2007 (5) TMI 618 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of excess sale amount as trading receipt.
2. Statutory liability under Levy Sugar Price Equalisation Fund Act, 1976.
3. Taxability of subsidy received from State Government.

Interpretation of excess sale amount as trading receipt:
The Income-tax Appellate Tribunal referred questions regarding excess sale amounting to Rs. 21,57,611 realized by the assessee-company, over and above the levy sugar price fixed by the Government. The Tribunal had to determine if this excess amount was a trading receipt, considering the interim order of the Calcutta High Court. The Commissioner of Income-tax (Appeals) held that the amount was not a trading receipt for the year but would become taxable upon final disposal of the case by the competent Court. The Tribunal upheld this decision, leading to the deletion of the addition of Rs. 21,57,611.

Statutory liability under Levy Sugar Price Equalisation Fund Act, 1976:
The assessee claimed a deduction for a liability of Rs. 7,77,654 on account of interest payable under the Levy Sugar Equalisation Fund Act, 1976. The Assessing Officer had previously disallowed this deduction, but the Commissioner of Income-tax (Appeals) decided the issue in favor of the assessee based on the Tribunal's previous orders. Similarly, a liability of interest of Rs. 42,788 on excess realization for the sugar season 1971-72 was also allowed by the Commissioner of Income-tax (Appeals) following the Tribunal's previous decisions.

Taxability of subsidy received from State Government:
The assessee received a subsidy of Rs. 20,11,000 against a purchase tax paid of Rs. 20,12,046. The Assessing Officer treated this subsidy as a trading receipt and taxable income. The Commissioner of Income-tax (Appeals) upheld this decision, stating that the subsidy was not a capital receipt and was taxable as a trading receipt. The Tribunal also agreed, emphasizing that the subsidy was received to assist the assessee in carrying on its trade or business, making it a trade receipt. The Apex Court's decision in Sahney Steel & Press Works Ltd. v. CIT supported this view. Consequently, the question referred at the instance of the assessee was answered in favor of the revenue.

In conclusion, the High Court answered all questions in favor of the assessee regarding the excess sale amount and statutory liabilities. However, the taxability of the subsidy received from the State Government was decided in favor of the revenue based on the nature of the subsidy as a trade receipt.