 (S.C.) 4.2. ACCORDINGLY HOLDING AS UNDER THE SAID AMOUNT W AS HELD TO BE TAXABLE. IN VIEW THE AFORESAID DISCUSSION, THE INESCAPABLE C ONCLUSION THAT THE SUBSIDY OF RS.6,02,85,677/- RECEIVED BY THE A SSESSEE CORPORATION, BEING A REVENUE RECEIPT IS TAXABLE UND ER THE I.T.ACT, AND IS NOT EXEMPT U/S 10 OF THE I.T.ACT, NOT BEING 'AGRICULTURAL INCOME' AS PER THE DEFINITION IN SECTION 2(1 A) OF THE ACT. THUS THE SUBSIDIES OF RS. 6,02,85,677/- RECEIVED BY THE ASSE SSEE ARE HELD AS TAXABLE INCOME AND ADDED BACK TO THE INCOME DECL ARED BY THE ASSESSEE. FURTHER, THE EXPENSES SHOWN IN THE P&L A/ C FILED ARE NOT ALLOWABLE AGAINST THIS SUBSIDY INCOME AS THESE EXPENSES HAVE BEEN EXPENDED FOR EARNING AGRICULTURAL INCOME, WHICH IS EXEMPT U/S 10 OF THE IT ACT, AND THUS, COVERED U/S 14A OF THE IT ACT WHICH STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT. 5. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL B EFORE THE TRIBUNAL. IN APPEAL BEFORE THE CIT(A) SUBMISSIONS ADVANCED BE FORE THE A.O. WERE REITERATED. RELIANCE WAS PLACED UPON THE ITAT JAIP UR BENCH DECISION IN THE CASE OF ARVIND GUPTA 318 ITR (AT) 346. IT WAS CONTENDED THAT IN THE CONTEXT OF THE PURPOSES OF SUBSIDY MENTIONED IN A THE ASSESSEE SELLS SEEDS TO THE FARMERS OUT OF THEIR OWN PRODUCE AT A SUBSIDIZED RATE AT THE REQUEST OF VARIOUS STATE GOVERNMENTS, KISAN MELAS ETC. THE DIFFERENCE OF THE PRICES AT WHICH THE STATE GOVERNMENT DESIRE S THE CORPORATION TO 8 SELL THE PRODUCE TO THE FARMERS AND THE VALUE AT WH ICH THE CORPORATION SELLS TO OUTSIDERS IS THE SUBSIDY RECEIVED. AS SUC H THIS AMOUNT IS ACTUALLY A PART OF THE SALE PRICE OF THE PRODUCE OF THE CORPORATION. 5.1. IN REGARD TO THE PURPOSE ADDRESSED IN B IT WAS EXPLAINED THAT THE ASSESSEE UNDER THE SCHEME OF GOVERNMENT OF INDIA H AS TO MAINTAIN SEED BANK IN ITS GODOWN WHICH IS PART OF THE PRODUCE OF THE ASSESSEE AND IS MEANT TO BE DISTRIBUTED TO THE FARMERS IN THE EVENT UALITY OF NATURAL CALAMITIES. THE SAID SEED BANK HAS TO BE MAINTAINE D FOR A PERIOD OF 6 TO 12 MONTHS AND THERE AFTER IT IS SOLD IN THE MARKET AS A RESULT OF WHICH THE ASSESSEE SUFFERS LOSS BECAUSE OF DETERIORATION IN THE QUALITY OF SEEDS. IT WAS EXPLAINED THAT THE ASSESSEE CORPORATION SPE NT A SUM OF RS. 7582669 AGAINST WHICH THE CORPORATION HAS RECEIVED A SUM OF RS. 62,23,165/-. AS A RESULT OF WHICH THE ASSESSEE SUF FERED A LOSS OF RS. 13,59,504/- AND THIS LOSS HAS BEEN CLAIMED BY THE A SSESSEE. 