Commissioner of Income-tax Vs. A. Nageshwara Rao (Huf) and Annapurna Pictures (P.) Ltd. - Court Judgment

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direct taxation - subsidy - section 256 (2) of income tax act, 1961 - whether tribunal correct in holding that cash subsidy granted by government of andhra pradesh to producers for production of films in the state is not meant as adjustment against or for defraying cost of production of such films - subsidy in question was given to induce film producers to produce films in state - such subsidy not to be termed trading receipt - but held to be in nature of capital asset and meant for defraying partly cost of production of films produced in the state. head note: income tax reference--referable question--tribunal following high court's decision held subsidy as cash receipt but effect of the proviso to rule 9a was ignored by the tribunal. ratio: where the tribunal followed high court's judgment in holding subsidy granted to film producers as cash receipt and did not consider the effect of the proviso to rule 9a, which was inserted after assessment year in question, no referable question arose as the point was not raised and decided by the tribunal. held: the proviso to rule 9a of the income tax rules, 1962 was inserted long after the relevant assessment years. in the questions formulated a reference is made to rule 9a only as it was in force during the relevant assessment year. but, bereft of the proviso, how far and to what extent the revenue can draw support from rule 9a is at best a controversial point. the point having not been raised and decided by the tribunal, it was not proper to direct reference. application: also to current assessment years. a. y.: 1982-83 & 1983-84 income tax act 1961 s.256(2) income tax rules 1962 r.9a - maximssections 2(xv) & 3(1) & (3): [v.v.s. rao, n.v. ramana & p.s. narayana, jj] ghee as a live stock product held, [per v.v.s. rao & n.v. ramana, jj - majority] since ages, milk is preserved by souring with aid of lactic cultures. the first of such resultant products developed is curd or yogurt (dahi) obtained by fermenting milk. dahi when subjected to churning yields butter (makkhan) and buttermilk as by product. the shelf life of dahi is two days whereas that of butter is a week. by simmering unsalted butter in a pot until all water is boiled, ghee is obtained which has shelf life of more than a year in controlled conditions. ghee at least as of now is most synthesized, ghee is a natural product derived ultimately from milk. so to say, milk is converted to dahi, then butter. scientifically or common sense point of view, even though ghee is not directly obtained from milk (which is certainly a product of cow/buffalo), it is certainly a product of a product of livestock i.e., cow or buffalo. it would be rather illogical or irrational to say that ghee is not a milk/dairy product or to say that it is not a product of livestock. section 2(x) and 2(iv) of the act used the plural products of livestock. the legislative intention is very clear that not only a product of livestock like milk (when notified by government), butter etc., are products of livestock but even derivative items (derived from a product of livestock) are intended to be product of livestock for the purpose of the act. thus the term ghee is to be interpreted on the basis of expression products of livestock as defined in section 2(xv) of the act. whatever products are declared as such by the government by notification, they become products of livestock for purpose of the act. consequently it was held that ghee is the product of livestock and by reason of power conferred under section 3(1) read with section 3(3) of the act on them it is competent for the government to declare ghee as product of livestock for the purpose of regulating its purchase and sale, in any notified market area. [per p.s. narayana, j,(dissenting)]if livestock or agricultural produce and the categories thereof had been specified in the statute itself by appending in the schedule or otherwise, that would stand on a different footing from the present provisions of the act which contemplate the issuance of notifications in accordance with the procedure ordained by the provisions specified supra. in view of the clear definition of the livestock and products of livestock, the ghee being derivative of butter or cream, if the language employed in definition to be taken as they stand, the only conclusion would be is that the ghee would not fall within ambit of the definitions aforesaid. sections 4 & 3: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] declaration of notified area held, it is only under section 3 that government are required to publish draft notification inviting objections and section 3(3) mandates to consider objections and suggestions before issuing declaration order. it is very conspicuous that section 4 does not contemplate any draft notification inviting objections and suggestions before either constituting market committee, establishing notified market area or declaring notified market area for the purpose of levy of market fees. thus, except ordaining government to issue preliminary/draft notification inviting objections at the time of issuing declaration order under section 3(3) of the act nowhere much less under section 4 contemplates