Commissioner of Income-tax Vs. Malayalam Plantations Ltd. - Court Judgment

SooperKanoon Citationsooperkanoon.com/724356
SubjectDirect Taxation
CourtKerala High Court
Decided OnMar-04-1987
Case NumberIncome-tax Reference Nos. 352 and 353 of 1983
Judge T. Kochu Thommen and; K.P. Radhakrishna Menon, JJ.
Reported in(1987)62CTR(Ker)109; [1987]168ITR63(Ker)
ActsIncome Tax Act, 1961 - Sections 40A(5)
AppellantCommissioner of Income-tax
RespondentMalayalam Plantations Ltd.
Appellant Advocate P.K.R. Menon, Adv.
Respondent Advocate K.A. Nayar, Adv.
Cases ReferredSetiham Harbour Dock Co. v. Crook
Excerpt:
direct taxation - revenue receipt - section 40a of income tax act, 1961 - whether amount received as subsidy constituted capital or revenue receipt - subsidy paid for re-plantation, upkeep and maintenance of rubber trees until they became mature - payments made to enable assessee to recoup revenue expenditure incurred for maintenance of plants - subsidy paid to swell profits of assessee - held, subsidy was revenue receipt. - - ' 8. referring to the scheme, the commissioner-says :the replacement has to be by better yielding rubber trees, in place of older and low-yielding trees planted prior to 1962. the subsidy is granted in seven yearly instalments. ' 19. in smart v. ' 23. the object of this statutory explanation is to overcome the decisions of the supreme court in travancore rubber & tea co.t. kochu thommen, j. 1. the following questions have been, at the instance of the revenue, referred to us by the income-tax appellate tribunal, cochin bench :'(1) whether, on the facts and in the circumstances of the case, the tribunal is right in law in holding that the expenditure on maintenance of bungalows owned by the assessee and depreciation thereon cannot be considered under section 40a(5) of the income-tax act, 1961 ? (2) whether, on the facts and in the circumstances of the case, the tribunal is right in law and fact in holding that only a portion of the expenditure and depreciation on motor car can be considered properly includible under section 40a(5) and not the entire expenses? (3) whether, on the facts and in the circumstances of the case, the tribunal's decision that there were no capital gains involved in the sale of rubber trees is legally and factually correct ? (4) whether, on the facts and in the circumstances of the case, the subsidy received from the rubber board is income of the assessee ?' 2. for the reasons stated by this court in cit v. forbes ewart & figgis (p.) ltd. : [1982]138itr1(ker) , we answer question no. 1 in the negative, .that is, in favour of the revenue and against the assessee.3. for the reasons stated by this court in cit v. forbes ewart & figgis (p.) ltd. : [1982]138itr1(ker) , question no. 2 is answered in the affirmative, that is, in favour of the assessee and against the revenue.4. for the reasons stated by us in itr no. 111 of 1981 (cit v. kalpetta estates ltd.-- : [1987]167itr666(ker) ). we answer question no. 3 in the negative, that is, in favour of the revenue and against the assessee.5. we shall now deal with question no. 4. that relates to the assessment year 1975-76. during the relevant period, the assessee received as subsidy from the rubber board a sum of rs. 5,62,196. this amount was treated by the income-tax officer as income assessable in the hands of the assessee. on appeal, the commissioner of income-tax (appeals) held that the said amount was a capital receipt and was, therefore, not assessable as income. this order was challenged by the revenue and was confirmed by the tribunal.6. counsel for the revenue, relying upon certain decisions of the supreme court, submits that what was paid to the assessee by the rubber board as subsidy was neither a gift nor a grant nor a bounty for any beneficial purposes, but compensation to recoup itself the expenditure incurred by it in the replantation, maintenance, upkeep and supervision of rubber trees. the subsidy received was, therefore, a reimbursement of the assessee's revenue expenditure in running and maintaining the plantation. counsel for the assessee, on the other hand, submits that the subsidy, being payment for replantation, is a capital receipt, because replantation expenditure is, according to him, a capital expenditure.7. the question for consideration, therefore, is whether the amounts received as subsidy constituted capital or revenue receipt. the replanting subsidy scheme, 1972, which is the scheme under which the subsidy in question was granted, is quoted by the commissioner of income-tax (appeals) at pages 21 and 22 of the paper book :'...subsidy will be granted for replanting low-yielding uneconomic rubber planted in or prior to 1962, and registered with the board.'8. referring to the scheme, the commissioner-says :'...the replacement has to be by better yielding rubber trees, in place of older and low-yielding trees planted prior to 1962. the subsidy is granted in seven yearly instalments. ...'9. it is in fact the common case that subsidy was paid to and received by the assessee for replantation, upkeep and maintenance of the rubber trees until they became mature.10. in v.s.s.v. meenakshi achi v. cit : [1966]60itr253(sc) , an identical question arose. amounts were paid to the assessee as replantation cess to encourage them to plant or replant rubber trees because, during the war, rubber estates were destroyed or denuded. the question arose whether such amounts constituted income in the hands of the recipients. counselfor the revenue in that case submitted in the supreme court that the payments were made to enable the assessee to recoup the revenue expenditure incurred by them in running and maintaining the plantations and such payments were revenue receipts. accepting this argument, the supreme court cited with approval the