Law: Income Tax Act, 1922

Section:

Income-tax-----Income or capital receipt---Advance made by Government to undertaking owned by it---Subsequently advance converted into a grant for a specific purpose---Is a capital receipt---Not to be treated as income---Indian Income Tax Act, 1961. On a reference made at the instance of the Revenue of the question whether advance made by the Government to an undertaking owned by it, was a revenue receipt and, therefore, taxable: Held, that the fact that the amount which was initially given as a recoverable advance was subsequently modified into a grant of a capital nature to be used for creating a- permanent fund did not in any way render the monies so given liable for taxation as a loan could not be treated as income. The advance to be refunded was a liability and when it was converted into a grant that grant was for a specific purpose and for creating a fund for holding exhibitions and fairs in future. Therefore, the Tribunal was right in declaring that the amount received was a capital receipt. JUDGMENT R: JAYASIMHA BABU, J.-- Grant of Rs.5 Lakhs by the Government to an undertaking owned by it, is according to the Revenue, reimbursement of revenue expenditure and is, therefore, to be treated as taxable income for the year, while according to the corporation which received the amount, it is a capital receipt earmarked for a specific purpose and shown in the balance-sheet as "Fairs and Exhibition Fund". During the financial year 1973-74, the Government made available to the Tamil Nadu Tourism Development Corporation a sum of Ets.5 Lakhs. It issued three Government orders one dated July 10, 1973 mother dated November 30, 1973, and finally yet another Government order, dated March 28, 1974. While in the first Government order the 3overnment said that the sum of Rs.5 Lakhs was given as a grant for conducting a tourist festival, the second Government order clarified that the amount was only an advance which was required to be refunded from out of the profits of the fair, in the third Government order the Government went further and said that the…

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