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Issues Involved:
1. Taxability of Duty Drawback and Cash Assistance received by the assessee. 2. Applicability of sections 28(iiib) & 28(iiic) and section 176(3A) of the Income-tax Act. 3. Nature of receipts as capital or revenue. Detailed Analysis: 1. Taxability of Duty Drawback and Cash Assistance: The primary issue revolves around whether the Duty Drawback of Rs. 3,14,279 and Cash Assistance of Rs. 18,21,510 received by the assessee are taxable as revenue receipts or should be treated as capital receipts. The assessee argued that these receipts were in the nature of realization of assets, specifically actionable claims, taken over as part of a going concern and thus should not be considered revenue receipts. The assessee relied on various judicial precedents, including the decision of the Delhi High Court in CIT v. Minerals & Metals Trading Corpn. of India Ltd. [1986] 157 ITR 371, to support this claim. 2. Applicability of sections 28(iiib) & 28(iiic) and section 176(3A): The Assessing Officer initially treated the Cash Assistance and Duty Drawback as business income under sections 28(iiib) and 28(iiic) of the Income-tax Act, asserting that these were revenue receipts. The CIT(A) overruled this, agreeing with the assessee that these receipts were capital in nature. The Revenue argued that since the business was taken over by the assessee, these incentives should be taxable under sections 28(iiib) and 28(iiic). The Judicial Member, however, opined that section 176(3A) could apply, which taxes sums received after the discontinuance of a business as income of the recipient if they would have been included in the total income of the person who carried on the business had they been received before such discontinuance. 3. Nature of Receipts as Capital or Revenue: The core of the dispute was whether the receipts in question were capital or revenue in nature. The assessee contended that the amounts received were part of the realization of assets acquired from the predecessor and thus should be treated as capital receipts. The CIT(A) accepted this view, noting that the amounts received were less than the apportioned value of the claims, indicating no taxable surplus. The Revenue, however, maintained that these were revenue receipts arising from the business activities of the erstwhile proprietor and should be taxed accordingly. Separate Judgments Delivered by Judges: Accountant Member's View: The Accountant Member agreed with the assessee, concluding that the receipts were in the nature of realization of actionable claims and hence capital receipts. The Member referenced the Delhi High Court's decision in CIT v. Minerals & Metals Trading Corpn. of India Ltd., which held that gains from the realization of assets purchased by the assessee were capital receipts. Judicial Member's View: The Judicial Member disagreed, arguing that the receipts should be taxed as revenue under sections 28(iiib) and 28(iiic) and section 176(3A). The Member cited various cases, including CIT v. Vockandart [1995] 215 ITR 793 (Bom.), which dealt with the treatment of sums received after the discontinuance of a business. Third Member's Opinion: The Third Member concurred with the Accountant Member, emphasizing that the business was not discontinued but continued by the assessee, thus section 176(3A) was not applicable. The Member noted that the receipts were part of the realization of assets and should be treated as capital receipts. The decision was supported by the Supreme Court's ruling in Saraswati Industrial Syndicate Ltd. v. CIT [1990] 186 ITR 278, which held that the identity of the assessee must remain the same for section 41(1) to apply. Final Order: In accordance with the majority view, the appeal was dismissed, and the receipts were held to be in the nature of realization of actionable claims, hence capital receipts, not taxable under sections 28(iiib) and 28(iiic) or section 176(3A).
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