The Commissioner of Income Tax-I vs Tamil Nadu Sugar Corporation Ltd.

K. Raviraja Pandian, J.—The appeal is filed by the revenue against the order of the Income Tax Appellate Tribunal Madras ''D'' Bench

made in I.T.A. No. 1304/Mds/2001 dated 30.09.2003. The relevant assessment year is 1998-99. The substantial question of law formulated for

entertainment of the appeal is as follows:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the incentive received from the Government of India

towards additional free sale sugar is a capital receipt

The facts culminating in filing the appeal are as follows:

For the assessment year 1998-99, the assessee, a sugar manufacturing company filed a return showing a loss of Rs. 2.48 crores. When the matter

was taken up for scrutiny, it was observed that the assessee had claimed the incentive received from the Government in a sum of Rs. 2.57 crores

as capital receipt and excluded the same from computation of income. The assessing officer held that it is a revenue receipt on the ground that the

incentive was paid on additional free sale sugar and it was to be used to repay term loans and interest. Since the incentive was based on day to day

production, it cannot be termed as a capital receipt. Aggrieved by the re-assessment order, the assessee filed an appeal before the Commissioner

of Income Tax (Appeals), who dismissed the appeal. The assessee filed a second appeal before the Income Tax Appellate Tribunal. The Tribunal

following its earlier order, as well as the judgments of this Court reported in Commissioner of Income Tax Vs. South India Sugars Ltd., and the

assessee''s own case in T.C.Nos. 777 and 778 of 1995 allowed the appeal.

Learned Counsel on either side submitted that the issue involved in the present tax case appeal is covered against the Revenue by the order of

this Court dated 11.9.2001 passed in assessee''s own case in T.C.Nos. 777 and 778 of 1995 (Commissioner Of Income Tax v. Tamilnadu Sugar

Corporation Ltd.)

Identical question of law came up for consideration before this Court in the case of Commissioner of Income Tax Vs. Ponni Sugars and

Chemicals Ltd., . In that case, the Division Bench of this Court in which one of was also a party (K.Raviraja Pandian,J.) after considering the

scheme which provided incentives to new sugar factories and other incentives given by the Government by way of permitting the sugar mills to sell

certain percentage of sugar in the open market has held as follows:

The line of separating ""capital from revenue"" is a line which is not fixed and unalterable, but one which shifts from time to time depending upon the

peculiar facts of a given case. It is the sum total of all the relevant facts of a given case, which will determine the ultimate decision as to whether a

particular item of receipt or expenditure is to be regarded as being in the capital field or in the revenue field. The nature of the receipt of the

incentive has to be examined in the light of that object. The purpose and object of the scheme is of vital significance. If the Government found it

convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial

institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the scheme for discharging such loans,

it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive

would be a trading receipt in the hands of the recipient. The fact that the receipt was subsequent to the commencement of production cannot be

allowed to stand in the way of its proper treatment as a receipt in the capital field meant to meet a capital cost.

The above judgment has taken into consideration all the earlier judgments, which considered the various other incentive schemes and held as

above. Following the above said judgment, as the issue is covered by the said decision, the tax case appeal is dismissed.