1995 (11) TMI 19 - HC - Income Tax

Business Income, Cash Compensatory Support, Income From Business, Law Applicable To Assessment

Summary

Issues:
1. Interpretation of cash compensatory receipt as a revenue receipt for taxation.
2. Entertaining additional ground of appeal without affording the Assessing Officer an opportunity to examine the claim.
3. Impact of amendment in taxing provisions regarding incentives received by exporters.

Analysis:

1. The main issue in this case was the interpretation of cash compensatory receipt (CCS) as a revenue receipt for taxation. The Tribunal allowed the claim of the assessee, holding that CCS cannot be treated as a revenue receipt. However, the Department's view was that CCS, along with other subsidies received by exporters, should be considered revenue receipts and hence taxable. The law was amended retrospectively to include CCS, profit on sale of import entitlement licences, and drawback of duty as chargeable to income tax under the head 'Profits and gains of business or profession'. This amendment clarified the taxability of these incentives, resolving the litigation surrounding the issue.

2. Another issue raised was whether the Tribunal was justified in entertaining an additional ground of appeal without giving the Assessing Officer an opportunity to examine the claim. The Tribunal's decision to allow the claim without affording the Assessing Officer a chance to assess it was a point of contention. However, the subsequent amendment in the taxing provisions made this issue moot, as the law now clearly specifies the tax treatment of these incentives, eliminating the need for further examination.

3. The judgment highlighted the impact of the amendment in the taxing provisions regarding incentives received by exporters. The insertion of new clauses in section 28 of the Income-tax Act specified that profit on sale of import entitlement licences, CCS, and drawback of duty are now chargeable to income tax. These changes were made with retrospective effect from the dates these incentives were introduced. As a result, the reference was answered in favor of the Revenue and against the assessee, as the amended provisions clarified the taxability of these incentives and resolved any ambiguity surrounding their treatment under the Income-tax Act.