Bhaskar Bhattacharya, J.:— This appeal under Section 260A of the Income-tax Act is at the instance of the Revenue and is directed against the order dated 18th May, 2001 passed by the Income-tax Appellate Tribunal, “E” Bench, Calcutta in ITA No. 1080 (Cal) of 1998 relating to the Assessment Year 1995-96 allowing an appeal preferred by the assessee.

Being dissatisfied, the Revenue has come up with the present appeal.

The only question that fell for determination before the Commissioner of Income-tax (Appeals) as well as the Tribunal below was whether the subsidy granted by the Government of West Bengal in favour of the assessee to the extent of Rs. 5,34,86,887/- should be treated to be a capital receipt or not.

The Assessing Officer opined that the assessee received the abovementioned amount as industrial promotion assistance from the Government of West Bengal during the year under consideration, and in its accounts, the assessee had shown this amount as income under the head “other income”. It was, however, pointed out that in the notes of accounts, the assessee mentioned that although the amount had been accounted for in the above manner, the company had been legally advised that it was of the nature of capital receipt for the purpose of computation of taxable income and in the return filed by the assessee, it claimed the amount to be in the nature of capital receipt. The Assessing Officer, however, turned down such contention and came to the conclusion that the subsidy had been utilized for meeting revenue disbursements of the assessee and therefore, the said amount of subsidy received from the Government was nothing but supplementary trade receipts and should, therefore, be considered as revenue receipts. In support of such contention, the Assessing Officer relied upon the decision of the Supreme Court in the case of Sahney Steel and Press Works Ltd. v. CIT, reported in (1997) 228 ITR 253 (SC).

Being dissatisfied, the assessee preferred an appeal before the CIT (Appeals), who, however, affirmed the order passed by the Assessing Officer.

Being dissatisfied, the assessee preferred a further appeal before the Tribunal below and by the order impugned in this appeal, the said Tribunal has set aside the order passed by the Commissioner of Income-tax (Appeals) and held that the said subsidy was in the nature of capital receipt and hence, the same was not taxable. The Tribunal, therefore, directed the Assessing Officer to delete the said addition of subsidy.

Being dissatisfied, the Revenue has come up with the present appeal.

A Division Bench of this Court at the time of admission of this appeal formulated the following substantial questions of law:

“i) Whether on the facts and in the circumstances of the case Income Tax Appellate Tribunal was justified in law in allowing the Appeal of the assessee by holding that the assistance received by the assessee from the Government of West Bengal amounting to Rs. 5,34,18,887/-is of the nature of capital receipt and hence non-taxable.

“ii) Whether on the facts and in the circumstances of the Income Tax Appellate Tribunal was justified in law in deleting the addition made by the Assessing Officer amounting to Rs. 5,34,18,887/- received by the assessee from the Government of West Bengal as subsidy.

“iii) Whether on the facts and in the circumstances of the case Income Tax Appellate Tribunal was justified in law in not appreciating and not considering that the subsidy received by the assessee being a non-refundable grant earned through exercise of business is therefore taxable business income and is a revenue receipt and not a capital receipt.

“iv) Whether on the facts and in the circumstances of the case conclusion arrived at by the Income Tax Appellate Tribunal in allowing the appeal of the assessee by deleting the addition made by the Assessing Officer towards subsidy received by the assessee amounting to Rs. 5,34,18,887/- is perverse.”

Mr. Nizamuddin, the learned counsel appearing on behalf of the Revenue, has laboriously attacked the order passed by the Tribunal below and has contended that the Tribunal below totally misconstrued the decision of the Supreme Court in the case of Sahney Steel and Press Works Ltd. (Supra), and consequently, illegally reversed the decision of the CIT (Appeals). According to Mr. Nizamuddin, the following three factors are vital for the purpose of deciding whether a subsidy received by an assessee comes within the purview of revenue receipt or not:

(i) Whether the benefit of incentive subsidy was available only to new units or expanded units without any intention to supplement the trade receipts or it was in the nature of a help with an intention to supplement the trade receipts to an existing undertaking.

(ii) Whether the benefit is given before the start of production or after the start of production.

(iii) Whether the scheme, by which benefit is given, permits the beneficiary to utilize the money according to its wish or whether it restricts or put any limit on the utilization of the amount.

Mr. Nizamuddin submits that if subsidy is granted after production had started in that event, it should be treated as revenue receipt and at the same time, if no restriction is put in the scheme for utilization of the subsidy, the same should be treated to be revenue receipt. According to Mr. Nizamuddin, in this case, the assessee has, by virtue of the scheme, got back the sales tax payable by it to the State Government and thus, the same should be treated as revenue receipt as held by the Supreme Court in the case of Sahney Steel and Press Works Ltd. (Supra). According to Mr. Nizamuddin, the learned Tribunal below totally misread the abovementioned judgment of the Supreme Court and thus, the decision passed by the Tribunal is a perverse judgment and should be set aside.

Mr. Poddar, the learned Senior Advocate appearing on behalf of the assessee, has, on the other hand, opposed the aforesaid contention of Mr. Nizamuddin and has contended that the learned Tribunal below rightly took a view which is in conformity with the subsequent decision of the Supreme Court in the case of CIT v. Ponni Sugars and Chemicals Ltd., reported in (2008) 306 ITR 392 (SC) and also in tune with the earlier decision of the said court in the case of Commissioner Of Income Tax, Hyderabad v. P.J Chemicals Ltd.., reported in (1994) 210 ITR 830 (SC). According to Mr. Poddar, in the case of Sahney Steel and Press Works Ltd. (Supra), the question was whether the grant of subsidy had fallen within the purview of Section 41(1) of the Act and such question was answered against the assessee. Mr. Poddar contends that in the case before us, although the subsidy is equivalent to the amount paid by the assessee to the State Government by way of sales tax, yet, the same cannot be termed as a subsidy “in terms of of refund of sales tax paid” which was the case in the decision of Sahney Steel and Press Works Ltd. (Supra). In this connection, Mr. Poddar relies upon the objects and reasons behind the publication of the Notification of the Governor of West Bengal, both the original and the amended one, by which the original object of the subsidy as well as the amended object of the subsidy with retrospective effect was disclosed and according to him, the said object would show that the purpose was for helping the penurious industries with capitals. Mr. Poddar further contends that at any rate, the Tribunal having taken a quite reasonable view which is in conformity with the subsequent decision of the Supreme Court in the case of Ponni Sugars and Chemicals Ltd. (Supra), and the same cannot be said to be a perverse judgment to be interfered with under Section 260A of the Act. Mr. Poddar, thus, prays for dismissal of the appeal.

Therefore, the only question that arises for determination in this appeal is whether the Tribunal below was justified in holding that the subsidy received by the assessee was in the nature of capital receipt and consequently, was excluded from the operation of taxation under the Income-tax Act.

In order to appreciate the aforesaid question, it will be profitable to refer to the object of the grant of subsidy by the State of West Bengal as reflected from the original resolution as well as the subsequent resolution which was amended with retrospective effect from 27 May; 1994 those are quoted below:

“No. 1460-F-T Calcutta, the 27 May, 1994

RESOLUTION

WHEREAS certain industries in the State have been passing through an acute financial crisis and it had been considered necessary to extend financial assistance to tide over such crisis for promotion of such industries, it has been decided in the public interest to formulate a scheme to allow financial assistance to the manufacturing units in West Bengal of such industries for industrial promotion :

NOW THEREFORE, the Governor is pleased hereby to sanction the implementation of the aforesaid scheme for allowing financial assistance for promotion of industrial units in West Bengal of certain industries in the manner hereinafter appearing:

“RESOLUTION

No. 1460-F.T. Dated 27-5-1994

WHEREAS the Governor is of the opinion that Industrial Units manufacturing certain goods in West Bengal are in need of financial assistance for expansion of their capacities, modernization, and improving their marketing capabilities and accordingly it is necessary to formulate a Scheme of industrial promotion to assist such units for the purposes mentioned hereinbefore;

NOW, THEREFORE, the Governor is pleased hereby to introduce a Scheme of industrial promotion to be implemented in the manner hereinafter appearing;”

Section 3 of the scheme describes entitlement to the industrial promotion assistance and the same is also quoted below:

“S.3 Entitlement to the Industrial Promotion Assistance. - Where a registered dealer manufactures in his unit goods specified in Schedule A or manufactures in his SSI unit goods specified in schedule B and sells such goods in the State-intra-State or in the course of inter-State trade or commerce within the meaning of section 3 of the Central Sales Tax Act, 1956 (Act No. 74 of 1956), from any place in the State, such dealer shall be entitled to a payment of a sum equal to ninety per centum of the amount of sales tax paid by him, for any quarter under the Sales Tax Act in respect of sales of such goods, as industrial promotion assistance.”

(Emphasis supplied by us).

It may be mentioned here that under the said scheme as would appear from sub-section (2) of Section 1 that the same was given effect to from 1st April, 1994 and initially, was in force only one year from that date and thus, the benefit was then available to the assessee only for that year which is the Assessment Year we are concerned with.

From the objects and the reasons of the aforesaid scheme as well as the entitlement as indicated in Section 3 mentioned above, it is clear that the Government has decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which have the manufacturing units in West Bengal and which are in need of financial assistance for expansion of their capacities, modernization, and improving their marketing capabilities and such subside for the financial year in question was only for that year and was equivalent to ninety per centum of the amount of sales tax paid by the Industry concerned, for any quarter under the Sales Tax Act in respect of sales of such goods.

We find that the principles laid down in the case of Saheney Steel and Press Works Ltd (supra), relied upon by Mr. Nizamuddin has been explained by the Supreme Court in a subsequent decision in the case of CIT v. Ponni Sugars and Chemicals Ltd (supra), relied upon by Mr. Poddar in the following terms;

“In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in Sahney Steel and Press Works Ltd. 1 In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee.”

(Emphasis supplied by us.)

In the aforesaid case, it was held that if the object of the Subsidy Scheme was to enable the assessee to run the business more profitably the receipt is on revenue account. On the other hand, if the object of the assistance under the Subsidy Scheme was to enable the assessee to set up a new unit or to expand the existing unit the receipt of the subsidy was on capital account. Therefore, the Court proceeded, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.

In the case before us, the object of the subsidy is for expansion of their capacities, modernization, and improving their marketing capabilities and thus, those are for the assistance on capital account. Similarly, merely because the amount of subsidy was equivalent to 90% of the sales tax paid by the beneficiary does not imply that the same was in the form of refund of sale tax paid. As pointed out by the Supreme Court in the case of Senairam Doongarmall v. Commissioner of Income-tax, Assam, reported in AIR 1961 SC 1579, it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure, and makes it fall within capital or revenue. Thus, in the case before us, the amount paid as subsidy was really capital in nature.

In the case of CIT-1, Ludhiana v. Adarsh Kumar Goel, reported in (2006) 156 Taxman 257 (Punjab), relied upon by Mr. Nizamuddin, a Division Bench of the Punjab and Haryana High Court was dealing with a case of subsidy granted in the form of sale tax exemption and thus, the Division Bench held that in the absence of any document or policy of the State Government to show the kind of subsidy it had granted it should be treated as a revenue receipt. In the case before us, having regard to the objects and reasons behind the grant of the subsidy we find that it is a case of capital receipt and thus, the said decision does not help the Revenue in any way.

On consideration of the entire materials on record, we, thus, uphold the view of the Tribunal below and dismiss the appeal by answering the first three questions in the affirmative and against the Revenue and the last question in the negative and against the Revenue.

In the facts and circumstances, there will be, however, no order as to costs.