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TMI Blog1989 (4) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... e exporters to claim the cash compensatory support and duty drawback and these amounts were received by them merely by an administrative at of he Government to fulfil its own policy objective of earning the much needed foreign exchange to improve the balance of payment position. As a result, these amounts are nothing but the bountries given by the Government to the exporters and hence exempt under s. 10(17) of the IT Act, 1961. (1.5) The learned CIT(A) erred in not appreciating that the CCS and duty drawback amounts were supplementary trade receipts arising out of main business which was 'exports' and that the said amounts if at all chargeable to tax, were chargeable under s. 28(iv) of the IT Act and further that the said amounts have been received in cash not in kind—were not amenable to tax under s. 28(iv) of the Act. (1.6) The learned CIT(A) erred in holding that the Calcutta High Court's decision in the case of Jeevanlal Ltd. vs. CIT (1982) 30 CTR (Cal) 50 : (1982) 142 ITR 448 (Cal) squarely applied to the case of appellant. Even under the said decision, the CCS and duty drawback were supplementary and incidental revenue receipts. He erred in not appreciating that the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, whereas the assessee contends that interest is charged for the customers for belated receipts of export proceeds, hence the interest has to be taken as part and parcel of the turn over. 4. We have heard the parties at length. We have also gone through the reasoning of the learned lower authorities. Special Bench of the ITAT, relied upon by the assessee, and as stands reported in 25 ITD 193 after having discussed plethora of case law has laid down 'general principles on the issue of capital and revenue receipts.' This has been supported by the various decisions of the Supreme Court as also the High Court. It has also held that the burden of proof lies on the Department to establish that a particular subsidy received bears the character of a revenue receipt and further that thereafter the burden shifts to the assessee to prove that it is exempt. About this proposition there cannot be two opinions. In the case, with which we are seized of, the Revenue has dealt the assessee as if the onus was on the assessee and not on the Revenue. The same treatment has been meted out to the assessee by the learned first appellate authority. This not correct in law. General principles supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal obligation to make the payment. If, however, the payment is in the nature of a personal gift to him, it is not regarded as a payment for services but as a mere present—P. Krishna Menon's case (x) A voluntary payment to a lawyer by a person who was not a client but who had benefited by the lawyer's professional services to another is taxable—Susil C. Sen, In re:—(1941) 9 ITR 261 (Cal). (xi) General payments made by way of donation to a company out of benevolence or feeling of charity would not entail income in the hands of the recipient—Seahem Harbour Dock Co. vs. Crook (1931) 16 TC 333 (HL). (xii) Payments taken their colour form the receipts which are supplemented, augmented or compensated for. Thus, they would not be revenue receipts, if they are of the following nature: (a) Paid prior to the commencement of trading activities (for administrative expenses) CIT vs. State Trading Corpn. of India Ltd. (1973) 92 ITR 294 (Del). (b) Given to discharge the losses of the business of the subsidiary company to enable it to tide over the loss of capital—Handicrafts and Handloom Export Corpn. of India vs. CIT (1982) 29 CTR (Del) 1985 : (1983) 140 ITR 532 (Del). (c) Gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of two distinct matters, one taking the character of a capital receipt and the other of a revenue receipt, nothing prevents the apportionment of the income between the two matters on accounting principles or on actuarial valuation or on reasonable estimates consonant with general and equitable principles. Even if there be difficulty in making such apportionment, it cannot be a ground for rejecting the claim either of the Revenue or of the assessee—CIT vs. Best Co. (P) Ltd. (1966) 60 ITR 11 (SC). (xvi) The fact that the amount might be used as capital in the hands of the assessee is irrelevant for considering it to be not a revenue receipt—Kesoram Industries Cotton Mills Ltd.'s case. About subsidy—CCS—the Special Bench has held as under: 'Where assessee claimed that cash compensatory support received by it, was a capital receipt: Held that cash compensatory support is not a payment under any mutual or commercial arrangement or contract nor for any services rendered nor an it be said to flow out of love and affection. However, it can also not be treated to be a pure bountry or a gift paid out of sheer benevolence of the Government. With effect from 1st April, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veniences in the setting up of the industry, the subsidy can be justifiably taken as on capital account. The second point is that in the case of subsidies if both view are plausible one would be justified in adopting the interpretation which is favourable to the assessee. Cash compensatory support or subsidy by whatever name is it called, is to encourage the establishment of capital assets, be it to promote exports or industrialise backward areas and, therefore, the receipt is of capital nature.' Yet further, the Special Bench has held that amount received on sale of import entitlement is taxable as revenue receipt. The Special Bench as such has held subsidy—CCS—to be a pure bounty or a gift paid out of sheer behevolence of the Tribunal. It has further held that it is granted merely as a recompense for the hardships and invonveniences and subsidy or CCS by whatever name it is called is to encourage the establishment of capital assets, be it to promote exports or industrialise backward areas and, therefore, the receipt is of capital nature—The Special Bench as such has held that subsidy—CCS—is not taxable (majority view). Duty drawback is taxable (unanimous view) and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst ITO vs. Grahalakshmi Co. (1985) 22 TTJ (Mad) 69 (TM) : (1985) 11 ITD 711 (Mad) (TM), Export House vs. ITO (1985) 23 TTJ (Asr) 263 (TM) : (1985) 13 ITD 687 (Asr) (TM), CIT vs. Hari Nath and Co. (1987) 60 CTR (All) 52 : (1987) 168 ITR 440 (All), Ujagar Prints vs. Union of India (1987) 167 ITR 904 (SC), Muktul vs. Mst. Manbhari Air 1958 SC 918, Shri Ambica Mills Ltd. (No. 1) vs. Textiles Labour Association AIR 1973 SC 1081, CIT vs. Rai Bahadur Jairam Valiji (1959) 35 ITR 148 (SC), National Cement Mines Industres Ltd. vs. CIT (1961) 42 ITR 69 (SC), Karam Chand Thapar and Bros. (P) Ltd. vs. CIT (1971) 82 ITR 899 (SC), CIT vs. Kamal Behari Lal Singhal (1971) 82 ITR 460 (SC), P.H. Divecha vs. CIT (1963) 48 ITR 222 (SC), A.R.T.K.M. Vishnudatta Antharajanom vs. CIT (1970) 78 ITR 58 (SC), IRC vs. Trustees of Reid (1949) 17 ITR (Suppl), 41 (HL), P. Krishna Menon vs. CIT (1959) 35 ITR 48 (SC), Senairam Doongarmall vs. CIT (1961) 42 ITR 392 (SC), Sunil C. Sen, In re. (1941) 9 ITR 261 (Cal), Seahem Harbour Dock Co. vs. Crook (1931) 16 TC 333 (HL), CIT vs. State Trading Corpn. of India Ltd. (1973) 92 ITR 294 (Del), Handicrafts and Handloom Export Corpn. of India vs. CIT (1982) 29 CTR (Del) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al (1929) Ltd. vs. CIT (1982) 26 CTR (Cal) 60 : (1983) 139 ITR 865 (Cal).' 5. In the case of Universal Ferro and Allied Chemicals Ltd. Anr. vs. P.G.K. Warrier Ors. (1983) 37 CTR (Bom) 208 : (1983) 143 ITR 959 (Bom) the jurisdictional High Court has held that the rule of law and legal certainty necessitates implicit reliance by the authorities, including tax authorities within a State, on judgements of the High Court of that State where writ runs throughout the State and so long as these hold that field unaffected by any decision of a High Court higher in the judicial hierarchy, viz., the Supreme Court or unless rendered obsolete through statutory change. There the controversy before the jurisdictional High Court was about a decision of the Special Bench of the ITAT and a decision on one of the issues (before the ITAT Special Bench) where the jurisdictional High Court had already expressed its opinion. the jurisdictional High Court held that though a judgment of a High Court would prevail over any ruling of the Tribunal on the same question, the IT authorities would feel bound by the Special Bench ruling and consequently feel free not to follow the High Court ruling. 6. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly that subsidy—CCS—is not taxable, while duty drawback is taxable as income of the assessee. 9. As regard assessee' second grievance, we will say that interest on late receipt of export proceeds is a compensation for belated payment and accordingly not a part and parcel of the turn over. Interest is compensation for retaining the amount beyond agreed dates and is not a price for sale of goods. 10. As regards charge of interest under ss. 139(8), 215 and 216 of the Act, the learned first appellate authority has simply said that he thinks the charging of interest under these provisions was justified, whereas we are of the opinion that before charge of interest the assessee should have been heard. We will direct the learned Assessing Officer to charge interest after hearing the assessee. On this issue assessee succeeds for statistics only. 11. Before parting, we like to say that in this case decision in (1982) 30 CTR (Cal) 50 : 142 ITR 448 (Cal) has been followed and that already stands discussed by the Special Bench, hence nothing more needs to be said. As regards (1980) 125 ITR 408 (All), the High Court was expressing its opinion on its taxability of receipts from 'p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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