2024 (6) TMI 1066 - HC - Income Tax

Nature of receipt - Taxability of pre-payment of sales tax liability at discounted value - revenue or capital receipt - HELD THAT - The assessee in the present case saved an amount of Rs. 15.23 crores on account of pre-paid sales tax. Such amount was sought to be taxed by the assessing officer as revenue receipt. Thus as held by the Supreme Court in Balkrishna s case ( 2017 (11) TMI 1626 - SUPREME COURT such amount was required to be treated as a capital receipt. The first question of law as raised by the Revenue thus stands squarely answered. The Revenue s contention on addition of the said amount as the assessee s income needs to be rejected. Taxability of benefits on account of DEPB License/Focus Market Licenses - HELD THAT - The question is squarely covered by the decision of Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT Our attention is drawn to the contentions of the parties as also the observations as made by the Supreme Court wherein in similar circumstances the Supreme Court has held that even if it is assumed that the assessee therein was entitled to the benefits under the advance licences as well as under the duty entitlement passbook there was no corresponding liability on the Customs authorities to pass on the benefits of duty free imports to the assessee until the goods are actually imported and made available for clearance. It was observed that the benefits represent at best a hypothetical income and which may or may not materialise and its money value therefore cannot be the income of the assessee. Considering all the second question of law as framed would also not arise for consideration. Loss of profit due to fire and repair and other expenditure incurred on account of fire not received from insurance company - HELD THAT - The parties are ad idem that this question would also stand covered by the decision of Leisure Wear Exports Ltd. 2010 (9) TMI 351 - DELHI HIGH COURT also confirmed by 2011 (10) TMI 782 - SC ORDER wherein held claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore no income had accrued which could be taxed. Tribunal rightly held that ordinarily the income is said to have accrued to a person when he acquires the right to income and this should be enforceable right though actual quantification or receipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of Income-Tax Act. Revenue appeal dismissed.

Issues involved:
1. Taxability of pre-payment of sales tax liability at discounted value.
2. Taxability of benefits on account of DEPB License/Focus Market Licenses.
3. Taxability of compensation from insurance company.

Issue 1: Taxability of pre-payment of sales tax liability at discounted value

The Revenue appealed against the ITAT's order allowing the assessee's appeal regarding the taxability of pre-payment of sales tax liability at a discounted value. The Tribunal, following the decision in the case of Sulzer India Ltd. Vs. Jt. CIT, held that prepayment of sales tax liability at discounted value was not liable to tax. The Tribunal emphasized that all issues raised by the CIT had been decided in favor of the assessee by various judicial forums. The High Court, in line with the Supreme Court's decision in Commissioner of Income Tax Vs. Balkrishna Industries Ltd., confirmed that the amount saved on account of pre-paid sales taxes should be treated as a capital receipt, not as revenue. Consequently, the Revenue's contention to tax the saved amount as the assessee's income was rejected.

Issue 2: Taxability of benefits on account of DEPB License/Focus Market Licenses

The second question of law raised by the Revenue was whether the benefits on account of DEPB License/Focus Market Licenses were taxable. The Supreme Court's decision in Commissioner of Income Tax Vs. Excel Industries Ltd. clarified that such benefits represent hypothetical income that may or may not materialize. The money value of these benefits cannot be considered as the income of the assessee until the goods are actually imported and made available for clearance. Therefore, the second question of law did not arise for consideration based on the legal position established by the Supreme Court.

Issue 3: Taxability of compensation from insurance company

Regarding the taxability of compensation from an insurance company, the parties agreed that the question was covered by the decision of the Delhi High Court in Commissioner of Income Tax Vs. Leisure Wear Exports Ltd. The Delhi High Court held that income is said to have accrued to a person when he acquires the right to income, which should be an enforceable right. Mere claim to income without an enforceable right cannot be regarded as accrued income for taxation purposes. The decision of the Delhi High Court was confirmed by the Supreme Court, further solidifying the position that compensation from an insurance company is taxable only when there is an enforceable right to income. Consequently, the third question of law raised by the Revenue was also settled in favor of the assessee.

In conclusion, the High Court rejected the Revenue's appeal as it did not raise any new question of law for consideration. The Court affirmed the decisions made by the Tribunal and clarified the tax treatment of various items such as pre-paid sales taxes, benefits from licenses, and compensation from insurance companies. The cross objection by the assessee was disposed of accordingly, in line with the appeal's outcome.

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