|CORAM:||G. S. Pannu (AM), R. S. Padvekar (JM)|
|DATE:||September 15, 2014 (Date of pronouncement)|
|DATE:||October 21, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Grant given to safeguard the interests of depositors, though used for meeting SLR requirements of RBI relatable to its banking activity, is still capital in nature|
The objective of the Government of Maharashtra to give grant to the assessee was to protect the interests of farmers and depositors from the Nanded district and for the said purpose the Government deemed it fit to provide financial assistance to the assessee-bank to enable it to regularize its functioning. Pertinently, the functioning of the bank was restrained by the RBI in the face of the restrictions imposed u/s 35A of the Banking Regulation Act, 1949. The objective and purpose of the Government was sought to be achieved by providing Rs.110 crores as a grant. The case made out by the Revenue is that the financial assistance given to the assessee-bank is for smooth running of its business and therefore it is to be regarded as a trading receipt. No doubt, the aforesaid sum has been used by the assessee for the purpose of maintain the Statutory Liquidity Ratio (SLR) as per the requirements of RBI, which enabled the assessee-bank to regularize its banking operations. So, however, the form or mechanism of subsidy is not important, as held by the Hon’ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. (supra). The nature of subsidy has to be determined by the object for which the subsidy is given. The underlying object of the Government was to safeguard the interest of farmers and small depositors, and this object was sought to be achieved by the mechanism of providing financial grant to the assessee-bank and regularizing its normal banking activity. In this manner, it has to be deduced that the subsidy/grant in question has not been received by the assessee-bank is the course of a trade but it is of capital nature (CIT vs. Ponni Sugars and Chemicals Ltd (2008) 306 ITR 392 (SC), Solid Containers Ltd. vs. DCIT (2009) 308 ITR 417 (Bom) & DCIT vs. A.P. State Electricity Board (2011) 130 ITD 1 (Hyd) distinguished).