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PETITIONER: M/S. SAHNEY STEEL & PRESS WORKS LTD. HYDERABAD

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX.ANDHRA PRADESH-I , HYDERABAD

DATE OF JUDGMENT:       19/09/1997

BENCH: SUHAS C. SEN, D. P. WADHWA

ACT:

HEADNOTE:

JUDGMENT:                             WITH (C.A. Nos.10091/95, 5279/96, 2008/88,425/85 and 1664-65/97)                       J U D G M E N T SEN. J.      The question  in  this  case  is  whether  the  subsidy received by  the assessee-Company  from the  Andhra  Pradesh Government is  taxable as revenue receipt or not. It appears from  the   notification  issued   by  the   Andhra  Pradesh Government that certain facilities and incentives were to be given to all the new industrial undertakings which commenced production on  or after  1.1.1969  with  investment  capital (excluding working  capital) not exceeding Rs.5 crores.  The incentives were  to be  allowed for  a period  of five years from the  date of commencement of production.  Concession is also available  for subsequent  expansion of 50 per cent and above of  existing capacities  provided in  each  case,  the expansion was  located in  a city  or town or panchayat area other than  that in which the existing unit is located.  The incentives were:      "    (a) Refund of sales tax on raw      materials, machinery  and  finished      goods,   levied    by   the   State      Government subject  to a maximum of      10% of  the equity  capital paid up      in  the   case  of  public  limited      companies and the actual capital in      the case of others:           (b) subsidy  on power consumed      for production to the extent of 10%      in the  case of  medium  and  large      scale industries.   This concession      will  not   apply  to  cases  where      concessional tariffs are allowed by      the Electricity Board.           (c) Exemption  from payment of      water  rate  on  water  drawn  from      sources not  maintained at the cost      of Government or any local body;           (d) Refund  of water  rate  in      respect  of   water  drawn  from  a

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    Government source  or from a source      maintained by  any local  body  but      returned purified to it;           (e) Liability  on  account  of      assessment of land revenue or taxes      on land  used for  establishment of      any industry  shall be  limited  to      the amount  of such  taxes  payable      immediately before  the land  is so      used.           (f) The  following  additional      incentives will  be allowed  to new      industrial  units  set  up  in  the      ayacut  areas   of  Nagarjunasagar,      Pochampad  and   K.C.Canal  in  the      Ramagundam Kothagudem  areas in the      following eight backward districts:      The salient  features of  the scheme  formulated by the Andhra Pradesh  Government was  that the incentives were not available unless  and until  production had  commenced.  The availability of  the incentives would be limited to a period of five  years from  the date of commencement of production. The incentives  were to  be given  by way of refund of sales tax and  also by subsidy on power consumed for production to the extent stated in the notification.  Exemption were given also from  payment of  water rate.  Refund was also provided for water  rate in  respect of  water drawn  from Government sources.   There were  certain  additional  incentives  with which we are not concerned in this case.      The important  point to note is that all the incentives are production incentives in the sense that the company will be entitled  to these  incentives only  after it  goes  into production.  The scheme was not to make any payment directly for setting  up of  the industries.   It  is only  after the industries had been commenced that the incentives were to be given.      The second important thing to note is that there manner in which  the incentives were given is of no consequence for determination  of   the  question   raised  in   this  case. Incentives were  given by  way of refund of sales tax on raw material, machinery  and finished goods.  Similarly, Subsidy on "  power consumed  for production".   In  other words, if power is  consumed for any other purpose like setting up the plant and  machineries, the  incentives will  not be  given. Refund of  sales tax will also be in respect of taxes levied after commencement  of production  and upto a period of five years from  the date  of commencement  of production.  It is difficult  to   hold  these   subsidies  as   anything   but operational  subsidies.    These  subsidies  were  given  to encourage setting  up of  industries in  the State of Andhra Pradesh by  making the  business of  production and  sale of goods in the State more profitable.      Mr. Ganesh  appearing on  behalf of  the  assessee  has contended that  the incentives scheme was for setting up new industries undertakings  in  the  State  and  also  for  the purpose  of   stimulating  substantial   expansion  of   the industries.   The primary object was rapid industrialisation of the  State.   The object was sought to be achieved by the various incentives.   It  was  further  contended  that  the subsidy given  by the  State was  upto 10%  of  the  capital investment in  the undertakings.    Since  the  subsidy  was calculated on  the basis of quantum of investment in capital such subsidy  cannot be  considered to have been received by the assessee on revenue account.      It was  further contended  by Mr.  Ganesh that grant of

