2009 (4) TMI 86 - HC - Income Tax

Assessability of receipts on account of higher free sale of sugar and receipt of excise duty rebate - held that subsidy received by the assessee was not in the course of a trade so it was of a capital nature in respect of Receipt from concession in the rate of excise duty rebate held that the incentives given by the Government in the form of higher free sugar were given exclusively for the purpose of repayment of loan borrowed for the purpose of meeting part of the capital cost from financial institutions and therefore were not revenue receipts - Both these receipts are capital in nature and therefore not to be treated as income liable to tax

Summary

Issues:
1. Whether receipts from the sale of levy-free sugar and concession in the rate of excise duty rebate are capital receipts and not taxable?

Analysis:
1. The appeals were filed by the revenue against the order of the Income Tax Appellate Tribunal concerning the assessability of receipts from the sale of levy-free sugar and excise duty rebate. The first appellate authority considered the receipts as revenue and included them in the total income of the assessee. The Tribunal, however, allowed the appeals filed by the assessee, leading to the filing of the present tax case appeals by the revenue.

2. The revenue contended that a similar issue had been decided by the court previously, where it was held that certain subsidies would form part of the income from business. However, the excise duty rebate or incentive would not be assessable as income from business under Section 28(iv) of the Income Tax Act, 1961, based on previous court decisions.

3. Referring to the case law, the Division Bench in the case of Madurantakam Co-operative Sugar Mills Ltd. held that incentives like higher free sugar and excise duty collection arrangements were exclusively for loan repayment purposes and thus were not revenue receipts. The Supreme Court in a recent judgment reiterated that incentives had to be utilized for loan repayment and were of a capital nature, not in the course of trade.

4. Considering the legal precedents and the nature of the incentives received, the court concluded that the receipts from the sale of levy-free sugar and excise duty rebate were capital receipts and not taxable. Citing the Supreme Court's decision, the court held that the incentives were meant for loan repayment and were of a capital nature, leading to the dismissal of the appeals filed by the revenue.