2022 (12) TMI 157 - AT - Income Tax

character of income - Served from India Scheme Scrips - addition on account of revenue receipt i.e. SFIS scrips - available and utilized for capital goods - revenue receipt or otherwise - HELD THAT - SFIS is a credit receipt used for making payment of excise duty on domestic purchases. Scrips under SFIS are enticements which can be set off against excise duty while making purchase / import of capital goods. In no case has any amount been received by the Assessee under SFIS. All the purchases have been capitalized and hence new assets have come into existence. Assessee has not reckoned SFIS credit in its Profit Loss account, since such credit for its nature as well as built-in conditions, could never have been an item on revenue account. Wherever it has made purchases of eligible capital goods however, it has corresponded with vendors as to availability of SFIS credit against Excise / Customs liability against the said purchases, obtained certificates from Excise / Customs authorities against provisional Invoices from vendors, and has purchased the said capital goods net of Excise / Customs duty, against SFIS credit. The capital goods as purchased have been brought into Assets at the net-of Excise / Customs value in the Balance Sheet. Details of utilization of SFIS credit during the year are are examined. Documents in respect of 17 transactions of purchase, referencing the SFIS credit and its accounting are perused. The first 16 transactions are for purchase of rakes of 30 - 45 wagons, while last one is in respect of purchase of Slack less draw bar(SLDB), which is the joint between railway wagons. The rake enters the Assessee s business and the Assessee s accounts as a fixed asset, and is capitalized at the cost of acquisition - All that the SFIS credit has done therefore, is to reduce the value of a capital asset brought into the books, by the amount of excise duty thereof. Had the SFIS credit not been included, the Assessee would have paid the duty and added the same to the asset cost while capitalizing the same. There is therefore no element of revenue or income in the SFIS credit, even from the point of view of the Assessee s accounting. SFIS credit available through a specific certificate as furnished to each vendor has been utilized to make purchases of capital goods at net of Excise prices. Those capital assets have then been capitalized at the purchase value. Clearly therefore, SFIS credit is not in the nature of income. SFIS credit goes to reduce the cost of capital goods purchased by the Assessee and the SFIS credit given to the assessee can be utilized only against purchase of capital goods and to set off a portion of excise duty and customs duty only and do not constitute taxable income of the assessee as per the Clause (xviii) to section 2(24) of the Income tax Act 1961 - Appeal of the assessee is allowed.

Summary

Issues:
1. Reckoning of credit under the "Served From India Scheme" (SFIS) as income.

Analysis:
The judgment involved two appeals: one by the assessee and the other by the revenue against the order of the ld. CIT(A)-2, New Delhi. The primary issue in both appeals was the treatment of credit under the SFIS scheme for income tax purposes. The SFIS scheme aimed to boost the export of services and provided duty credit scrips equivalent to a percentage of foreign exchange earned during the year. The dispute centered around whether this credit should be considered as income under the Income Tax Act.

The authorities below initially considered the SFIS credit as a revenue receipt. The Assessing Officer added the entire credit under SFIS to the assessee's income, while the CIT(A) restricted the addition to the amount actually utilized against excise and customs duty liabilities. The revenue contended that SFIS credit was only an entitlement for duty payments and not related to setting up a business or acquiring capital assets. However, the tribunal disagreed with this interpretation.

The tribunal analyzed the provisions of the SFIS scheme and the relevant notifications, emphasizing that the duty credit scrips could only be used for specific purposes related to importing capital goods. The tribunal highlighted that SFIS credit was utilized to offset excise duty on domestic purchases of capital goods, resulting in the reduction of the asset cost. The tribunal concluded that SFIS credit did not constitute taxable income under the Income Tax Act, as it directly reduced the cost of capital goods purchased by the assessee.

In light of the detailed analysis and interpretation of the SFIS scheme and related provisions, the tribunal allowed the appeal of the assessee and dismissed the appeal of the revenue. The judgment clarified that SFIS credit was not in the nature of income but rather a mechanism to reduce the cost of capital goods, aligning with the specific purposes outlined in the scheme.