Sabyasachi Mukharji, J.:— We are concerned in this reference with the assessment year 1963-64, the relevant previous year being the one which ended on 31st March, 1963.
2. The assessee is a company engaged in the manufacture of cotton textiles, rayon, yarn and also transparent paper.
3. One of the grounds of appeal taken before the Tribunal from the order of the Income-tax Officer was in relation to taxability of a sum of Rs. 5,85,701 received by the assessee under the export incentive scheme. In the profit and loss account for the year ended on 31st March, 1963, there was a credit of Rs. 6,00,826 which included the said sum of Rs. 5,85,701. The assessee had shown this sum in section “F” of the return but claimed exemption from tax on the ground that the same was a casual receipt. The Income-tax Officer rejected the claim on inter alia the following grounds:
“This receipt has been earned by the assessee in the course of its business as a textile manufacturer and is being accounted for by the company as a receipt year after year. The company is aware of and is regularly in expectation of this receipt on account of exports of its products and is accounting for it on the basis of exports made. The company is entitled to receive this sum as a matter of law and this receipt has occurred in the course of the assessee's trade and its capacity as a trader.”
4. The Income-tax Officer, therefore, held that there was no basis for the contention that the amount was received in a casual nature and noticing that such a plea in respect of such a receipt had been rejected in the earlier years, included the amount in the computation of the total income. It may at this stage be relevant to refer to some of the provisions of the scheme under which the amount in question was received. There was a public notice which dealt with import of raw cotton against exports of cotton cloth and/or yarn. The said notice, inter alia, contained the basis upon which the mills whose cotton cloth or yarn were exported should be granted import licences for the import of cotton. It is not necessary to set out the details of the basis. But the said notice also contained the following note:
“Note:— In the event of Government reducing the normal quota of imported cotton of any mill or class of mills, it may provide that the mill or mills may retain for its/their own use such additional quantities out of the entitlement as it may determine from time to time.”
5. The communication from the Textile Commissioner to the secretary of the appropriate Cotton Mills Federation stated about the scheme as follows:
“5. For a smooth working of the arrangements within the industry, it is proposed that premium amounts to which exporting mills become eligible may be deposited with either the Indian Cotton Mills’ Federation or the Southern India Mill Owners’ Association, continuing the arrangement recently introduced. The mills getting import licences for cotton will deposit the amounts laid down by the Textile Commissioner, and the Indian Cotton Mills’ Federation and the Southern India Mill Owners’ Association will disburse the premium amounts as may be indicated by the Textile Commissioner. It is also left to the Textile Commissioner to issue further advice as necessary from time to time about disposal of any surplus.
6. In respect of the period July-December, 1959, the arrangements will be as follows:
(i) The mills getting import licences will deposit a sum calculated at 20% of the value of cotton. The mills entitled to export incentives will receive them at the rates specified below:—
(a) The calculation of the incentive shall be related to a basic export performance of cloth and/or yarn as well as to the mill's exports of cloth and/or yarn to traditional or non-traditional markets, as the case maybe. The basic performance per year shall be as under:
For cloth:
Average of the export by value during the calendar years 1954, 1955 and 1956 put together or in excess of the exports valued at Rs. 2,000 per installed loom per year, whichever is higher.
For yarn:
Average of the export by value during the calendar years 1954, 1955 and 1956 put together or in excess of the exports valued at Rs. 30 per installed spindle per year, whichever is higher, provided, however, that in the case of mills having both weaving and spinning plants, the basic performance valued per spindle should be at Rs. 30 per spindle only in respect of installed spindles in excess of 40 spindles per installed looms.
(b) The term ‘non-traditional markets’ shall mean those markets in the continent of America and in Europe other than U.K, to which the mills had sold and exported cloth and/or yarn. The term ‘traditional markets’ shall mean all other markets including U.K, but excluding Nepal, to which the mills had sold and exported cloth and/or yarn.”
6. The assessee preferred an appeal from the order of the Income-tax Officer mentioned before. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer holding, inter alia, as follows:
“4. For the assessee, the submission before us in this appeal was that it was a capital receipt. The exemption is no longer rested as a casual receipt as it recurs year after year. The fact that it was granted under a scheme formulated by the Government for bringing in foreign exchange was relied upon as showing that the assessee got it outside his trade. Mr. Balai Pal, learned counsel for the department, submitted that the assessee earned the amount in the course of its business and as a result of the sale of its manufactured goods, and that the receipt was nothing but business profit.
5. We find that this point is covered by a decision of the Tribunal in the assessee's case for the assessment year 1960-61 in ITA Nos. 7997 of 1963-64. The Tribunal has confirmed the assessment of a similar receipt. We agree with that decision. We would in this connection refer to V.S.S.V Meenakshi Achi v. Commissioner Of Income Tax, Madras, [1966] 60 ITR 253 (SC) in support of its taxability. There is no element of bounty in the payment as it is measured by the assessee's own performance and as the assessee has to take steps for the export. It is thus a receipt earned in the course of carrying on the business.”
7. The assessee thereupon on this point went up before the Tribunal and the Tribunal observed in its order as follows:
“The assessee is a manufacturer of textile goods. In order to acquire foreign exchange, the Government of India started an export promotion, scheme. An exporter of cotton cloth or yarn was eligible for grant of import licences to the extent of 66% of the FOB value of such exporter. An exporter of fine and super-fine cloth of 60 counts and above, would be entitled to import cotton to the extent of 100% of the value of such entitlement, provided that such exported cloth was manufactured out of the foreign cotton imported by the mill. In other cases, 20% of the entitlement was the value for importing raw cotton. This 20% was subject to a slight increase depending on the location of the mill. For our purpose, it is unnecessary to go into those details. In the communication dated 6th June, 1959, the Textile Commissioner intimated the Indian Cotton Mills’ Federation about the ‘premium’ for import entitlements contributed to the textile mills pool. For the exports after 1st April, 1960, additional premium at certain rates was granted, depending on export performance to U.S.A and countries in Europe other than those which could pay for such export trade in rupees (see Dy. Textile Commissioner's letter dated 11th May, 1960). It is the premium which was due to or received by the assessee under this scheme that came to Rs. 5,85,701.”
8. The submission of the assessee before the Tribunal was that it was a capital receipt. It appears that the amount was received in the course of carrying on of the business. The amount was received in cash. The fact that in the course of carrying on of the business an amount is received which could be turned into capital, does not, in our opinion, in any way militate against the said amount being considered to be a revenue receipt.
9. This is not in the nature of a subsidy or a grant from the Government. But the position in respect of grant or subsidy from the Government has been explained by the House of Lords in the case of Oslime (H.M Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board, [1946] 28 TC 261, 278; [1946] 14 ITR (Supp) 45, 47, where Viscount Simon observed as follows:
“The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker's trade or business are trading receipts, that is, are to be brought into account in arriving at the balance of profits or gains….
The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising;…”
10. But we are not concerned here with the question of subsidy or grant. The amount in question, as is apparent from the facts stated hereinbefore, was received in the course of the carrying on of the business. The fact that the amount might be used as capital in the hands of the assessee is irrelevant for considering this to be not a revenue receipt. Counsel for the revenue drew our attention to the decision in the case of Dhrangadhra Chemical Works Ltd. v. Commissioner of Income-tax, [1977] 106 ITR 473 (Bom). But the said case was dealing with the grant of subsidy received from the Government to assist business. It is, therefore, not necessary for us to deal with the said decision in any detail. Reliance was also placed on the observations of the Allahabad High Court in the case of H.R Sugar Factory (P.)Ltd. v. Commissioner of Income-tax, [1970] 77 ITR 614 (All). But there the court was also dealing with the cash grant by the Government. The Supreme Court in the case of V.S.S.V V.S.S.V Meenakshi Achi v. Commissioner Of Income Tax, Madras, [1966] 60 ITR 253 was dealing with a case where the assessees owned rubber plantations in the Federated Malay States outside Penang. Out of a fund into which cesses collected under the Rubber Industry (Replanting) Fund Ordinance, 1952, on rubber produced in Penang and rubber exported from the Federation other than Penang, were paid, proportionate parts of the cesses so collected, after defraying expenses, were credited to the accounts of the assessees, corresponding to the amount of rubber produced by them, and payments were made to the assessees from the amounts so credited against expenditure incurred on the maintenance of the plantations. The Supreme Court held that as the amounts from the fund earmarked for the assessees on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantations and producing the rubber, the amounts received by the assessees were revenue receipts and, therefore, liable to be included in their assessable income. In the case of K.N Daftary v. Commissioner Of Income-Tax, West Bengal., [1977] 106 ITR 998 (Cal), this court was not concerned with the question whether an entitlement of this nature was capital or revenue. But this court proceeded on the basis that this was a capital receipt. In the view of the same, the first question which the Tribunal referred to this court being, “whether on the facts and in the circumstances of the case, the Tribunal was justified in treating the sum of Rs. 5,85,701 received by the assessee under the export incentive scheme as a receipt in the course of carrying on of the business and as such taxable income?”, must be answered in the affirmative and in favour of the revenue.
