CHENNAI: The Madras High Court has held that the grant provided by the Union Government for the development of the Milk Producers Cooperative Union cannot be treated as income.

To help repay the debts of the Dharmapuri District Milk Producers’ Cooperative Union, the Union Government had granted Rs 3.5 crore as a subsidy in 2007-08.

The Income Tax Department treated this amount as income of the union and issued an order accordingly. The appeal filed against this order was dismissed by the IT Appellate Authority.

Challenging the decision, the Dharmapuri District Co-operative Milk Producers Union, filed a case in the Madras High Court.

Hearing the case, a Bench comprising Chief Justice Manindra Mohan Shrivastava and Justice G Arul Murugan observed that the Union Government had granted Rs 3.5 crore as a subsidy for the development of the union, and for disbursing amounts payable to district cooperative societies and other unions. “This subsidy cannot be treated as income, but must be regarded as capital receipt,” it observed, and set aside the order of the IT Appellate Authority.