decision of macnaghten j. in higgs v. wrigktson [1944] 26 tc 73 , where he stated that 'ploughing grant' paid to a farmer to reimburse his expenses in the ploughing up of grassland and bringing of the land into a state of cleanliness and fertility was not a capital receipt, but a revenue receipt. applying that principle to the replantation cess paid to the assessees, the supreme court stated (p. 260 of 60 itr):'...amounts from the fund earmarked for the appellants on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantation and producing the rubber. if so, it follows that the receipts by the assessees during the accounting year were revenue receipts and, therefore, liable to be included in their assessable income.'11. in bengal textiles association v. cit : [1960]39itr723(sc) , the supreme court pointed out that money received as subsidy, otherwise than as a gift or for a beneficial purpose, such as relief of unemployment, etc., was a revenue receipt. the court pointed out (at pages 728 & 729) :'what is decisive in this case is that these payments were made to the association in order that they may be used in the business of the association and for services rendered and they have to be viewed from that point of view. so viewed, the payments cannot be said to be of a benevolent nature. their very quality and nature make it impossible to treat them as a bounty or subsidy because the use of the word 'bonus or subsidy' in section 4, proviso (c), (business profits tax, 1947) connotes that the payment is in the nature of a gift which in the instant case it is not.'12. the supreme court then cited with approval the decision of the house of lords in seahani harbour dock co. v. coork [1931] 16 tc 333, where payment made for relief of unemployment was held to be not taxable because of the beneficial nature of the payment. in that case, lord buckmaster, referring to the nature of the receipt, observed (at page 353) :'it was a grant which was made by a government department with the idea that by its use men might be kept in employment,......i findmyself quite unable to see that it was a trade receipt, or that it bore any resemblance to a trade receipt. it appears to me to have been simply a grant made by the government for the purposes which i have mentioned,and in those circumstances cannot be included in revenue for the purposes of tax.'13. lord atkin in that case observed (at page 353 ):'it appears to me that when these sums were granted and when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. it is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the sense in which you are considering the profits or gains of the trade, it appears to me, with respect, to be quite irrelevant whether the money, when received, is applied for capital purposes or is applied for revenue purposes ; in neither case is the money properly said to be brought into a computation of the profits or gains of the trade.'14. in karimtharuvi tea estates ltd. v. state of kerala [1963] 48 itr sc 83, a bench of five judges of the supreme court observed (at page 91):'the contention that the amount spent for the upkeep and maintenance of the immature plants till they become mature is in the nature of a capital expenditure is also not sound. it is a running expenditure and not of the nature of capital expenditure.'15. this principle had already been adopted by the supreme court in travancore rubber & tea co. ltd. v. commr. of agrl. i.t. : [1961]41itr751(sc) , where the court stated (at page 755) :'in our opinion the amount expended on the superintendence, weeding, etc., of the whole estate should have been allowed against the profits earned and it is no answer to the claim for a deduction that part of those expenses produced no return in that year because all the trees were not yielding rubber in that year.'16. the supreme court in that case cited with approval the following observation of lord president in vallambrosa rubber co. ltd. v. farmer [1910] 5 tc 529 (see : [1961]41itr751(sc) :'......that in arriving at the assessable profits the assessee wasentitled to deduct the expenditure for superintendence, weeding, etc., on the whole estate and not only one-seventh of such expenditure.17. the lord president pointed out that rubber trees did not yield rubber until they were about six years old. expenditure for superintendence, weeding, etc., was incurred by the company in respect of the whole estate including the non-bearing rubber estates, and such expenditure was an allowable deduction in the computation of the assessable profits.18. in assam bengal cement co. ltd. v. cit : [1955]27itr34(sc) , bhagwati j. observed (at page 42):'the distinction was thus made between the acquisition of an income-earning asset and the process of the earning of the income. expenditure in the acquisition of that asset was capital expenditure and expenditure in the process of the earning of the profits was revenue expenditure.'19. in smart v. lincolnshire sugar co. ltd. [1937] ac 697; [1937] 20 tc 643, the house of lords held that amounts paid out of public funds in the nature of subsidy to an undertaker to assist him in carrying on the undertaker's trade or business were trading receipts and were to be brought into account in arriving at the balance of profits or gains. (see also the decision of the house of lords in pontyporidd and rhondda water board v. ostime [1946] 14 itr 45 (su).20. the principles to be deduced from these cases are : if the money paid is paid as a gift, it is not income in the hands of the recipient. if a grant is paid for a beneficial purpose, such as keeping men in employment or starting an industry in a backward area or electrifying a remote area which could not be undertaken but for the grant, such payment, being of a beneficial character, is not taxed as