1. This appeal is by the department against the CIT(A)'s order dated 29-6-1987 for the assessment year 1981-82. The assessee received Rs. 10, 00,000 as a sales-tax subsidy from the District Industrial Centre, Suri, Birbhum, This sum, the ITO treated as a revenue receipt and taxed in the hands of the assessee for the assessment year 1981-82. The assessee filed an appeal before the CIT(A) against the addition, and the CIT(A) has deleted the sum in question on the ground that the subsidy did not accrue, or arise during the accounting year relevant to the assessment year 1981-82, and has also held that the receipt is of capital nature and is not assessable under Section 41(1). The department has come in appeal to the Tribunal against the said decision of the CIT(A).
2. The only ground of the department in this appeal is that the CIT(A) is not correct in deleting the addition on the ground that the subsidy did not accrue or arise during the assessment year 1981-82, and also erred in holding that the same was of capital receipt and hence not liable to tax under Section 41(1) of the IT Act.
3. The facts involved in brief in this appeal are that in 1978, the Government of West Bengal devised incentive scheme for granting subsidy to those who set up industries in backward areas. Accordingly, the assessee filed a claim for subsidy on account of sales-tax paid by it as per the Government's scheme. The said claim was preferred before the Government of West Bengal, Department of Small Scale Industries for its industry in Suri, Birbhum, for a grant of interim grant of sales-tax paid by it. Since the Government did not dispose of the assessee's petition, it filed a Writ petition before the Hon'ble Calcutta High Court and the Calcutta High Court by an interim order dated 22-7-1980, C.R. No. 4289(W) of 1980, directed the State Government to pay Rs. 10 lakhs pending decision of the Writ petition and without prejudice to the rights and contentions of the parties. The assessee was accordingly paid Rs. 10 lakhs. On 12-5-1981, Hon'ble High Court, Calcutta delivered judgment in Civil Rule No. 4289(W) of 1980, allowing assessee's Writ petition, but stayed the operation of its order till 22-5-1981. The West Bengal Government filed an appeal before the division Bench on 20-5-1981, and obtained a stay. In this background the learned Departmental Representative contended that the CIT(A) is not justified in holding that the income of Rs. 10 lakhs added by the ITO did not accrue or arise during the accounting year, relevant to the assessment year 1981-82. It is also contended that the CIT(A)'s finding that the sum in question is of capital in nature is also not justified. In support of its contention it is stated by the Departmental Representative that the assessee applied for subsidy grant to the District Industrial Centre, Suri, Birbhum and when the Government did not pay the subsidy, then the assessee filed a Writ petition and received Rs. 10 lakhs as a result of High Court's order dated 22-7-1980 in C.R. No. 4289(W) of 1980. According to the Departmental Representative, the sum in question has accrued, arose and received by the assessee during the accounting year relevant to the assessment year 1981-82. Therefore, it is contended that the CIT(A)'s finding that the sum in question did no accrue or arise in the accounting year relevant to the assessment year 1981-82 is not correct. As regards CIT(A)'s finding that the sum in question is of capital in nature, the Departmental Representative stated that since the grant of subsidy is directly linked with sales-tax paid by the assessee, that amounts to refund of sales-tax and the sum is chargeable to tax under Section 41(1) of the Income-tax Act. It is further contended that the case of Hindustan Housing and Land Developmen t Trust Ltd. [1986] 161 ITR 524 (SC) is not applicable to the present case as the dispute in the court is not yet settled regarding the quantification of subsidy only and there was no dispute about the liability to pay the subsidy amount. The learned Departmental Representative relied the case laws of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448 (Cal.) to the proposition that the cash assistance received is of revenue in nature and is taxable.
The Departmental Representative also relied on the case law of CIT v.Thirumalaiswamy Naidu & Sons [1984] 147 ITR 657 (Mad.) to the proposition that the remission of sales-tax collected is a revenue receipt and is taxable.
4. The learned authorised representative of the assessee on the other hand contended that the sum in question is not liable to be taxed during the accounting year relevant to the assessment year 1981-82, and in support of the same he relied in the Supreme Court's decision in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524. It is further stated that the sum in question is a capital receipt and not a revenue receipt. This cannot be taxed. It is further contended that it is also not a remission or refund of sales-tax and cannot also be taxed under Section 41(1) of the IT Act. In support of the contention it is stated that the sum in question is not received from the sales-tax authorities, but received after putting an application to the General Manager, District Industrial Centre, Suri.
When the payment was not made and its application for subsidy was not disposed of, the assessee filed a writ petition in Calcutta High Court and the Hon'ble Calcutta High Court by an interim order dated 22-7-1980 C.R. No. 4289(W) of 1980 directed the State Government to pay Rs. 10 lakhs pending decision of the Writ petition and without prejudice to the rights and contentions of the parties. The assessee was accordingly paid Rs. 10 lakhs. On 12-5-1981, the Hon'ble Calcutta High Court delivered judgment in Civil Rule No. 4289(W) of 1980, allowing assessee's petition but stayed the operation of its order till 22-5-1981. The Government of West Bengal filed appeal before the division Bench on 20-5-1981 and obtained the stay, and the case is still pending. The authorised representative contended that in these circumstances the assessment of Rs. 10 lakhs during 1981-82 is not in order. It is emphatically stated that the right to receive the sum is still in a fluid stage. The Government has not examined and given any finding regarding the assessee's application for subsidy. The claim can also be rejected if the Government finds that its claim is not in accordance with the scheme. The Government of West Bengal has not yet passed any order whether there was expansion of the industry by the assessee to the extent of 25% of its existing unit. The sum is received on an ad hoc basis as per High Court's order whose nature, character and quantum will be decided only by the High Court. In support of its contentions noted above the learned authorised representative of the assessee relied on the case law of Hindustan Housing & Land Development Trust Ltd. (supra), CIT v. Dusad Industries [1986] 162 ITR 784 (MP), CIT v. Plastichem [1988] 174 ITR 546 (MP), CITv. Ruby Rubber Works Ltd. [1989] 178 ITR 181 (Ker.)(FB) and CIT v. R.C.C. Hume-Pipe & Products [1991] 188 ITR 187 (MP).
