1996 (11) TMI 103 - AT - Income Tax

Summary

Issues:
1. Exemption from income tax on excess price realized on levy sugar under Sugar Incentive Scheme.
2. Reconsideration of matter based on judgments not considered previously.
3. Interpretation of decisions on revenue receipt and diversion of income.
4. Disallowance of expenditure for increasing share capital.

Analysis:
1. The appeal pertains to the assessment year 1993-94 where the assessee, a public limited company engaged in sugar manufacturing, claimed exemption from income tax on the excess price received on levy sugar sold under the Sugar Incentive Scheme. The claim was denied by the Income Tax Officer (ITO).

2. The CIT(A) reconsidered the matter in light of certain judgments not previously considered, including Associated Power Co. Ltd. vs. CIT, Jiwajirao Sugar Co. Ltd. vs. CIT, and Hindustan Sugar Mills Ltd. vs. State of Rajasthan & Ors. The CIT(A) held that the excess amount was a revenue receipt and should be taxed as income for the year.

3. The Tribunal analyzed the decisions cited by the CIT(A) and distinguished them from the case at hand. In the case of Associated Power Co. Ltd. vs. CIT, the Tribunal found a clear distinction as the excess amount received by the assessee was already obligated for repayment of term loans, leading to a diversion of income. The Tribunal also discussed the conflicting views on diversion of income in cases related to contributions to funds.

4. The Tribunal rejected the arguments that the initial character of the receipt should determine its tax treatment, citing the obligation to utilize the excess amount for loan repayment as a factor in diverting income. The Tribunal upheld that the excess amount received by the assessee cannot be subjected to income tax.

5. Additionally, the Tribunal dismissed the disallowance of expenditure for increasing the assessee's share capital, following precedents set by the Calcutta High Court. The third ground raised was deemed general and required no specific decision.

6. Consequently, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee regarding the tax treatment of the excess amount received and the expenditure incurred for increasing share capital.