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subsidy was  on the  basis of  refund of  sales tax  on  raw materials, machineries,  and finished goods already paid for by the  assessee for  a period  of five  years and  was of a capital nature.  The object for granting refund of sales tax was that  the assessee  could set  up new business or expand substantially his existing business.      Before we  examine these  propositions advanced  by Mr. Ganesh, we will examine the facts of the case a little more. The  assessee   maintains  its  accounts  according  to  the Calender year.   It was, therefore, entitled to the benefits of the  benefits of  the said  G.O. in  the year 1973, which means assessment year 1974-75.  in the said accounting year, the assessee  obtained refund  of the  following three  item totalling Rs.14,665.70 in terms of G.O.Ms.No.455.  The three items are:      (i) Refund of sales tax on        Rs.      purchase of machines during    5,839.93      1971-72                        5,839.93      (ii) Refund of sales      tax on purchase of raw      materials during the year      1971-72                        390.79      (iii) Refund of Sales tax      paid on sale of punished      goods during the year      1971-72                        8,423.98      The Income Tax Officer, while making the assessment for the year 1974-75, included the said amount in the assessable income of  the assessee which was confirmed on appeal by the Commissioner of  Income Tax  (Appeals).   On further appeal, however, the  Tribunal upheld  the assessee’s contention and held that  the  amount  of  Rs.14,665.70,  refunded  to  the assessee in terms of the said G.O. "did not represent refund of Sales tax" but was a development subsidy in the nature of a capital  receipt.   The Tribunal  also held  that the said amount cannot  be deemed  to be  the income  of the assessee under s.41(1)  either.   Thereupon the revenue asked for and obtained the reference of the following question:      "Whether, on  the facts  and in the      circumstances  of   the  case,  the      Income-tax Appellate  Tribunal  was      justified  in   holding  that   the      amount of Rs.14,665 received by the      assessee  from  the  Government  of      Andhra  Pradesh   in  the  relevant      accounting period  was not  liable,      to be  included in the total income      assessable for  the assessment year      1974-75".      The contention of Mr. Ganesh that the subsidies were of capital nature and were given for the purpose of stimulating setting up  and expansion  of industries in the State cannot be  upheld  because  of  the  subsidy  scheme  itself.    no financial assistance was granted to the assessee for setting up of the industry.  It is only when the assessee had set up its  industry   and  commenced   production   that   various incentives were  given for the limited period of five years. It appears  that the  endeavour of the State was too provide the newly  set up  industries a  helping hand for 5 years to enable them  to be viable and competitive.  Sales tax refund and the  relief on  account of  water rate,  land revenue as well as  electricity charges were all intended to enable the assessee to  run the  business more  profitably.   The basic principle to  be applied  for determination  as to whether a subsidy payment  is in  the nature of capital or revenue has