income : bengal textiles association v. cit : [1960]39itr723(sc) , seaham harbour dock co. v. crook [1931] 16 tc 333 and cit v. poona electric supply co. ltd. [1946] 14 itr 622. on the other hand, if what is paid is to recoup revenue expenses, it is a revenue receipt and is, therefore, assessable as income : f.s.s.v. meenakshi achi v. cit : [1966]60itr253(sc) and ratna sugar mills co. ltd. v. cit [1950] 33 itr 644. amounts spent for the maintenance of immature plants do not partake of the character of capital expenditure. they are running expenditure. money received to recoup such revenue expenses is a revenue receipt: karimtharuvi tea estates ltd. v. state of kerala : [1963]48itr83(sc) ; travancore rubber & tea co. ltd. v. commr. of agrl. i.t. : [1961]41itr751(sc) , vallambrosa rubber co. ltd. v. farmer [1910] 5 tc 529, v.s.s.v. meenakshi achi v. cit : [1966]60itr253(sc) and higgs v. wrightson [1944] 26 tc 73.21. it is significant that section 10(30) of the income-tax act, 1961, specifically provides:'10. incomes not included in total income.--in computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--... (30) in the case of an assessee who carries on the business of growing and manufacturing tea in india, the amount of any subsidy received from or through the tea board under any such scheme for replantationor replacement of tea bushes or for rejuvenation or consolidation of areas used for cultivation of tea as the central government may, by notification in the official gazette, specify.'22. this exclusion of subsidy for tea plantation from the computation of total income shows that what was otherwise includible in such computation was specifically excluded by the legislature. the object of the legislature in so excluding the subsidy for tea plantation was to confer a special benefit in view of the peculiar predicament of that industry. what is significant, however, is that, but for the exemption, subsidy of the nature is part of the includible items in the computation of income. in this context, we may refer to explanation 2 to section 5 of the agricultural income-tax act, 1950. it reads :'explanation 2,--nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous years.'23. the object of this statutory explanation is to overcome the decisions of the supreme court in travancore rubber & tea co. ltd. v. commr. of agrl. i.t. : [1961]41itr751(sc) and karimtharuvi tea estates ltd. v. state of kerala : [1963]48itr83(sc) , where the court stated that such expenditure was revenue expenditure. significantly, the state legislature acted on the principle that, but for the statutory explanation, money expended for cultivation, upkeep or maintenance of immature plants would be revenue expenditure.24. we may also in this context refer to a circular no. 142 dated august, 1974, issued by the central board of direct taxes-- : [1974]95itr151(delhi) . by this circular, the board stated that 10% central outright grant of subsidy scheme, 1971, was given for helping the growth of industries in selected backward districts/areas and not for supplementing the profits of the recipient. the subsidy was accordingly not treated by the board as a revenue receipt for the purpose of income-tax. in so deciding, the board acted on the principle that amounts paid specifically for beneficial purposes are not to be treated for the purpose of income-tax as a revenue receipt.25. in the present case, there is nothing to show that the subsidy was paid for any beneficial purpose. on the other hand, the facts found indicate that the subsidy was paid to swell the profits of the assessee. the principle stated by chagla j. (as he then was) in cit v. poona electric supply co. ltd. [1946] 14 itr 622, on which counsel for the assessee relied, has no application to the facts of this case. in that case,a non-refundable contribution was paid by the government as part of the cost of constructing new electric supply lines which the assessee would not have undertaken without the contribution. the court held that the contribution was not a trading receipt and was not assessable to tax in the hands of the assessee. that decision falls within the principle stated by the supreme court in bengal textiles association v. cit : [1960]39itr723(sc) . reliance by the assessee's counsel on setiham harbour dock co. v. crook [1931] 16 tc 333 (hl) is equally misplaced, for, as we have already stated, that was a case where money was paid to keep men in employment. that, as the supreme court stated in bengal textiles association v. cit : [1960]39itr723(sc) , was a beneficial object. counsel also relies upon the decision of the delhi high court in cit v. state of trading corporation of india ltd. : [1973]92itr294(delhi) , where the court found that a sum received prior to the commencement of the business was not a business receipt. that decision is not applicable to the facts of this case where the industry or the business of plantation has been in existence at all material times and money was received for plantation or replantation of certain areas with a view to producing higher yield.26. in the light of the principles laid down in the decisions cited above, we see no substance in the contention of the assessee that the subsidy received by it during the relevant period towards reimbursement of the expenditure incurred in replantation, development, maintenance and upkeep of the rubber trees is not revenue receipt. accordingly, we answer question no. 4 in the affirmative, that is, in favour of the revenue and against the assessee.27. we direct the parties to bear their respective costs in these tax referred cases.28. a copy of this judgment under the seal of the high court and the signature of the registrar shall be forwarded to the income-tax appellate tribunal, cochin bench.
Judgment:

T. Kochu Thommen, J.

1. The following questions have been, at the instance of the Revenue, referred to us by the Income-tax Appellate Tribunal, Cochin Bench :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenditure on maintenance of bungalows owned by the assessee and depreciation thereon cannot be considered under Section 40A(5) of the Income-tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that only a portion of the expenditure and depreciation on motor car can be considered properly includible under Section 40A(5) and not the entire expenses?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal's decision that there were no capital gains involved in the sale of rubber trees is legally and factually correct ?

(4) Whether, on the facts and in the circumstances of the case, the subsidy received from the Rubber Board is income of the assessee ?'

2. For the reasons stated by this court in CIT v. Forbes Ewart & Figgis (P.) Ltd. : [1982]138ITR1(Ker) , we answer question No. 1 in the negative, .that is, in favour of the Revenue and against the assessee.

3. For the reasons stated by this court in CIT v. Forbes Ewart & Figgis (P.) Ltd. : [1982]138ITR1(Ker) , question No. 2 is answered in the affirmative, that is, in favour of the assessee and against the Revenue.

4. For the reasons stated by us in ITR No. 111 of 1981 (CIT v. Kalpetta Estates Ltd.-- : [1987]167ITR666(Ker) ). we answer question No. 3 in the negative, that is, in favour of the Revenue and against the assessee.