issuing a notification inviting objections. when the legislature has chosen to exclude principles of natural justice, the court cannot introduce rule of audi alteram partem and render statutory provisions unworkable. in such a case, maxim, expressum facit cessare tacitum (when there is express mention of certain things, then anything not mentioned is excluded) would apply. section 7: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] levy of market fee element of quid pro quo - held, levying fees and tax are two forms of exercise of sttaes taxing power. there is no quid pro quo between tax payer and public authority as tax is a part of common burden. it is also well settled that fee is charge for special service or a benefit given to a class of individual fee payers and fee collected need not have correlation with actual service in exactitude but if it is shown that substantial portion of the fee is expended or the purpose for which it is levied, it would be justified. expressum facit cessare tacitum sections 4 & 3: [v.v.s. rao, n.v. ramana & p.s. narayana, jj] meaning when there is express mention of certain things, then anything not mentioned is excluded. - but, bereft of the proviso, how far and to what extent the revenue can draw support from rule 9a is at best a controversial point.p. venkatarama reddi, j. 1. the commissioner of income-tax, andhra pradesh-i, hyderabad, seeks reference of the following questions for the opinion of this court in these two income-tax cases filed under section 256(2) of the income-tax act, 1961 : income-tax case no. 108 of 1991 : '(1) whether, on the facts and in the circumstances of the case, the appellate tribunal is correct in law in holding that the cash subsidy granted by the government of andhra pradesh to producers for production of films in andhra pradesh is not related to or meant as adjustment against or for defraying the cost of production of such films (2) whether, on the facts and in the circumstances of the case, the appellate tribunal is justified in law in deleting the cash subsidy received by the assessee from the income of the assessee applying the ratio of the decision of the andhra pradesh high court in the case of cit v. chitra kalpa : [1989]177itr540(ap) , ignoring the subsequently inserted provisions of rule 9a of the income-tax rules, 1962, applicable to the case for the assessment years 1982-83 and 1983-84 ?' income-tax case no. 56 of 1992 : '(1) whether, on the facts and in the circumstances of the case, the tribunal is correct in law in holding that the cash subsidy granted by the government of andhra pradesh to producers for production of films in andhra pradesh is not related to or meant as an adjustment against or for defraying the cost of production of such films (2) whether, on the facts and in the circumstances of the case, the tribunal is justified in law in deleting the amount of rs. 2 lakhs received by the assessee applying the ratio of the decision of the andhra pradesh high court in the case of cit v. chitra kalpa : [1989]177itr540(ap) , ignoring the subsequently inserted provisions of rule 9a of the income-tax rules, 1962, applicable to the assessment year 1979-80 ?' 2. the tribunal followed the decision of this court in cit v. chitra kalpa : [1989]177itr540(ap) and allowed the appeals of the assessees. it was decided in cit v. chitra kalpa : [1989]177itr540(ap) , that the subsidy given to the film producers under a government order, similar to the one considered by the division bench in that case was in the nature of a capital asset and the subsidy was meant for defraying partly the cost of production of films produced in the state of andhra pradesh. an earlier decision of this court in cit v. sahney steel and press works ltd. : [1985]152itr39(ap) was distinguished on the ground that the subsidy in that case related to the amount paid after the plant had started production. but if the state gives a subsidy to set up a new plant, it was held to be not a trading receipt. it was observed that the subsidy granted was in the nature of inducement to producers to produce feature films in the state of andhra pradesh and the subsidy of this nature cannot be compared to the subsidy granted to the assessee in cit v. sahney steel and press works ltd. : [1985]152itr39(ap) . it is not in dispute that this decision is directly in point against the revenue but learned standing counsel for the income-tax department - mr. d. srinivas - submits that the effect of rule 9a of the income-tax rules was not considered by the tribunal nor by the division bench in the aforementioned case. 3. it may be noticed that the proviso to rule 9a can perhaps be pressed into service by the revenue to negative the claim similar to the one put forth by the respondents herein, but that proviso was inserted long after the relevant assessment years. in the questions formulated in these applications, a reference is made to rule 9a only as it was in force during the relevant assessment year. but, bereft of the proviso, how far and to what extent the revenue can draw support from rule 9a is at best a controversial point. the point having not been raised and decided by the tribunal, we do not think it proper to direct reference of question no. 2 in these applications. 4. we, therefore, dismiss these income-tax cases. no costs.