5.2. IN REGARD TO THE REASONS ADDRESSED IN C IT WAS STATED THAT UNDER THE SCHEME OF THE PLANNING COMMISSION OF THE GOVT. OF INDIA THE ASSESSEE HAS BEEN ASKED TO GROW OIL SEEDS, PULSES, VEGETABLES ETC. THE OBJECT OF THE SCHEME WAS TO REDUCE IMPORTS OF OIL SEEDS AND PULSES AND TO PRODUCE BETTER QUALITY OF VEGETABLES. THE COST OF THESE ITEMS TO THE ASSESSEE IS MORE THAN THE SELLING PRICE. IN ORDER TO COMPENSATE THIS LOSS THE GOVERNMENT OF INDIA GIVES A SUBSIDY. MOREOVER LOSS SUFFERED BY THE ASSESSEE IT WAS STATED IS HIGHER THAN THE SUBSIDY R ECEIVED FROM THE GOVERNMENT. 9 5.3. SIMILARLY IN REGARD TO THE BREEDER SEEDS TO P RODUCE BETTER QUALITY CROPS IT WAS EXPLAINED THAT THE ASSESSEE HAS PURCHA SED BREEDER SEEDS FROM VARIOUS RESEARCH INSTITUTES. FROM THESE SEEDS THE CORPORATION PRODUCES CERTIFIED SEEDS AND FOUNDATION SEEDS. IN THIS PROCESS ALSO THE ASSESSEE SUFFERED A LOSS WHICH IS COMPENSATED BY THE GOVERNMENT OF INDIA IN THE FORM OF A SUBSIDY. 5.4. ADDRESSING THE TRANSPORTATION COST IT WAS EXPL AINED THAT THE GOVERNMENT OF INDIA HAS A SCHEME BY WHICH THE GOVE RNMENT REIMBURSES THE EXPENSES FOR TRANSPORT ON THE MOVEM ENT OF SEEDS TO J&K, H.P., N.E.STATES, UTTARAKHAND AND THE HILLY AR EAS OF THE WEST BENGAL. IT WAS EXPLAINED THAT NORMAL SEEDS ARE SEN T BY TRAIN, HOWEVER, THE GOVERNMENT REQUIRE THE SEEDS SHOULD BE SENT BY ROAD. THE DIFFERENCE OF TRANSPORTATION COST OF THESE TWO MODES IT IS EXP LAINED AMOUNTED TO RS. 7.34 LAKHS WHICH WAS REIMBURSED BY THE GOVERNMENT O F INDIA ON THE PRODUCTION OF BILLS. ACCORDINGLY IT WAS CLAIMED TH AT THE SUBSIDY IS RECEIVED BY THE CORPORATION IS IN THE NATURE OF REI MBURSEMENT OF EXPENSES AND INSTEAD OF CREDIT THE AMOUNT TO VARIOU S EXPENSES ON ACCOUNT OF AMOUNT RECOVERED FROM THE GOVT. OF INDIA IT IS SHOWN SEPARATELY IN THE PROFIT AND LOSS ACCOUNT AS SUBSID Y. 5.5. IT WAS FURTHER ARGUED THAT THE POSITION PRIOR TO 2002-2003 A.Y. WAS THAT THE AOS WERE TREATING THE SUM AS REIMBURSE MENT OF EXPENSES AND THE AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE WAS NOT ADDED TO TAX AND ONLY FOR THE FIRST TIME IN 2002-03 A.Y. THE A.O. TOOK A CONTRARY 10 VIEW HOLDING THAT IT IS NOT AGRICULTURAL INCOME AND THE SUBSIDY BEING GIVEN TO RECOUP REVENUE EXPENDITURE IT WOULD BE CON SIDERED AS A REVENUE RECEIPT. IT WAS ALSO ARGUED THAT THE CASE LAW RE LIED UPON BY THE A.O. WHEREIN THE SUBSIDY HAS BEEN CLAIMED AS ALLOWABLE A ND THE EXPENDITURE HAVE DEEMED IT NOT ALLOWABLE HAVE BEEN CONSIDERED I N THE LIGHT OF S.37 WHICH ENSHRINES THE CARDINAL RULE IN AS MUCH AS IT PERMITS THE DEDUCTION FROM ALL