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been stated  by viscount  Simon in  Ostime v. Pontypridd and Rhondda Joint Water board 28 T.C.262 in the following words:      "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’s   trade   or      business are trading receipts, that      is, are  to be brought into account      in  arriving   at  the  balance  of      profits or  gains under  Case 1  of      schedule d.   It  is sufficient  to      cite the  decision of this House in      the  sugar   beet  case  (Smart  v.      Lincolnshire Sugar  Co.,  Ltd.,  20      T.C.  643;   156   L.T.   215)   an      illustration.           The     second     proposition      constitutes an  exception.   If the      undertaker is  a  rating  authority      and the  subsidy is the proceeds is      the proceeds of rates imposed by it      or comes  a fund  belonging to  the      authority,  the   identify  of  the      source with  the recipient prevents      any question  of  profits  arising-      see, for example, Lord Buckmaster’s      explanation  in  Forth  conservancy      Board  V.  Commissioner  of  Inland      Revenue, (1931)  A.C.540,  at  page      546 (16  T.C.103, at  page 117) and      compare what Lord Macmillan said in      Municipal Mutual  Insurance Ltd. V.      Hills, 16 T.C. 430, at page 448."      In the  instant case, the first proposition of Viscount Simon Clearly  applies.   The amount paid to the assessee in the instant  case is  in the  nature of  subsidy from public funds.   The funds  were made  available to  the assessee to assist it  in carrying  on its  trade or  business.   In our view, having regard to the scheme of the Notification, there can be  little doubt  that the object of various assistances under the  subsidy scheme  was to  enable to assessee to run the business more profitably.      In the  judgement delivered by Viscount Simon with whom Lord Thankerton agreed two earlier decisions were relied on. The first  of these  two decision  was the  case  of  Seaham Harbour Dock Company V. Crook 16 T.c. 333.  In this case the Harbour Dock  Company had  applied for  and obtained  grants from  the   Unemployment   Grants   Committee   from   funds appropriated by  Parliament.   These grants were paid as the work progressed  and were equivalent to half the interest on approved expenditure  met out  of loans.   The  payment were made several  times a year for some years.  The Dock company had undertaken an extension of its docks.  The extended dock was also  for relieving  unemployment problem.   Because the work undertaken  was extension  of the  dock  and  the  main purpose was relief of unemployment , the House of Lords held that the  financial assistance  given  to  the  company  for extension of  the dock  cannot be regarded as receipt of the trade.  Lord Atkin explained the position by saying that:      "It is a receipt which is given for      the express purpose which is named,      and it has nothing to do with their      trade in the sense in which you are      considering the profits or gains of

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    the trade."      Lord Buckmaster Observed as under:      "Was this  a trade  receipt? and my      answer is  most unhesitatingly  No.      It  appears   to  me  that  it  was      nothing wherever  of the  kind.  It      was a  grant which  was made by the      Government department with the idea      that by  its use  men might be kept      in employment,  and it  was paid to      and received  by the  Dock  Company      without any  special allocation  to      any  particular   part   of   their      [property  ,   either  capital   or      revenue, and  was simple  to enable      them to  carry out  the  work  upon      which they  were engaged,  with the      idea that  by so doing people might      be employee."      Mr. Ganesh  strongly relied on Seaham Harbour Company’s case (supra)  which does  not come  to the assistance of his contention in  any  way.    In  that  case  application  for assistance was  made even  before the  work of  expansion of dock commenced.  The money was for extension of docks of the company.   The extension  would have enabled some persons to be kept  in employment  who would  otherwise have lost their jobs.  Money was given in several instalments as the work of extension of  the dock  continued.   Money was given for the express purpose  which was  named.  It was found by House of Lords that  it had  nothing to  do with  the trading  of the company.      In the case before us, payment were made only after the industries have  been set  up.   Payments are not being made for the  purpose of  setting up  of the industries.  But the package of  incentives were  given to  the industries to run more profitably  for a period of five years from the date of the commencement  of production.   In other words, a helping hand was  being provided  to the industries during the early days to  enable them  to come  to a  competitive level  with other established industries.      The second  case is  Lincolnshire Sugar Company Ltd. V. Smart, 20  T.C. 643.    In  that  case  it  was  found  that Lincolnshire Sugar  Company Ltd.  carried on the business of manufacturing sugar  from home  grown beet.  The Company was paid various  sums under British Sugar industry (Assistance) Act, 1931  out  of  monies  provided  by  parliament.    The question was  whether these  monies were  to be  taken  into account as  trade receipts  or not.  The object of the grant was that  in the  year 1981, in view of heavy fall in prices sugar, sugar  industries were in difficulty.  The Government decised to  give financial  assistance to certain industries in respect  of sugar  manufactured by  them from  home-grown beet during the relevant period. Lord Macmillan held that:      "What to  my mind  is decisive that      these payments  were  made  to  the      Company in  order  that  the  money      might be used in their business."      He furthered observed that :      "I    think    that    they    were      supplementary    trade     receipts      bestowed upon  the company  by  the      Government and  proper to  be taken      into computation in arriving at the      palace of the company’s profits and      gains for  the year  in which  they

