1985 (10) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of Cash Compensatory Support (CCS) received by the assessee.
2. Nature and purpose of CCS.
3. Legal basis and enforceability of CCS.
4. Classification of CCS as trading or non-trading receipt.
5. Relevance of various judicial precedents in determining the nature of CCS.

Detailed Analysis:

1. Taxability of Cash Compensatory Support (CCS) Received by the Assessee:
The primary issue in the appeal was whether the CCS of Rs. 2,20,375 received by the assessee for exporting specified engineering goods was taxable. The Tribunal held that the CCS was indeed taxable as it constituted a trading receipt. The Tribunal emphasized that the CCS was received in the course of the assessee's business and was directly related to the export activities, making it a part of the business income.

2. Nature and Purpose of CCS:
The Tribunal examined the nature and purpose of CCS extensively. It was found that CCS was introduced as a measure to make Indian exports competitive in the international market by compensating for various non-refundable taxes and inherent disadvantages in the Indian economy. The Tribunal noted that the CCS was a continuation of the earlier cash assistance scheme introduced in 1966, aimed at subsidizing the cost of production and encouraging exports.

3. Legal Basis and Enforceability of CCS:
The Tribunal rejected the assessee's argument that CCS was a gratuitous payment without any legal enforceability. It was held that the right to receive CCS was enforceable under the law, either as a statutory right under section 3 of the Imports and Exports (Control) Act or based on the principle of promissory estoppel. The Tribunal referred to the Supreme Court's decision in the case of Anglo Afghan Agencies, which established that promises made by the Government under such schemes were enforceable.

4. Classification of CCS as Trading or Non-Trading Receipt:
The Tribunal applied the test laid down in the case of Seaham Harbour Dock Co. to determine whether CCS was a trade receipt. It held that CCS was a trade receipt as it was received by the assessee in the course of its business for the purpose of making the business more competitive in the international market. The Tribunal distinguished CCS from non-trading receipts, such as gifts or grants received without any correlation to the business activities.

5. Relevance of Various Judicial Precedents:
The Tribunal relied on several judicial precedents to support its conclusion. It referred to the decisions in Pontypridd and Rhondda Joint Water Board, Handicrafts & Handloom Export Corpn., Ahmedabad Mfg. & Calico Printing Co. Ltd., and Jeewanlal (1929) Ltd., among others. These cases established that subsidies or grants received by a business to assist in its operations were trading receipts and taxable as business income.

Conclusion:
The Tribunal concluded that the CCS received by the assessee was taxable as a trading receipt. It rejected the assessee's arguments that CCS was a gratuitous payment or a non-trading receipt. The Tribunal emphasized that CCS was received in the course of the assessee's business and was directly related to its export activities, making it part of the business income. The appeal was dismissed, and the order of the Commissioner (Appeals) was confirmed.