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TMI Blog1988 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... as revenue expenditure. The assessee explained that the aforesaid amount was incurred for the purpose of setting up a machine building complex in the Hooghly District for the manufacture of the machineries which were dealt in by the assessee. However, the project was abandoned and the amount was claimed as business loss. The ITO held that the expense related to a new venture inasmuch as the assessee was not manufacturing any machineries. Hence, he disallowed the expense as capital. The assessee contended before the CIT (A) that the establishment of the machine building complex would have helped the assessee's consultancy business which was carried on by it and so the expense should have been allowed as revenue even though the project was ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e machines but was merely trading in them. According to the Government scheme, exporters of machines got a subsidy and refund of Excise Duty at the prescribed rate. An exporter can use the machines exported by it for acquiring equity capital in a foreign company with the prior permission of the Government. In such cases, the rate of subsidy is somewhat lower than in the case of exporters who bring back foreign exchange into the country instead of investing the same abroad in quite capital of foreign companies. The assessee in the instant case, got permission from the Government to participate in equity capital of terms of machineries to be exported by it. The assessee did so. It got subsidy at the lower rate and refund of Excise Duty amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of exporting machines for which alone it earned the subsidy and the duty drawback. These exports have not entered into the sales recorded in the trading account and so the profits embedded in their sales have not been reflected in the trading account. The ITO did not bring the said profit element embedded in the machines exported to acquire the equity capital to tax. However, he held that the sum of Rs. 2,42,870 specifically received for exporting the machine goods which were the stock in trade of the assessee is a revenue receipt and brought the same to tax. 6. The assessee appealed to the CIT (A) and contended that the ITO erred in his decision. The CIT (A) however, agreed with the ITO and upheld his action. 7. In this further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines is the normal business of the assessee. The machines exported by in order to acquire the equity shares represented its stock-in-trade. The mere fact that they were not entered in the regular purchase account or that the rate of subsidy is somewhat lower could not, in our opinion make any different to the basic fact that the assessee exchanged its stock in trade for a capital asset. The amount received by the assessee as subsidy and duty drawback was for selling its stock in trade abroad though the sale proceeds were permitted to be invested in foreign equity shares. The subsidy and the duty drawback received from the Government went to reduce the cost to the assessee of its stock-in-trade or, in other words, to increase its profits on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price for the export of its stock-in-trade as revenue account. As this primary receipt was on revenue account the supplemental receipts in the form of cash assistance and duty drawback were also revenue receipts. Thus, we do not find this case to be of any help to the assessee. 12. In the case of Dusad Industries the Government of Madhya Pradesh framed a scheme under which sales tax subsidies were given for setting up industries in backward areas. The assessee a set up an industry in a backward area and received the sales tax subsidy. It claimed that the subsidy did not amount to refund of sales tax but it was a receipt of capital nature not liable to tax. It was held that the subsidy was given on the basis of a particular scheme for a sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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