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    were received."      In the case before us, the payments were made to assist the new industries at the new industries at the commencement of business  to carry  on their  business.  The payment were nothing but  supplementary trade  receipts.  It is true that the assesses  could not  use this  money for distribution as dividend to  its shareholders.  But the assesses was free to use the  money in  its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of  docks as  in the Seaham Harbour Dock Company’s cases.      There is  a Canadian  case St.  John Dry  Dock  &  Ship Building Co. Ltd. v. Minister of National Revenue, A D.L.R., which has close similarly to the case of Seaham Harpour Dock Company’s Case  (supra).   In that  case, it  was held  that where subsidies  were given  under statutory  authority, the statutory purpose  for which they are authorised is relevant and may  even be  decisive  in  determining  whether  it  is taxable income in the hands of the recipient.  In that case, it was  pointed out  after discussing the Seaham harbor Dock Company’s Case (supra) as well as that of Lincolnshire Sugar Company’s case  (supra) that  subsidy given  by the Canadian Government to  encourage construction  of dry  docks was "an aid to  the construction  of dry dock and not an operational subsidy".      This precisely  is the question raised in this case. By no stretch  of imagination  can the subsidies whether by way of refund  of sales  tax or relief of electricity charges or water charges  can be treated as an aid to setting up of the industry of  the assesses.   As  we have  seen earlier,  the payments  were  to  be  made  only  if  and  when  asssessee commenced its production.  The said payments were made for a period  of   five  years   calculated  from   the  date   of commencement of  production in  the assessee’s factory.  The subsidies  are   operational  subsidies   and  not   capital subsidies      Mr. Ganesh’s  further argument was that the three types of refunds  contemplated in  the scheme, the refund of sales tax on  purchase of  machinery must  be treated  as capital. The payment  for the  purchase of  machineries  must  be  of capital nature and the entire payment of sales tax must have been treated  as capital expenditure of the Company.  If any refund of  sales tax  paid on  purchase of  capital goods is made the  refund will  partake of the character which it had originally borne.   Such refunds cannot in any circumstances be  treated   as  trade   receipts  or  supplementary  trade receipts.   This argument overlooks the basic principle laid down in  the cases  discussed above.   It  is not the source from which  the amount  is paid  to the  assesses  which  is determinative of  the question  whether the subsidy payments are of  revenue or  capital nature.   The  first proposition stated by Viscount Simon in Ostime’s Case (supra) is that if payment in  the nature of subsidy from public funds are made to the  assessee to  assist him  in carrying on his trade or business,   they are  trade receipts.   The  sales tax  upon collection forms  part of the public funds of the State.  If any subsidy  is given,  the character  of the subsidy in the hands of  the recipient-whether  revenue or  capital-   will have to  be determined  by having  regard to the purpose for which the  subsidy is  given.   If it  is given  by  way  of assistance to  the assessee  in carrying  on of his trade or business, it  has to  be treated  as trading  receipt.   The source of the fund is quite immaterial.      For example,  if the  scheme was that the assessee will be given  refund of  sales tax  on purchase  of machinery as

