1983 (2) TMI 80 - AT - Income Tax

Summary

Issues:
1. Taxability of export subsidy and cash assistance received by the assessee against the export of plant and machinery.
2. Determination of whether the received amount should be treated as a revenue receipt or a capital receipt.

Detailed Analysis:
Issue 1: The Income Tax Officer (ITO) contended that the export of plant and machinery by the assessee to Indonesia, coupled with the receipt of Rs. 3,81,602 as subsidy and cash assistance from the Government of India, constituted business income. The ITO relied on the interpretation that export incentives and sale proceeds of import entitlements were considered business income. Consequently, the ITO added the received amount to the total income of the assessee.

Issue 2: Upon appeal, the assessee argued that the amount received was a capital receipt as it was related to the investment in equity shares of an Indonesian company, not a result of carrying on export business. The CIT (Appeals) upheld the taxability of the amount, citing the company's objectives to buy and sell plant and machinery, and the receipt being in connection with the supply of machinery to Indonesia. The CIT (Appeals) affirmed that the amount was taxable as it was related to the export of plant and machinery.

Further Analysis: The assessee provided detailed evidence, including meeting minutes, letters from government authorities, and financial records, to support their claim that the export was made to participate in the equity capital of the Indonesian company, not for trading purposes. The assessee's counsel highlighted that the export was in line with approvals from the Government of India and Reserve Bank of India, and the received amount was credited to the capital reserve account, reducing the cost of investment in equity shares.

Judgment: The Appellate Tribunal considered the submissions of both parties and concluded that the export of plant and machinery was made by the assessee as an investor, not a trader. The Tribunal emphasized that the export was in compliance with government approvals for equity participation in the Indonesian company. Therefore, the Tribunal held that the received amount of Rs. 3,81,602 was a capital receipt and not taxable as revenue for the assessment year 1983-84. As a result, the appeal filed by the assessee was allowed, overturning the lower authorities' decision to tax the amount as business income.