COMMISSIONER OF INCOME TAX, MADRAS versus PONNI SUGARS & CHEMICALS LTD.

Citation: [2008] 13 S.C.R. 570 · Decided: 16-09-2008 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Case Partly allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2008] 13 S.C.R. 570 
1-
~ 
A 
COMMISSIONER OF INCOME TAX, MADRAS 
II. 
PONNI SUGARS & CHEMICALS LTD. 
(Civil Appeal No. 5694 of 2008 etc.) 
SEPTEMBER 16, 2008 
A 
B 
.., 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
Income Tax Act, 1961: 
Subsidy receipt - Determination of nature - Whether in-
c cludible in total income Held: Character of such receipt has 
to be determined applying the purpose test i.e. the purpose 
for which the subsidy is given - In the instant case, the object 
of the subsidy was capital in nature to utilize the same only for 
repayment of term loan undertaken by the assessee for set-
D ting up new units/expansion of existing business- Hence such 
.,._ -
receipt was not includible in total income. 
s. 80 P(2)(a)(i) - Exemption under - In respect of inter-
est received from the members of co-operative Society- Held: 
In order to decide such question examination of Memoran-
E dum of Association, Articles of Association, the Return of In-
come, status of business etc., is required- In the present case, 
since Tribunal failed to examine the same, matter remitted to 
Tribunal for consideration of the question afresh. 
Area development funds - Collected by sugar mills -
~-
F Whether trading receipt - Held: matter remitted to tribunal for 
consideration of the question afresh. 
The questions for consideration in the present ap-
peals are: 
G 
(i) Whether the incentive subsidy received by the as-
sessee is a capital receipt not includible in the total income? 
(ii) Whether the assessee was entitled to exemption 
y~ 
u/s 80 P(2) (a) (i) of Income Tax Act, 1961 in respect of 
interest received from the members of the Society ? and 
H 
570 
... 
} 
COMMISSIONER OF INCOME TAX, MADRAS v. PONNI 
571 
SUGARS & CHEMICALS LTD. 
(iii) Whether the area development funds collected A 
by sugar mills would be trading receipt ? 
Partly allowing the appeals filed by the Revenue, the 
Court 
HELD: 1. The character of the receipt in the hands of B 
the assessee has to be determined with respect to the 
purpose for which the subsidy is given. If the object of 
the subsidy scheme was to enable the assessee to run 
the business more profitably then the receipt is on rev-
enue account. On the other hand, if the object of the as- c 
sistance 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. 
Therefore, it is the object for which the subsidy/assistance 
is given which determines the nature of the incentive sub-
0 
sidy. The form of the mechanism through which the sub-
sidy is given is irrelevant. In the present case, receipt of 
the subsidy was capital in nature 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. Such payment re-
E 
ceived by the assessee under the Scheme was not in the 
course of a trade but was of capital nature. [Paras 14, 16 
and 17] [578 F & H] [579 AB, 580 C,D,E] 
Sahney Steel and Press Works Ltd. and Ors. v. CIT F 
(1997) 228 ITR 253 - relied on 
Seaham Harbour Dock Co. v Crook (1931) 16 TC 333 -
referred to 
2. In order to earn exemption u/s 80 P(2), a co-opera-
G 
tive society must prove that it had engaged itself in carry-
ing on any of the several businesses referred to in sub-
section (2). In that connection, it is important to note that 
under sub-section (2), in the context of co-operative so-
ciety, Parliament has stipulated that the society must be 
H 
572 
SUPREME COURT REPORTS 
[2008] 13 S.C.R. 
A engaged in carrying on the business of banking or pro-
viding credit facilities to its members. Therefore, in each 
case, the Tribunal was required to examine the Memoran-
dum of Association, the Articles of Association, the Re-
turn of Income filed with the Department, the status of 
B business indicated in such Returns etc .. This exercise had 
not been undertaken at all. Therefore, the matters are re-
-" 
-r 
mitted to the Tribunal for de nova consideration in accor-
dance with law. [Paras 18 and 19] [581 B-D & E] 
3. In view of the judgment of the Bombay High Court 
C in Chhatrapati Sahakari Sakhar Karkhana Ltd. case, the mat-
ter is remitted to the Tribunal for de novo consideration 
of the question whether the area development funds col-
lection by sugar mills would be trading receipt, in accor-
dance with law and in accordance with the directions 
D given therein. [Pa

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