EXPENDITURE WHICH IS NOT OF A PERSONAL OR CAPITAL NATURE OR OTHERWISE DEEMED NOT ALLOWABLE AND WHICH HAS BEEN I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. ONCE IT IS HELD THAT THE RECEIPT IS REVENUE IN NATURE SETTING OFF REVENUE EXPENSES WOULD NECESSARILY FOLLOW IT WAS ARGUED THAT THE A.O. HAS DENIED THE E XPENSES ON THE GROUND THAT U/S 14A EXPENDITURE INCURRED FOR EARNING TAX F REE INCOME (AGRICULTURAL INCOME) IS NOT ALLOWABLE. THE STAND OF THE A.O. WAS CRITICIZED ON THE GROUND THAT THE A.O. HAS TO TAKE A STAND WHETHER THE RECEIPTS ARE AGRICULTURAL INCOME OR NON AGRICULTURA L INCOME, IF AGRICULTURAL INCOME IT CANNOT BE TAXED AND IF NON A GRICULTURAL AND OF REVENUE IN NATURE THE REVENUE EXPENDITURE MUST BE A LLOWED TO SET OFF AGAINST THE REVENUE RECEIPT. 5.6. ATTENTION WAS ALSO INVITED TO THE FINDING OF T HE CIT(A) IN PARA 5 OF 2007-08 A.Y. WHICH IS FOUND REPRODUCED AT PAGE 6 OF THE IMPUGNED ORDER AND IS REPRODUCED HEREUNDER FOR READY REFERENCE. DURING THE COURSE OF PROCEEDINGS, IT HAS BEEN SUBM ITTED THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS NOT CO VERED U/S 14A OF THE I.T.ACT AS THE SAME IS MERELY A 11 REIMBURSEMENT OF EXPENSES BY THE GOVERNMENT AND IS NOT THE NATURE OF INCOME OF THE ASSESSEE. IN VIEW OF T HE FINDINGS GIVEN EARLIER AND THE PRESENT PROCEEDINGS, THE PLEA OF THE ASSESSEE IS ACCEPTED AS DETAILS REGARDING SU BSIDY BEING MERELY REIMBURSEMENT AND EXPENDITURE HAVE BEE N BROUGHT ON RECORD. HENCE THE SAID CONTENTION OF A. R. IS ACCEPTED. A.O. IS DIRECTED TO GIVE RELIEF ACCORDIN GLY. ACCORDINGLY IT WAS CONTENDED THAT THE SUBSIDY IS NO T TAXABLE AND EVEN IF IT IS HELD TO BE REVENUE IN NATURE EVEN THEN THE EX PENSES INCURRED FOR EARNING THE SUBSIDY ARE TO BE ALLOWED AND THE LOSS IS ALLOWED TO BE SET OFF AGAINST THE OTHER INCOME OF ASSESSEE. 5.7. CONSIDERING THESE SUBMISSIONS THE CIT(A) HELD AS UNDER. DURING THE COURSE OF PROCEEDINGS, IT HAS BEEN SUBM ITTED THAT THE SUBSIDY RECEIVED BY THE ASSESSEE IS NOT COVERED U/S 14A OF THE I.T.ACT AS THE SAME IS MERELY A REIMBURSEMENT OF EX PENSES BY THE GOVERNMENT AND IS NOT THE NATURE OF INCOME OF THE A SSESSEE. IN VIEW OF THE FINDINGS GIVEN EARLIER AND THE PRESENT PROCEEDINGS, THE PLEA OF THE ASSESSEE IS ACCEPTED AS DETAILS REG ARDING SUBSIDY BEING MERELY REIMBURSEMENT AND EXPENDITURE HAVE BEE N BROUGHT ON RECORD. HENCE THE SAID CONTENTION OF A.R. IS AC CEPTED. A.O. IS DIRECTED TO GIVE RELIEF ACCORDINGLY. 6. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFOR E THE TRIBUNAL ON THE GROUNDS REPRODUCED ABOVE AND THE ASSESSEE HAS A LSO FILED ITS C.O. IN 12 THE PRESENT APPEAL ON THE GROUNDS REPRODUCED IN TH E EARLIER PART OF THIS ORDER. 6.1. LD.D.R. PLACED RELIANCE UPON THE ASSESSMENT OR DER AND THE JUDGEMENTS RELIED UPON BY THE A.O. 6.2. LD.A.R. ON THE OTHER HAND CONTENDED THAT THE J UDGEMENTS RELIED UPON BY THE A.O. ARE DISTINGUISHABLE ON FACTS AND T HE SUBMISSIONS ADVANCED BEFORE THE A.O. AND THE CIT(A) WERE REITER ATED AT LENGTH. THE LD.A.R. WAS REQUIRED TO ADDRESS WHETHER THE ASSESS EE HAS FOR THE PURPOSES OF A, B AND C PRODUCED SEEDS FROM I TS OWN LANDS AS A PRODUCER OR HAS THE ASSESSEE PROCURED THE SEEDS FR OM THE OPEN MARKET AS THIS WOULD HAVE AN IMPACT ON THE NATURE OF ACTIV ITY OF THE ASSESSEE. THE LD.A.R. STATED THAT THE ASSESSEE OWNS LAND IN ABOUT 13 STATES AND THE AGRICULTURAL ACTIVITY ON ASSESSEES LAND IS OV ER 27,000 HECTARES WHERE THE ASSESSEE IS PRODUCING SEEDS FROM ITS OWN AGRICULTURAL ACTIVITY. HOWEVER SPECIFIC ANSWER TO THE QUERY WAS NOT MADE. THE LD.A.R. IN SUPPORT OF THE IMPUGNED ORDER CONTENDED THAT THE DE PARTMENT HAS TO TAKE A STAND WHETHER IT IS AGRICULTURE INCOME OR NO T AND IF IT IS AGRICULTURAL INCOME IT WAS HIS STAND THE INCOME IS EXEMPT AND IF IT IS NON-AGRICULTURAL INCOME THEN EXPENSES RELATABLE TO THE INCOME HAVE NECESSARILY TO BE REDUCED. 6.3. THE PARTIES BEFORE THE BENCH WERE ALSO REQUIR ED TO ADDRESS THE POSITION FOR 2002-03 AND THE INTERVENING YEARS. TH E LD.A.R. CONTENDED THAT FOR 2002-03 THE ASSESSEE SUCCEEDED BEFORE THE CIT(A) AND 13 CONSISTENTLY OVER THE YEARS SUCCEEDED BEFORE THE CI T(A). HOWEVER FOR WANT OF C.O.D. THE DEPARTMENTAL APPEALS WERE DISMIS SED BEFORE THE TRIBUNAL. IT WAS ALSO STATED THAT FOR 2007-08 REFE RENCE IS PENDING BEFORE THE HONBLE HIGH COURT. 6.4. THE LD.D.R. ON THE OTHER HAND STATED THAT HE I S NOT IN A POSITION TO ADDRESS THE POSITION FOR THE EARLIER YEARS. HE HOWE VER STATED THAT THE CLAIM OF THE ASSESSEE THAT THESE ARE DIRECTLY RELA TED TO AGRICULTURAL ACTIVITY OF THE ASSESSEE IS NOT CORRECT AS AFTER T HE EXPENSES HAVE BEEN INCURRED FOR PRODUCING OR PROCURING THE ASSESSEE A T TIMES STORES THE SEEDS AND AT TIMES IMMEDIATELY MAKES THEM AVAILABLE HOWEVER THE CLAIM BEFORE THE STATE OR THE CENTRAL GOVERNMENT IS MAD E AND ONLY AFTER THE RELEVANT DOCUMENTS HAVE BEEN PROCURED BY THE STATE OR CENTRAL GOVERNMENT SUBSIDIES ARE GIVEN AS SUCH IT CANNOT BE SAID THAT IS DERIVED FROM AGRICULTURAL ACTIVITY AS THE MEANIN G OF DERIVED HAS BEEN CONSIDERED IN THE CASE OF VELIMALIA RUBBER CO. VS S TATE OF TAMIL NADU 240 ITR 232 (MA) AND SAHNEY STEEL & PRESS WORKS LT D. AND OTHERS, 228 ITR 253 (S.C.) 