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well as  on raw  materials to enable the assessee to acquire new plants  and  machinery  for  further  expansion  of  its manufacturing  capacity  in  a  backward  area,  the  entire subsidy must  be held  to be a capital receipts in the hands of the  assessee.   It will  not be  open to  the Revenue to contended that the refund of sales tax paid on raw materials or finished  products must be treated as revenue receipts in the hand  of  the  assessee.    In  both  the  cases  ,  the Government is paying out of public funds to the assessee for definite purpose.  If the purpose is to help the assessee to set up  its business  or complete  a project  as  in  Seaham Harbour Dock  Company’s  Case(supra),  the  monies  must  be treated as  to have  been received for capital purpose.  But if monies  are given  to the  assessee for  assisting him in carrying out  the business  operation and the money is given only after  and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.      In Seaham  Harbour Dock  Company’s case  (supra)  which appears to  be sheet-anchor  of the  argument of Mr. Ganesh, the Company in contemplation of an expansion of its dock had applied for  financial assistance to the Unemployment Grants Committee.   The Committee  gave financial  assistance  from time to  time as  the work  progressed and  the payment  was equivalent to half the interest for two years (not exceeding average rate  of 5-1/2  per  cent  per  annum)  on  approved expenditure made  out of loans.  Even though the payment was equivalent to  half the  interest amount payable on the loan which might  have been  a revenue  expenditure the  House of Lords had  no difficulty  in holding that the money received by the company was not in course of trade but was of capital nature.      We shall  now see  how our  Courts have  dealt with the problem.      This Court  in  V.S.S.V.  Meenakshi  Achi  &  Anr.  Vs. Commissioner of  Income Tax, Madras, 60 ITR 253 followed the same principle  and relied  upon and  approved of an English decision in  the case  of Higgs  V. Wrightson.(1944) 26 T.C. 73.   There a  dairy farmer had received grant in respect of the ploughing  and bringing  into a state of cleanliness and fertility land  previously under  grass for  seven years  or more.   Macnaghtenn, j.  held that  since the  amount of the grant depends  on the  area ploughed,  the grant was towards the  expenditure  of  ploughing  and  therefore,  a  revenue receipts in  the hands  of the assessee.  It was observed in Meenaksi Achi’s  case (supra)  by  subha  Rao,  j.  (as  His Lordship then was):      "So too,  in the  instant case, the      payments to  the planters were made      against  the  expenditure  incurred      for    maintaining    the    rubber      plantations.      Having  regard   to  the  aforesaid      facts,  we   must  hold   that  the      amounts from the fund earmarked for      the appellants  on the basis of the      rubber produced  by them  were paid      against the expenditure incurred by      them  for  maintaining  the  rubber      plantation   and    producing   the      rubber."      A full  bench of  the Kerala  High Court  examined  the question of  subsidy received for replanting rubber trees in the case  of Commissioner of Income Tax V. Ruby Rubber Works Ltd. 178  ITR 181.  it dealt with a scheme of subsidy framed