5. We shall now deal with question No. 4. That relates to the assessment year 1975-76. During the relevant period, the assessee received as subsidy from the Rubber Board a sum of Rs. 5,62,196. This amount was treated by the Income-tax Officer as income assessable in the hands of the assessee. On appeal, the Commissioner of Income-tax (Appeals) held that the said amount was a capital receipt and was, therefore, not assessable as income. This order was challenged by the Revenue and was confirmed by the Tribunal.

6. Counsel for the Revenue, relying upon certain decisions of the Supreme Court, submits that what was paid to the assessee by the Rubber Board as subsidy was neither a gift nor a grant nor a bounty for any beneficial purposes, but compensation to recoup itself the expenditure incurred by it in the replantation, maintenance, upkeep and supervision of rubber trees. The subsidy received was, therefore, a reimbursement of the assessee's revenue expenditure in running and maintaining the plantation. Counsel for the assessee, on the other hand, submits that the subsidy, being payment for replantation, is a capital receipt, because replantation expenditure is, according to him, a capital expenditure.

7. The question for consideration, therefore, is whether the amounts received as subsidy constituted capital or revenue receipt. The Replanting Subsidy Scheme, 1972, which is the scheme under which the subsidy in question was granted, is quoted by the Commissioner of Income-tax (Appeals) at pages 21 and 22 of the paper book :

'...Subsidy will be granted for replanting low-yielding uneconomic rubber planted in or prior to 1962, and registered with the Board.'

8. Referring to the scheme, the Commissioner-says :

'...The replacement has to be by better yielding rubber trees, in place of older and low-yielding trees planted prior to 1962. The subsidy is granted in seven yearly instalments. ...'

9. It is in fact the common case that subsidy was paid to and received by the assessee for replantation, upkeep and maintenance of the rubber trees until they became mature.

10. In V.S.S.V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) , an identical question arose. Amounts were paid to the assessee as replantation cess to encourage them to plant or replant rubber trees because, during the war, rubber estates were destroyed or denuded. The question arose whether such amounts constituted income in the hands of the recipients. Counselfor the Revenue in that case submitted in the Supreme Court that the payments were made to enable the assessee to recoup the revenue expenditure incurred by them in running and maintaining the plantations and such payments were revenue receipts. Accepting this argument, the Supreme Court cited with approval the decision of Macnaghten J. in Higgs v. Wrigktson [1944] 26 TC 73 , where he stated that 'ploughing grant' paid to a farmer to reimburse his expenses in the ploughing up of grassland and bringing of the land into a state of cleanliness and fertility was not a capital receipt, but a revenue receipt. Applying that principle to the replantation cess paid to the assessees, the Supreme Court stated (p. 260 of 60 ITR):

'...amounts from the fund earmarked for the appellants on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantation and producing the rubber. If so, it follows that the receipts by the assessees during the accounting year were revenue receipts and, therefore, liable to be included in their assessable income.'

11. In Bengal Textiles Association v. CIT : [1960]39ITR723(SC) , the Supreme Court pointed out that money received as subsidy, otherwise than as a gift or for a beneficial purpose, such as relief of unemployment, etc., was a revenue receipt. The court pointed out (at pages 728 & 729) :

'What is decisive in this case is that these payments were made to the association in order that they may be used in the business of the association and for services rendered and they have to be viewed from that point of view. So viewed, the payments cannot be said to be of a benevolent nature. Their very quality and nature make it impossible to treat them as a bounty or subsidy because the use of the word 'bonus or subsidy' in Section 4, proviso (c), (Business Profits Tax, 1947) connotes that the payment is in the nature of a gift which in the instant case it is not.'

12. The Supreme Court then cited with approval the decision of the House of Lords in Seahani Harbour Dock Co. v. Coork [1931] 16 TC 333, where payment made for relief of unemployment was held to be not taxable because of the beneficial nature of the payment. In that case, Lord Buckmaster, referring to the nature of the receipt, observed (at page 353) :

'It was a grant which was made by a Government Department with the idea that by its use men might be kept in employment,......I findmyself quite unable to see that it was a trade receipt, or that it bore any resemblance to a trade receipt. It appears to me to have been simply a grant made by the Government for the purposes which I have mentioned,and in those circumstances cannot be included in revenue for the purposes of tax.'

