1995 (4) TMI 21 - HC - Income Tax

Summary

Issues:
1. Taxability of cash compensatory support for export as revenue receipt.
2. Deductibility of Central Government subsidy from the money cost of assets for depreciation.

Analysis:

Issue 1: Taxability of cash compensatory support for export as revenue receipt
The case involved a partnership firm receiving cash incentive on exports, which was included in taxable income by the Income-tax Officer. The firm contended that the cash compensatory support for export should not be taxable. The court analyzed the nature of the amount received, noting its direct link to the export business and proportionality to the goods exported. Referring to the Kettlewell Bullen case, the court highlighted that income from business transactions is taxable. The court also mentioned the amendment to the definition of income under section 2(24) by the Finance Act, 1990, which included cash assistance against exports as business income. Consequently, the court held that cash compensatory support for export is taxable as a revenue receipt, ruling in favor of the Revenue.

Issue 2: Deductibility of Central Government subsidy from the money cost of assets
The court referred to the decision in CIT v. P. J. Chemicals Ltd., where it was observed that the expression 'actual cost' should be interpreted liberally. The court noted that the Government subsidy, in this case, was not intended to meet the 'actual cost' of assets directly. Based on this reasoning, the court agreed with the Income-tax Appellate Tribunal's decision that the Central Government subsidy is not deductible from the money cost of assets for depreciation purposes. Consequently, the court ruled in favor of the assessee on this point.

In conclusion, the court answered the first question in favor of the Revenue and the second question in favor of the assessee, with no order as to costs.