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by the  Rubber Board in 1976 for replanting rubber planting. The subsidy  was not  given for  budding immature unselected plants but  was not  given for  budding immature  unselected plants but  was restricted  to replanting  only of  old  and uneconomic trees.   The  subsidy was  not for the purpose of upkeep or  maintenance of  immature rubber  trees.  On these facts, the Full Bench came to the conclusion that the object of the  Scheme was replanting and the subsidy was being paid for planting  high yielding  variety of  rubber plants which the Rubber  Board and  the Government  thought was necessary for the Development of the rubber industry.  What was sought was to  be achieved  was a  public purpose  of vital  public interest.      The full Bench pointed out that the economic assistance offered by  the Board  was under  stringent  conditions  for implementing a  scheme designed  to achieve  development  of rubber plantation  industry on efficient and economic lines. After an  exhaustive revue  of the  case law and the subsidy scheme, the full Bench observed.      "We are  tempted to  say  that  the      subsidy received by the assessee is      used  to   acquire  an   asset   by      replanting  high-yield  variety  of      rubber trees.   The  difference is,      as  said   by   Bowen   L.J.,   the      expenditure in  the acquisition  of      the   concern   will   be   capital      expenditure and  the expenditure in      carrying on  the concern is revenue      expenditure.   This makes the vital      difference   between    the   cases      reported   in    Karimtharuvi   Tea      Estates Ltd.  V.  State  of  Kerala      (1963)   48   ITR   (SC)   83   and      Travancore Rubber  and Tea Co. Ltd.      V. Commr.  Of Agrl. I.T. (1961), 41      ITR 751 (SC)."      So far  as the  scheme is  concerned,  the  full  Bench further observed:      "The subsidy  scheme makes  it very      clear, that  the amount  of subsidy      has   to    be   spent   ’for   the      acquisition   of   an   asset’   by      replanting rubber  plants of  high-      yielding varieties."      It will  be seen from this decision that the Full Bench relied upon  the decision  of the  House of  Lords in Seaham Harbour Dock  Company’s Case  (supra) and pointed out that a beneficial scheme  had been  evolved for  replanting of  the trees and  as a  result of replanting, the assesses acquired an asset  which was  of capital  nature.    It  was  further pointed out in that judgement that the scheme was definitely only for  one purpose, viz., replanting.  It was not for the purpose of  unkeeping and  maintaining  nature  of  immature rubber plants.   This  was the  vital factor on the basis of which the  full Bench of the Kerala’s High Court came to the conclusion that  the subsidy  given for  replanting  of  old rubber trees  cannot be included as a revenue receipt of the rubber company.      Our attention  was drawn to the case of Sadichha Chitra . V. Commissioner of Income Tax, 189 ITR 774.  In that case, was noted  that in  a given case subsidy may be granted with the object  of supplementing  trade receipts  and profits of the recipient.   In  another case, the scheme of subsidy may have been formulated by the authority to assist the assessee

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in acquiring  a capital  asset or  for  the  growth  of  the industry generally  in public interest without any objective of supplementing  trade receipts  or recoupment  of  revenue expenditure already incurred by the assessee.      In that  case, the Government of Maharashtra sanctioned a subsidy  scheme  for  grant  of  financial  assistance  to Marathi film  producers  to  promote  production  of  better Marathi films and help Marathi colour films in preference to black and white films.  It will be seen from the facts noted in the  judgement of the Bombay High Court that any producer of Marathi  films could  apply to  the Collector  of  Bombay (Entertainment Duty  Department) for  grant of a certificate of eligibility  for getting  the grant.  The Collector after holding necessary  enquiry in  respect  of  various  matters referred in the scheme would recommended that the desease of the amount  to the  applicant.  One of the pre-conditions of the grant  was that  the  applicant  must  prepare  adequate plants for  production of new film and also fulfil financial and  technical  requirement  for  production  of  the  film. Financial  assistance   was  to   be  given  in  four  equal instalments in  the following  manner.  The first instalment was to  be released  after completion  of one  third of  the proposed footage  of the  film, the second instalment on the completion of  the entire  film ready  for censors  and  the financial instalment  had to  be released  immediately after the new film had crossed the hurdle of censorship and actual release.  It was noted in the judgement:      "The said  subsidy was  released to      the assessee  so as  to assist  the      assessee to  acquire a  new capital      asset   so as  to meet  part of the      cost of the new film in public."      On the  basis of that vital distinction, the Court held that the  ratio of  the judgement of this court in Meenakshi Achi’s case  was not  applicable in  the facts  of the  case before it.      In the  case of  Commissioner of  Income Tax  v.  Udaya Picture (p)  Ltd., 225  ITR 394,  subsidy was granted by the State Government  for producing  new regional films.  It was held that  the entitlement  to the  subsidy sprang  from the business carried  on by  the assessee  and  the  amount  was received during the course of conduct of the business.  What was received  by the  assessee was not capital receipt but a subsidy.      The facts  of this case have not been clearly stated in the judgement.   But  it appears  that subsidy  was  granted after making  of the film.  The Bombay judgement in the case of Sadichha  Chitra (supra).   Proceeded on the footing that subsidies were  granted as  and  when  the  film  was  being completed which  resulted in creation of a capital asset.  A similar vies  was taken  by the Andhra Pradesh High Court in the case  of Commissioner of Income Tax V. Chitra Kalpa, 177 ITR 540 where it was held that subsidy was for making a film and was  to be treated ad a capital receipt because the film taken by  the Bombay and Kerala Courts appears to be correct and accords  with the  principle laid down in Seaham Harbour Dock Company’s  Case (supra)  that assistance  given by  the Government for  completion of  a project  must be of capital nature.      In the  case before us, subsidies have not been granted for production  of or bringing into existence any new asset. The subsidies  were  granted  year  after  year  only  after setting  up   of  the   new  industry  and  commencement  of production.   Such  a  subsidy  could  only  be  treated  as assistance given  for the  purpose of  carrying  on  of  the

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business of  the assessee.   Applying  the test  of Viscount Simon in  the case  of Ostime.   It  must be held that these subsidies are of revenue character and will have to be taxed accordingly.      A Division Bench of the Calcutta High Court in the case of Kesoram  Industries and Cotton Mills Ltd. v. Commissioner of Income  Tax, 191 ITR 518 also examined a scheme of refund of sales  tax framed  by Andhra Pradesh Government to assist newly set  up industries.   There  the assessee had set up a cement plant.   The Calcutta High Court held that receipt of the incentives  from the  State Government was incidental to carrying on  the business  of the assessee .  Such subsidies were received  year after  year by refund of sales tax.  The benefit was received in course of carrying on the assessee’s business.  it was a benefit incidental to its business.  The subsidy was  not intended to be contribution towards capital outlay of  the industry.   Therefore,  it was  held that the subsidy received  by the  assessee in that case could not be regarded as anything but a revenue receipt.      The  Madhya   Pradesh  High   Court  in   the  case  of Commissioner of Income Tax v. Dusad Industries, 162 ITR 734, dealt with  a case  where Government had framed a scheme for granting  sales  tax  subsidies  to  industries  set  up  in backward areas.   The  High Court  was of  the view that the object of  the scheme was not to supplement the profits made by industries.   In  that view of the matter, the High Court held that  the subsidies  five under  the said scheme by the Government to  newly set up industries were capital receipts in the   hands  of the  industries and could not be taxed as revenue receipts.   In  that case,  75 per cent of the sales tax paid  in a  year for a period of five years from the day of starting  of production  was to  be  given  back  by  the Government to the industry concerned.  The High Court was of the view  that obviously  the subsidy  was given  by way  of addition to  the profits  of the  assessee as was clear from the facts and circumstances of the case.  The Madhya Pradesh High Court,  however, failed  to notice the significant fact that under  the scheme  framed by the Government, no subsidy was given  until the time production was actually commenced. Mere  setting   up  of  the  industry  did  not  qualify  an industrialist for  getting any  subsidy.   The  subsidy  was given as  help not  for the setting up of the industry which was already  commenced production.   The  view taken  by the Madhya Pradesh High Court is erroneous.      In view  of the  aforesaid,  it  is  not  necessary  to discussed the  point relating  to applicability  of  section (41) of the Income Tax Act, 1961 in this case.      The appeal  fails and  is dismissed .  There will be no order as to costs. C.A.NOS. 10091/95, 5279/96, 2008/88, 425/85      In view of our above decision, these appeals also stand dismissed with no order as to costs. C.A.NOS. 1664-65/97      These appeals  by the Revenue are allowed with no order as to costs.