The Commissioner of Income Tax vs The Tiruttani Co-operative Sugar Mills Limited

K. Raviraja Pandian, J.—The appeals are filed by the revenue against the order of the Income Tax Appellate Tribunal, Madras A Bench

dated 16.7.2003 made in I.T.A. No. 1118, 1119/Mds/1996 and 1795 and 1796/Mds/1998 respectively. The relevant assessment years are

1991-92, 1992-93, 1993-94 and 1994-95. The substantial questions of law formulated for entertainment of the appeal is as follows:

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the receipts from the sale of

levy free sugar is capital receipt and not taxable ?

Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that receipt from concession in the rate of

excise duty rebate is capital receipt and not taxable?

The assessee is a co-operative Society engaged in manufacture and sale of sugar. As regards the assessability of receipts on account of higher

free sale of sugar and receipt of excise duty rebate, it was represented that these receipts are capital in nature and therefore not to be treated as

income liable to tax. The first appellate authority held that the amount received on account of higher free sale of sugar was a revenue receipt

includible in the total income of the assessee and confirmed the order of the assessing officer. The addition is confirmed on account of excise duty

debited in the profit and loss account which was in fact was not an ascertained liability or a real liability of the excise duty payable by the assessee.

These additions also confirmed by the appellate authority. Against the said order, the assessee preferred appeals before the Income Tax Appellate

Tribunal. The Tribunal allowed the appeals filed by the assessee. Aggrieved by that order, the present tax case appeals are filed.

We heard the arguments of the learned Counsel for the revenue and perused the materials available on record.

Learned Counsel appearing for the revenue submitted that the issue involved in this case has already been decided by this Court in the case of

Chengalrayan Co-operative Sugar Mills Ltd. Vs. Commissioner of Income Tax, , wherein this Court held that the purchase tax subsidy received

by the assessee would form part of the income from business. However, the excise duty rebate or excise duty incentive would not form part of

income from business assessable to tax u/s 28(iv) of the Income Tax Act, 1961. For coming to the said conclusion the Division Bench relied on the

decision of this Court in the case of Commissioner of Income Tax Vs. Ponni Sugars and Chemicals Ltd., .

In the case of Commissioner of Income Tax Vs. Madurantakam Co-operative Sugar Mills Ltd., , the Division Bench has held that the incentives

given by the Government in the form of higher free sugar and allowing the owner to collect excise duty on the sale price of free sale sugar in excess

of normal quota but to pay to the Government only the excise duty payable on the price of levy sugar were incentives given exclusively for the

purpose of repayment of loan borrowed for the purpose of meeting part of the capital cost from financial institutions and therefore were not

revenue receipts.

The Supreme Court in the latest decision in Commissioner of Income Tax, Madras Vs. Ponni Sugars and Chemicals Ltd., held that the main

eligibility condition in the schemes was that the incentive had to be utilised for repayment of loans taken by the assessee to set up new units or for

substantial expansion of an existing unit. The subsidy received by the assessee was not in the course of a trade but was of a capital nature.

In view of the above enunciation of law by the Supreme Court, the questions of law have to be answered against the Revenue and the appeals

are liable to be dismissed and as such dismissed.