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 28, 2004 involves the following substantial question of law:

Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in deleting the addition on account of addition of incentive realized on additional free sugar sale treating revenue receipt made by the Assessing Officer and confirmed by the Commissioner of Income tax (Appeals), Bareilly ?

The appeal relates to the assessment year 1996-97.

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. 3,71,78,906 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 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 manufacture of sugar wherein a similar scheme was under consideration.

We have heard Sri A. N. Mahajan, learned standing counsel for the Revenue and Sri Shakeel Ahmad, learned Counsel appear 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 Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd., 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 expansion of a existing unit and the subsidy receipt by the Assessee was not in the course of a trade and was of a 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.