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME WE ARE OF THE VIEW THAT THE IMPUGNED ORDER DESERVES TO BE SET ASI DE. IT IS SEEN THAT ON FACTS NO EVIDENCE HAS BEEN TAKEN INTO CONSIDERATION IN REGARD TO THE TERMS AND CONDITIONS OF THE SPECIFIC SUBSIDY SCHEME S UNDER WHICH THE 14 ASSESSEE HAS RECEIVED SUBSIDIES. IT IS SEEN THAT O UT OF THE TOTAL SUBSIDY OF RS.10,93,93,213 THE CORPORATION HAS SUBMITTED A SUM OF RS. 4,91,12,536 RECEIVED AS SUBSIDY ON ACCOUNT OF GROW ERS PROGRAMME. AS PER ASSESSEES ARGUMENTS AS FOUND REPRODUCED IN THE IMPUGNED ORDER AT PAGE 2. IT IS STATED THAT IN THE GROWERS PROGRAMME THE ASSESSEE CORPORATION PURCHASES SEEDS AND SELL IT TO FARMERS AT A SUBSIDIZED RATE, SINCE THIS IS A TRADING ACTIVITY THE INCOME OF THE SAME HAVE BEEN OFFERED FOR TAXATION BY THE ASSESSEE CORPORATION . HOWEVER IN ORDER TO CONSIDER THE TAXABILITY OF THE SUBSIDIES RECEIVED BY THE ASSESSE E FOR TRANSPORTING THE SEEDS TO SPECIFIC AREAS FOR CAUSING THE PRODUCTION OF OIL SEEDS, PULSES ETC. AND MAINTAINING SEED BANKS ETC. IN TERMS OF TH E SUBSIDY SCHEMES OF THE STATE/CENTRAL GOVERNMENT IT IS SEEN THAT THE T ERMS AND CONDITIONS OF THE SPECIFIC SUBSIDY SCHEMES UNDER WHICH THE ASS ESSEE HAS RECEIVED SUBSIDY HAVE NOT BEEN TAKEN INTO CONSIDERATION. TH E CASE LAW CAN APPLY ONLY WHEN THE FACTS HAVE BEEN MARSHALLED. 7.1. ACCORDINGLY FOR THE REASONS GIVEN HEREINABOVE THE ISSUE IS RESTORED TO THE FILE OF THE A.O. WITH THE DIRECTION TO DECID E THE SAME IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER. NEEDLESS TO S AY THAT THE ASSESSEE SHALL BE AFFORDED A REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE SHALL PLACE BEFORE THE A.O. THE SPECIFIC SUBSIDY SC HEMES RELATABLE TO THE AMOUNT OF RS. 6,02,85,677/- RECEIVED AS SUBSIDY AND SHALL BE AT LIBERTY TO PLACE ON RECORD ALL RELEVANT FACTS AND EVIDENCES IN SUPPORT OF ITS CLAIM. 15 8. IN THE RESULT THE DEPARTMENTAL APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. SINCE THE IMPUGNED ORDER HAS BEEN SET A SIDE AND THE ISSUE HAS BEEN RESTORED TO THE A.O. THE ASSESSEES CROSS OBJECTION ACCORDINGLY BECOME INFRUCTUOUS. PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2011. SD/- SD/- (B.C.MEENA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD DECEMBER, 2011 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CI T(A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //