Section 4 of ITA, 1961 – Income or capital – Assessee a Government Corporation wholly owned by State – Grant-in-aid received from State Government for disbursement of salaries and extension of flood relief – Funds meant to protect functioning of assessee – No separate business consideration between State Government and the assessee – Flood relief not constituting part of business of assessee – Grant-in-aid received is capital receipt – Not taxable

36.  Principal CIT vs. State Fisheries Development
Corporation Ltd.; 414 ITR 443 (Cal.)

Date of order: 14^th
May, 2018

A.Y.: 2006-07

Section 4 of ITA, 1961 – Income or
capital – Assessee a Government Corporation wholly owned by State –
Grant-in-aid received from State Government for disbursement of salaries and
extension of flood relief – Funds meant to protect functioning of assessee – No
separate business consideration between State Government and the assessee –
Flood relief not constituting part of business of assessee – Grant-in-aid
received is capital receipt – Not taxable

The assessee was engaged in
pisciculture and was a wholly-owned company of the State Government. It
received certain amounts as grant-in-aid from the State Government towards
disbursement of salary and provident fund dues and for extension of flood
relief. The AO treated the amount as revenue receipts on the ground that the
funds were applied for items which were revenue in nature and disallowed the
claim for deduction by the assessee. It was contended by the assessee that
though the funds were applied for salary and provident fund dues, the object of
the assistance was to ensure its survival.

The Tribunal allowed the assessee’s
claim.

On appeal by the Revenue, the
Calcutta High Court upheld the decision of the Tribunal and held as under:

“(i)   The finding of the Tribunal that the amount received by the assessee
from the State Government in the form of grant-in-aid utilised for clearing the
salary and provident fund dues and flood relief was capital in nature was
correct.

(ii)   The amount received by the assessee was not on account of any
general subsidy scheme. Though the grant-in-aid was received from the public
funds, the State Government being a hundred per cent shareholder, its position
would be similar to that of a parent company making voluntary payments to its
loss-making undertaking. It was apparent that the actual intention of the State
Government was to keep the assessee, facing a cash crunch, floating and
protecting employment in a public-sector organisation. There was no separate
business consideration on record between the grantor-State Government and the
recipient-assessee.