Law: Income Tax Act, 1961

Section: 80

(a) Income-tax---Income or capital---Burden of proof---Burden on Income-tax Department to prove receipt is of revenue nature---Subsidy given to recoup capital expenditure is capital receipt. (b) Income-tax---Cooperative society---Deduction---Disallowance of proportionate expenditure relating to business activities contemplated by S. 80-P(2)(a) of the Indian Income-tax, 1961 is not valid. If a subsidy or grant is given to recoup revenue expenditure, it will take the colour of revenue receipt, if not, then it would be a capital receipt. The onus to prove that the amount received in a revenue receipt is on the Income-tax Department. The assessee was a co-operative society the object of which was to obtain and supply fertilizers to its members. The apex body of such societies was the Punjab State Cooperative Supply and Marketing Federation called Markfed. A company known as Indian Farmers Fertilizer Cooperative Ltd. (IFFCO) was constituted and it floated its shares. The value of each share was Rs.l lakh. MARKFED desired that Cooperative societies like the assessee should purchase one share each of IFFCO and it gave subsidies to the Cooperative societies to enable them to do so. During the assessment year, Markfed gave the Assessee a subsidy of Rs.25,000 because 1/4th value of the share had to be remitted at the time of application for the issue of one share. The amount of Rs.25,000 was sent directly to IFFCO. The Income-tax Officer brought this amount to tax in the hands of the assessee. The Income-tax Officer also disallowed proportionate expenditure relating to business activities contemplated under section 80-P(2)(a) of the Indian Income-tax Act, 1961. The Tribunal upheld the views of the Income-tax Officer. On a reference: Held, (i) that the Tribunal was in error in law in upholding the disallowance of proportionate expenditure relating to the business activities of the assessee contemplated by section 80-P(2)(a) of the Act. (ii) That, in the instant case, the Income-tax Department had failed to show any connection between the business of the assessee and the grant of the subsidy. Moreover, on the face of it, when the business of the assessee was to purchase…

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