Commissioner of Income Tax and Another vs Kisan Sahkari Chini Mills Ltd.

In the present appeal filed u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the Revenue submits that the order of the Income Tax Appellate Tribunal dated June 9, 2005, involves the following substantial questions of law:

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the incentive received by the assessee by way of additional quota for free sale of sugar under the Sampat scheme as capital receipt.

Whether, on the facts and in the circumstances of the case, the amount of incentive received by the assessee could be taxed u/s 28(iv) of the Act?

The appeal relates to the assessment year 1994-95. Before the Assessing Officer, the respondent-assessee which is engaged in the business of manufacture and sale of sugar, claimed that the sum of Rs. 2,50,82,052, represents capital receipt as it was towards incentive received under the scheme formulated by the Central Government for recoupment of capital employed and repayment of loans taken from the financial institution for setting up a new sugar factory/expansion. The Assessing Officer did not agree with the submission and, accordingly treated it to be revenue receipt. However, in the appeal preferred by the respondent-assessee before the Commissioner of Income Tax (Appeals), Lucknow, the plea had been accepted. The Commissioner of Income Tax (Appeals) has found as follows:

In the instant case, the very right to receive the excess price and the excess excise duty was based on the obligation to recoup the capital employed, since the amount could not have been received without that obligation, there was a clear nexus and consequently a diversion of income. Hence, from any point of view the amounts received took the nature of capital receipt by reason of the incentive scheme and thus, could not be treated as part of the assessee''s income.

The Revenue filed an appeal before the Tribunal and the Tribunal had dismissed the appeal following its earlier order passed in the case of the other assessee, which are also engaged in the manufacturer of sugar wherein the similar scheme was under consideration.

We have heard Sri A. N. Mahajan, learned standing counsel for the Revenue and Sri Shakeel Ahmad, learned Counsel appearing for the respondent-assessee.

Learned standing counsel has submitted that under the incentive scheme the rebate of realisation on account of excess free sale of sugar and the differential excise duty received by the respondent-assessee was in the normal course of business and, therefore, the same was rightly treated to be a revenue receipt. He further submitted that it cannot be treated as a capital receipt as it was not towards the repayment of loan taken for setting up a sugar factory.

Sri Shakeel Ahmad, learned Counsel, however, relied upon a decision of the apex court rendered in the case of (2009) 117 ITD 220 wherein the similar scheme was under consideration and the apex court has held that the main eligibility condition for the scheme was that the incentive had to be utilised for the repayment of loans taken by the assessee to set up a new unit or substantial expenses of a existing unit and subsidy receipt by the assessee was not in the course of a trade and was of capital nature.

Respectfully following the decision of the apex court referred to above, we are of the considered opinion that the order of the Tribunal does not involve any substantial question of law.

The appeal fails and is dismissed in limine.