Commissioner of Income Tax vs Ponni Sugars and Chemicals Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Tribunal in ITA No. 1464/Mad/2000, dt. 15th July, 2005.

The Revenue is the appellant. The assessment year involved is 1996-97. The assessee-firm is a manufacturer and seller of sugar. A sum of Rs. 75,48,141, being the price difference realised between levy sugar price and the free market sugar sale price received as an incentive provided by the Central Government excluded from the total income. However, the AO added the said amount to the income and disallowed the Government subsidy holding that the said receipt represents sale price of sugar marketed by the assessee. Aggrieved by the same, the assessee filed an appeal before the CIT(A), who allowed the appeal. The Tribunal dismissed the appeal filed by the Revenue on the ground that the assessee''s case for asst. yr. 1993-94 was allowed by deleting the addition made by the AO.

Aggrieved by the same, the Revenue has preferred this appeal raising the following substantial question of law :

Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that the receipt of subsidy from the Central Government being price incentive and excise incentive is not a revenue receipt ?

The scheme to provide incentives to new sugar factories is framed with the object of augmenting indigenous sugar production, to provide incentive to new sugar factories and expansion projects. The intention of the Government in providing incentives was to place in the hands of the assessee the means to meet a part of the capital costs, which the assessee had been enabled to meet by securing loan from the public financial institutions.

It is fairly conceded by the learned counsel for the Revenue, that the issue raised in the question is covered against the Revenue by the decision of this Court in assessee''s own case Commissioner of Income Tax Vs. Ponni Sugars and Chemicals Ltd., .

In CIT v. Ponni Sugars & Chemicals Ltd. (supra), this Court held as under :

...the AO and other authorities had not found that any part of the incentives accrued in favour of the assessee had not been used for the purpose of discharging those loans which had admittedly been obtained for purchasing capital equipment. Hence, the incentives given by the Government in the form of higher free sale quota of sugar and allowing the manufacturer to collect excise duty on sale of free sale sugar in excess of the normal quota, but to pay to the Government only excise duty on price of levy sugar should be treated as capital receipt.

In the instant case also, the AO had not found that any part of the incentives accrued in favour of the assessee had not been used for the purpose of discharging those loans which had admittedly been obtained for purchasing capital equipment. Therefore, the receipt of subsidy from the Central Government being price incentive and excise incentive should be treated as capital receipt.

Under such facts and circumstances of the case and applying the decision of this Court in CIT v. Ponni Sugars & Chemicals Ltd. (supra), we answer the question of law in the affirmative, against the Revenue and in favour of the assessee. The appeal is dismissed. No costs.