13. Lord Atkin in that case observed (at page 353 ):

'It appears to me that when these sums were granted and when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. It is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the sense in which you are considering the profits or gains of the trade, it appears to me, with respect, to be quite irrelevant whether the money, when received, is applied for capital purposes or is applied for revenue purposes ; in neither case is the money properly said to be brought into a computation of the profits or gains of the trade.'

14. In Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR SC 83, a Bench of five judges of the Supreme Court observed (at page 91):

'The contention that the amount spent for the upkeep and maintenance of the immature plants till they become mature is in the nature of a capital expenditure is also not sound. It is a running expenditure and not of the nature of capital expenditure.'

15. This principle had already been adopted by the Supreme Court in Travancore Rubber & Tea Co. Ltd. v. Commr. of Agrl. I.T. : [1961]41ITR751(SC) , where the court stated (at page 755) :

'In our opinion the amount expended on the superintendence, weeding, etc., of the whole estate should have been allowed against the profits earned and it is no answer to the claim for a deduction that part of those expenses produced no return in that year because all the trees were not yielding rubber in that year.'

16. The Supreme Court in that case cited with approval the following observation of Lord President in Vallambrosa Rubber Co. Ltd. v. Farmer [1910] 5 TC 529 (see : [1961]41ITR751(SC) :

'......that in arriving at the assessable profits the assessee wasentitled to deduct the expenditure for superintendence, weeding, etc., on the whole estate and not only one-seventh of such expenditure.

17. The Lord President pointed out that rubber trees did not yield rubber until they were about six years old. Expenditure for superintendence, weeding, etc., was incurred by the company in respect of the whole estate including the non-bearing rubber estates, and such expenditure was an allowable deduction in the computation of the assessable profits.

18. In Assam Bengal Cement Co. Ltd. v. CIT : [1955]27ITR34(SC) , Bhagwati J. observed (at page 42):

'The distinction was thus made between the acquisition of an income-earning asset and the process of the earning of the income. Expenditure in the acquisition of that asset was capital expenditure and expenditure in the process of the earning of the profits was revenue expenditure.'

19. In Smart v. Lincolnshire Sugar Co. Ltd. [1937] AC 697; [1937] 20 TC 643, the House of Lords held that amounts paid out of public funds in the nature of subsidy to an undertaker to assist him in carrying on the undertaker's trade or business were trading receipts and were to be brought into account in arriving at the balance of profits or gains. (See also the decision of the House of Lords in Pontyporidd and Rhondda Water Board v. Ostime [1946] 14 ITR 45 (Su).

20. The principles to be deduced from these cases are : If the money paid is paid as a gift, it is not income in the hands of the recipient. If a grant is paid for a beneficial purpose, such as keeping men in employment or starting an industry in a backward area or electrifying a remote area which could not be undertaken but for the grant, such payment, being of a beneficial character, is not taxed as income : Bengal Textiles Association v. CIT : [1960]39ITR723(SC) , Seaham Harbour Dock Co. v. Crook [1931] 16 TC 333 and CIT v. Poona Electric Supply Co. Ltd. [1946] 14 ITR 622. On the other hand, if what is paid is to recoup revenue expenses, it is a revenue receipt and is, therefore, assessable as income : F.S.S.V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) and Ratna Sugar Mills Co. Ltd. v. CIT [1950] 33 ITR 644. Amounts spent for the maintenance of immature plants do not partake of the character of capital expenditure. They are running expenditure. Money received to recoup such revenue expenses is a revenue receipt: Karimtharuvi Tea Estates Ltd. v. State of Kerala : [1963]48ITR83(SC) ; Travancore Rubber & Tea Co. Ltd. v. Commr. of Agrl. I.T. : [1961]41ITR751(SC) , Vallambrosa Rubber Co. Ltd. v. Farmer [1910] 5 TC 529, V.S.S.V. Meenakshi Achi v. CIT : [1966]60ITR253(SC) and Higgs v. Wrightson [1944] 26 TC 73.