5. We have considered the submission of both the parties and proceed to decide the first issue, i.e., the year of taxability of Rs. 10 lakhs.
The departmental stand is that the sum in question is rightly taxed in 1981-82, as the same was received as a result of an interim order dated 22-7-1980. But on this point we are inclined to agree with the learned authorised representative of the assessee and hold that the sum of Rs. l0 lakhs cannot be taxed in the assessment year 1981-82, as the assessee had no legally enforceable right by the order dated 22-7-1980, which was an interim one. In order to appreciate the issues involved here we would like to narrate the background to the case in brief. In 1978, the Government of West Bengal devised an incentive scheme for granting subsidy to those who set up industries in backward areas. The assessee accordingly filed a claim for subsidy before the small scale industries authorities for its industry in Suri, Birbhum. Since the Government did not dispose of its claim, the assessee filed a Writ petition before the Hon'ble High Court of Calcutta and the Calcutta High Court by an interim order dated 20-7-1980, in CR No. 4289(W) of 1980, directed the state Government to pay Rs. 10 lakhs pending decision of the Writ petition and without prejudice to the rights and contentions of the parties. The assessee was accordingly paid Rs. 10 lakhs. On 12-5-1981, Hon'ble High Court, Calcutta delivered judgment in Civil Rule No. 4289(W) of 1980, allowing assessee's Writ petition but stayed the operation of its order till 22-5-1981. The Government of West Bengal filed an appeal before the division Bench on 20-5-1981, and obtained a stay and the same is still pending. In this back ground, the authorised representative's contention that the claim is in a flux and fluid stage is correct. The Government of West Bengal has in fact not yet given any finding on its claim, either rejecting or accepting. Even the Government has not examined the claim of the assessee whether the assessee had in fact expanded its unit as required under the scheme.
The order dated 22-7-1980 is an interim order though on that basis the assessee received the sum of Rs. 10 lakhs. This order did not decide the assessee's right to receive the amount but only directed the West Bengal Government to pay the amount of Rs. 10 lakhs to the assessee as an interim measure. The order dated 12-5-1981 of the Hon'ble High Court of Calcutta is the only order which really adjudicated upon and decided the assessee's legal right to receive this amount under the scheme in its favour. In other words, the assessee's right to receive this amount as subsidy accrued or arose only as a result of this order on 12-5-1981 and not earlier. In this connection it is necessary to mention that the accounting year of the assessee ended on 5-5-1981, for the assessment year 1981-82. Further the matter is not yet finally decided and the Government of West Bengal's appeal is pending before the Calcutta High Court.
6. The Supreme Court's case law relied by the learned authorised representative in the case of Hindustan Housing & Land Development Trust Ltd. (supra), is directly on the point. Their Lordships in the said case in page 527 have held that "As long as ED Sassoon & Co. v.CIT [1954] 26 ITR 27 (SC), this court considered the question as to the point at which income could be said to accrue or arise to an assessee for the purpose of the Indian Income-tax Act. In the majority judgment delivered by N.H. Bhagwati J, it was explained that the words "arising or accruing" describe a right to receive profits, and that there must be a debt owed by somebody", it was observed, it cannot be said that he has acquired a right to receive the income or the income as accrued to him. Their Lordships have also observed that a mere claim by the assessee is not enough. It must not be forgotten that even if a court has awarded some amount, there is right of appeal by the Government to the High Court and the High Court may either disallow that claim or reduce the amount. As against that judgment, there is further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the amount granted. Therefore, in these circumstances it can be said that the income would arise or accrue only when it is finally determined.
7. Similarly, in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC) at para 2 of page 121, it was held that 'Taxability is attracted not merely when income is actually received, but also when it is accrued", and it is also true, as has been explained by the Supreme Court in CIT v. K.R.M.T.T. Thiagaraja Chetty & Co. [1953] 24 ITR 525 (SC), and Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) that income accrues when it 'falls due', that is to say, when it becomes legally recoverable irrespective of whether it is actually received or not and 'accrued income' is that income which the assessee has a legal right to receive.
8. So, in view of these pronouncements, we hold in the case before us that as the Government of West Bengal has filed an appeal before the division Bench against the judgment in civil rule No. 4289(W) of 1980 and which is still pending the amount of Rs. 10 lakhs cannot be brought to tax in the assessment year 1981-82. In the result, we confirm the finding of the CIT(A) on this point. The other issues raised in this appeal regarding nature of receipt and taxability under Section 41(1) are not considered on merits by us as they will be decided when the assessing officer makes a regular assessment in the appropriate year regarding the taxability of Rs. 10 lakhs.