A.M Sapre, J.:— This is an income-tax reference made under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue (Commissioner of Income-tax), to answer the following question of law referred to this court by the Tribunal (the ITAT) which arises out of the order of the Tribunal, dated August 28, 1997, passed in I.T.A No. 426.Ind of 1993:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was correct in claiming power subsidy as capital receipt?”
2. Heard Shri R.L Jain, learned counsel for the applicant. None for the asses-see despite service and S.P.C having been sent for hearing of the reference.
3. The question arises out of the assessment year 1988-89. The assessee, being a limited company at the relevant time, was engaged in the business of manufacture of stainless steel in its manufacturing unit. In its manufacturing activity, the assessee received in the relevant assessment year a power subsidy amounting to Rs. 13,22,884 from the State. The question therefore arose before the taxing authorities as to whether the amount received by the assessee from the State by way of power subsidy is a capital receipt or revenue receipt in the hands of the assessee. It was the contention of the assessee that it is in the nature of capital receipt and hence not liable to tax whereas the contention of the Revenue, i.e, taxing authorities, was that it is in the nature of revenue receipt and hence liable to tax. It is this issue which was debated before the Assessing Officer then before the Commissioner of Income-tax (Appeals) and lastly before the Tribunal.
4. The Assessing Officer and the Commissioner of Income-tax (Appeals) held the amount received by the assessee to be in the nature of revenue receipt and accordingly proceeded to tax it in the hands of the assessee. However, the Tribunal while reversing the view taken by the Assessing Officer and the Commissioner of Income-tax (Appeals) held it to be in the nature of a capital receipt. As a consequence, thus, accepting the contention of the assessee the amount was not held liable to tax being regarded as in the nature of a capital receipt. It is against this finding of the Tribunal rendered in the second appeal filed by the assessee, that the Revenue prayed to the Tribunal for a reference to be made to this court under section 256(1) of the Act. As observed supra, the Tribunal acceded to the request so made by the Revenue in Reference Application No. 128.Ind of 1997 which as stated supra arose out of an order dated August 28, 1997, passed in I.T.A No. 426.Ind of 1993 by the Tribunal. This is how the aforementioned question has been referred to this court for answer.
5. At the outset, we may take note of the fact that the Tribunal while deciding the appeal in favour of the assessee by their order dated August 28, 1997 (annexure C), did not discuss any issue much less the legal issue on the question referred and which really arose out of the controversy. Indeed, the learned member of the Tribunal only referred to and placed reliance on some earlier decisions of the Tribunal rendered in I.T.A No. 704 of 1994 dated January 25, 1995, and I.T.A No. 684/685 of 1984 dated October 8, 1997, and I.T.A No. 102/1025 of 1995 dated October 26, 1993. It is on the basis of the view so taken by the Tribunal that the issue was decided in favour of the assessee.
6. We cannot countenance the manner in which the Tribunal decided the issue. Indeed, the slipshod manner in which the Tribunal proceeded to decide the issue can never be upheld. In the first place, the Tribunal should have first detailed the factual aspect of the case, then it should have examined the nature of subsidy granted to the assessee by the State. Secondly, the Tribunal should have examined the issue in the context of the law laid down by the Supreme Court and the High Court on the subject rather than the view taken by the Tribunal in some earlier decision. Thirdly, it is the duty of the Tribunal to decide the cases on the basis of the law laid down by the Supreme Court/High Court and not what the Tribunal decides on the particular issue. Every effort must be made by the Tribunal being the last Appellate Tribunal on facts and law to decide the issue by taking help from the decisions of the Supreme Court and if there is no direct authority of the Supreme Court on the point then of the jurisdictional High Court and lastly of any other High Court. Not taking note of the facts of the case, nor the legal position and not even referring to the facts of the case involved in those decisions on which the reliance is placed for deciding the appeal amounts to non-exercise of the appellate powers by the Tribunal. It equally results in total non application of judicial mind resulting in setting aside of the so-called view taken by the Tribunal in such cases.
7. Now coming to the issue involved, in our opinion, the issue is squarely covered in favour of the Revenue by the authoritative decision of the Supreme Court reported in the case of Sahney Steel and Press Works Ltd. v. CIT, [1997] 228 ITR 253. It is in this case that their Lordships held as to how and on what basis and by which criteria, the taxing authorities should decide that a particular amount received by an assessee as a subsidy be regarded in his hand as a capital receipt or a revenue receipt. Their Lordships, inter alia, ruled that it is necessary to see and examine the true character of the subsidy given to the assessee by the State. It was, inter alia, held that if it is for setting up of a plant/industry then it can be regarded as a capital receipt but if granted it is for running the industry/business then it can be regarded as a revenue receipt.
8. In the case of Sahney Steel, [1997] 228 ITR 253 (SC), one of the incentives provided to the assessee was a subsidy on power consumed for production of goods. Their Lordships held it to be in the nature of a revenue receipt. When we examine the nature of subsidy granted to the assessee in this case in the light of the law laid down in Sahney Steel's case, [1997] 228 ITR 253 (SC) then we have no hesitation in holding that it is in the nature of a revenue receipt and not a capital receipt as held by the Tribunal. Indeed, the power subsidy granted to an assessee for running the industry is already held to be in the nature of a revenue receipt by the Supreme Court and hence, in our opinion, the view taken by the Tribunal by holding that it is in the nature of a capital receipt cannot be upheld.
9. Accordingly and in view of the aforesaid discussion, we answer the question referred to us in the negative and in favour of the Revenue. In other words, we hold by answering the question that the Tribunal was not right in holding that the power subsidy is a capital receipt. Instead we hold by answering the question that power subsidy received by the assessee is a revenue receipt.