21. It is significant that Section 10(30) of the Income-tax Act, 1961, specifically provides:

'10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--...

(30) in the case of an assessee who carries on the business of growing and manufacturing tea in India, the amount of any subsidy received from or through the Tea Board under any such scheme for replantationor replacement of tea bushes or for rejuvenation or consolidation of areas used for cultivation of tea as the Central Government may, by notification in the Official Gazette, specify.'

22. This exclusion of subsidy for tea plantation from the computation of total income shows that what was otherwise includible in such computation was specifically excluded by the Legislature. The object of the Legislature in so excluding the subsidy for tea plantation was to confer a special benefit in view of the peculiar predicament of that industry. What is significant, however, is that, but for the exemption, subsidy of the nature is part of the includible items in the computation of income. In this context, we may refer to Explanation 2 to Section 5 of the Agricultural Income-tax Act, 1950. It reads :

'Explanation 2,--Nothing contained in this section shall be deemed to entitle a person deriving agricultural income to deduction of any expenditure laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income has been derived during the previous years.'

23. The object of this statutory Explanation is to overcome the decisions of the Supreme Court in Travancore Rubber & Tea Co. Ltd. v. Commr. of Agrl. I.T. : [1961]41ITR751(SC) and Karimtharuvi Tea Estates Ltd. v. State of Kerala : [1963]48ITR83(SC) , where the court stated that such expenditure was revenue expenditure. Significantly, the State Legislature acted on the principle that, but for the statutory Explanation, money expended for cultivation, upkeep or maintenance of immature plants would be revenue expenditure.

24. We may also in this context refer to a Circular No. 142 dated August, 1974, issued by the Central Board of Direct Taxes-- : [1974]95ITR151(Delhi) . By this circular, the Board stated that 10% Central Outright Grant of Subsidy Scheme, 1971, was given for helping the growth of industries in selected backward districts/areas and not for supplementing the profits of the recipient. The subsidy was accordingly not treated by the Board as a revenue receipt for the purpose of income-tax. In so deciding, the Board acted on the principle that amounts paid specifically for beneficial purposes are not to be treated for the purpose of income-tax as a revenue receipt.

25. In the present case, there is nothing to show that the subsidy was paid for any beneficial purpose. On the other hand, the facts found indicate that the subsidy was paid to swell the profits of the assessee. The principle stated by Chagla J. (as he then was) in CIT v. Poona Electric Supply Co. Ltd. [1946] 14 ITR 622, on which counsel for the assessee relied, has no application to the facts of this case. In that case,a non-refundable contribution was paid by the Government as part of the cost of constructing new electric supply lines which the assessee would not have undertaken without the contribution. The court held that the contribution was not a trading receipt and was not assessable to tax in the hands of the assessee. That decision falls within the principle stated by the Supreme Court in Bengal Textiles Association v. CIT : [1960]39ITR723(SC) . Reliance by the assessee's counsel on Setiham Harbour Dock Co. v. Crook [1931] 16 TC 333 (HL) is equally misplaced, for, as we have already stated, that was a case where money was paid to keep men in employment. That, as the Supreme Court stated in Bengal Textiles Association v. CIT : [1960]39ITR723(SC) , was a beneficial object. Counsel also relies upon the decision of the Delhi High Court in CIT v. State of Trading Corporation of India Ltd. : [1973]92ITR294(Delhi) , where the court found that a sum received prior to the commencement of the business was not a business receipt. That decision is not applicable to the facts of this case where the industry or the business of plantation has been in existence at all material times and money was received for plantation or replantation of certain areas with a view to producing higher yield.

26. In the light of the principles laid down in the decisions cited above, we see no substance in the contention of the assessee that the subsidy received by it during the relevant period towards reimbursement of the expenditure incurred in replantation, development, maintenance and upkeep of the rubber trees is not revenue receipt. Accordingly, we answer question No. 4 in the affirmative, that is, in favour of the Revenue and against the assessee.

27. We direct the parties to bear their respective costs in these tax referred cases.

28. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.