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Issues involved: The judgment deals with the issue of whether the extra price over the price of levy sugar realized on free sale of sugar and the differential excise duty recovered by the assessee under the Incentive Scheme of the Government of India is liable to tax.
Summary: The assessee, a Government of Tamilnadu undertaking engaged in sugar production, received additional price and excise duty rebate under the Government's Incentive Scheme. The Assessing Officer considered these receipts as trading receipts, not capital receipts, and rejected the assessee's claim. The CIT(A) upheld the assessments, stating that the receipts were not subsidies but regular business income. On further appeal, the assessee argued that the receipts, though received in the course of business, were tied to the establishment of the factory and capital investment. The Revenue contended that these were revenue receipts and not capital, citing precedents. The Tribunal examined the Government orders granting incentives, emphasizing the requirement to utilize surplus funds for loan repayment. It noted that while the incentives were not direct cash subsidies, they were recognized as subsidies under the Payment of Bonus Act. The Tribunal held that the receipts transformed into capital receipts due to the obligation to repay term loans, and thus, should not be taxed as income. It cited legal precedents supporting this view and the necessity to use the receipts for loan repayment. The Tribunal directed the Assessing Officer to exclude these amounts from the assessee's total income, allowing the appeals. In conclusion, the Tribunal ruled in favor of the assessee, determining that the additional price and excise duty rebate received under the Incentive Scheme were to be treated as capital receipts, not subject to income tax, based on the obligation to repay term loans and the specific purpose outlined in the scheme. The Tribunal highlighted the nexus between the receipts and capital recoupment, distinguishing them from regular revenue receipts, and emphasized the fulfillment of the scheme's conditions for loan repayment.
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