11. The second question was as follows:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the claim of Rs. 9,600 paid as salary to Smt. Makhani Debi Bagrodia as being not an admissible expenditure?”
12. It appears that Smt. Makhani Debi had been paid a salary of Rs. 9,600 during the year in question. She was the wife of Shri M.L Bagrodia, who was in the employment of the company holding a top position. Her appointment was from the 1st June, 1962. On being asked by the Income-tax Officer as to what services were rendered by her and the basis for the salary paid, it was explained by a letter dated the 30th December, 1964, that she and two other ladies, whose remuneration was also being questioned by the Income-tax Officer, were supervising the canteens, hospitals and other staff and workers’ welfare activities of the different units of the assessee-company. The Income-tax Officer, however, was of the opinion that they could not be considered as having been genuinely employed by the company. He held that they had not been in employment earlier and there was no evidence about their past experience. He was of the view that if they did some social welfare work it was only in keeping with the position of the high status of their husbands and it was natural to expect that the wives of such persons would take interest in staff welfare matters in an honorary capacity and no salary would be warranted for such activities. The Income-tax Officer, therefore, observed that no evidence was produced of any of the duties performed or attendance in the office in regard to Smt. Makhani Debi. He thus disallowed the remuneration claimed. On appeal, the Appellate Assistant Commissioner allowed the claim with regard to the three ladies. The matter went up in appeal. There was a further appeal to the Tribunal and the Tribunal observed as follows:
“Of the three ladies, in the case of Makhani Debi except the copy of her appointment letter and the letters the assessee wrote to the Income-tax Officer, there were no materials proving the services rendered by her. The appointment letter cannot prove service and the assessee's letter to the Income-tax Officer are merely allegations unsubstantiated by evidence. The sum of Rs. 9,600 claimed in her case cannot be allowed.”
13. It appears that after the hearing of the appeal counsel for the assessee sought to place before the Tribunal on the 15th November, 1971, a copy of an extract of the order sheet in the assessment case of Smt. Makhani Debi for the year 1963-64 and also a report of the inspector made on the 12th December, 1967, contending that the case of the assessee would be proved thereby. But the admission of those documents were objected to by the departmental representative and the Tribunal upheld the objection observing that it was not clear why those could not be produced earlier and receiving those materials at that stage would involve scrutiny of the assessment records of the lady, which were not before the Tribunal, so as to find out what happened in her assessment. Counsel for the assessee urged before us that in view of the orders in the subsequent years, in which the report of the inspector had been relied on and acted upon, we should direct the Tribunal to take into consideration the subsequent report and decide the case afresh. We are afraid, we are unable to accept this submission. So far as the evidence on record it appears that there was evidence and material for the purpose of the Tribunal to reject the claim, as the Tribunal did. There is no question as to whether the Tribunal's rejection of fresh material was justified or not nor was there any question as to whether the Tribunal's finding was perverse or not. In that view of the matter, it would not be possible at this stage to admit additional evidence on this count or to direct the Tribunal to take any additional evidence. This, however, will not prevent the assessee from taking any other step open to it under the law, for revising the assessment. The second question is also answered in the affirmative and in favour of the revenue. The revenue will get the costs of this reference.