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Commissioner of Income-tax Vs. Swadeshi Cotton Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 543 of 1977
Judge
Reported in(1980)15CTR(All)81; [1980]121ITR747(All)
ActsIncome Tax Act, 1961 - Sections 28
AppellantCommissioner of Income-tax
RespondentSwadeshi Cotton Mills Co. Ltd.
Appellant AdvocateR.K. Gulati and ;Ashok Gupta, Advs.
Respondent AdvocateR.R. Agarwal and Bharatji Agarwal, Advs.
Excerpt:
- .....apart from the import entitlement. the question arose as to whether it was a capital receipt or a revenue receipt. the calcutta high court held that it was a revenue receipt as it had been received by the assessee in the course of carrying on its business. this case was decided not by resort to section 28(iv) but on the footing that it was a revenue receipt as it had been earned by the assessee in the course of its business. in dhrangadhra's case : [1977]106itr473(bom) , there was a glut of soda ash in the market because of large imports. in order to offset the difficulties of manufacturers of the soda ash in the country a subsidy of re. 1 per cwt. of soda ash produced and sold was granted by the govt. of india. an amount of rs. 2,03,903 was paid to the assessee after a suit had been.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal, Allahabad Bench, has referred the following four questions for the opinion of this court:

'(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing deduction of the liability of Rs. 34,131 incurred by the assessee for the payment of damages under Section 14(b) of the Employees' Provident Funds Act, 1952 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 2,33,662, received by the assessee from the Textile Commissioner was liable to be assessed as assessee's income ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty of Rs. 7,667 levied on the assessee under the Central Sales Tax Act could not be allowed as a deduction while computing the income of the assessee ?

(iv) Whether the Tribunal was justified in holding that appeal against the levy of interest under Section 215 of the Income-tax Act was not competent ?'

2. We are absolved from stating material facts in so far as questions Nos. 1, 3 and 4 are concerned as it has been fairly conceded by the counsel for the assessee that questions Nos. 1 and 3 are covered by a decision of this court in Saraya Sugar Mills (P.) Ltd. v. CIT : [1979]116ITR387(All) and question No. 4 by a Full Bench decision in Income-tax Reference No. 41 of 1976 (CIT v. Geeta Ram Kali Ram : [1980]121ITR708(All) decided on 23rd August, 1979, and the answer to these questions must be in favour of the department.

3. The facts relevant for deciding question No. 2 are these : The assessee is a manufacturer of cloth and sells it in the home market and also exports it outside India. By a press note dated 22nd November, 1958, the Government of India announced a cotton textile export incentive scheme under which mills exporting cloth or yarn in excess of the standard prescribed therefor were entitled to import entitlement equal to sixty-six and two-thirds per cent. of the f.o.b. value on such excess exports. 35% of the import entitlement could be utilized by the mills for importing raw cotton for its own use and the balance had to be surrendered to the Textile Commissioner on such terms and conditions as were to be prescribed by him from time to time. The assessee received import entitlements during the relevant previous years, a part of which was utilized for importing raw cotton and the balance surrendered to the Textile Commissioner. In consideration of the import entitlement surrendered by the assessee an amount of Rs. 2,33,662 was received as subsidy from the export promotion fund. The amount was credited in the accounts of the assessee under the head of miscellaneous receipts and it was claimed that it could not be taxed as its income. The ITO did not accept this contention and treated it to be the income of the assessee. The AAC held likewise. The Tribunal, following its decision for the assessment year 1961-62, upheld the addition. The question as to whether the export subsidy received by an assessee is to be treated as income has received consideration of this court in Agra Chain Mfg. Co. v. CIT : [1978]114ITR840(All) , which decision was, however, given in respect of a case relating to the assessment years 1966-67 and onwards and it was held that export subsidy received by an assessee was a benefit arising from business and as such it had to be treated as income in view of Section 28(iv) of the Act. In the present case we are, however, concerned with the assessment year 1963-64 when Clause (iv) was not there. This has given a handle to Sri Raja Ram Agarwal, appearing for the assessee, to urge that the export subsidy received by the assessee could not be treated as profits and gains of business so as to become chargeable under Section 28 of the Act. Mr. Ashok Gupta, appearing for the department, however, contends that the matter is settled by the decision of the Calcutta High Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CIT : [1978]115ITR143(Cal) , Bombay High Court in the case of Dhrangadhra Chemical Works Ltd. v. CIT : [1977]106ITR473(Bom) and that of the Madras High Court in the case of CIT v. Wheel and Rim Company of India Ltd. : [1977]107ITR168(Mad) . In the Calcutta case the assessee was a manufacturer of textile goods as is the case here. An export promotion scheme had been promulgated by the Central Govt. under which mills were granted import entitlements in case they exported goods beyond a particular limit. The assessee had received an amount of Rs. 5,85,701 as export incentive under the export incentive scheme apart from the import entitlement. The question arose as to whether it was a capital receipt or a revenue receipt. The Calcutta High Court held that it was a revenue receipt as it had been received by the assessee in the course of carrying on its business. This case was decided not by resort to Section 28(iv) but on the footing that it was a revenue receipt as it had been earned by the assessee in the course of its business. In Dhrangadhra's case : [1977]106ITR473(Bom) , there was a glut of soda ash in the market because of large imports. In order to offset the difficulties of manufacturers of the soda ash in the country a subsidy of Re. 1 per cwt. of soda ash produced and sold was granted by the Govt. of India. An amount of Rs. 2,03,903 was paid to the assessee after a suit had been filed to recover the amount on the basis of the Govt. resolution. The question arose whether the amount was deposited as a revenue receipt. It was held that it was a revenue receipt as it was supplementary to the other trade receipts of the assessee. The contention, of the assessee that it was a receipt of a casual and non-recurring nature was repelled on the ground that the payment had been made by the Govt. to enable the company to carry on its business in a commercial manner so that it realised profit. In Wheel and Rim Company's case : [1977]107ITR168(Mad) a cash subsidy was granted from the Engineering Export Promotion Council for exporting goods abroad. Apart from this subsidy the assessee was entitled to sell its import entitlement which it got on the basis of this export. Both the cash subsidy and the sale proceeds of the import entitlement were treated as revenue receipt.

4. Reference at this stage may also be made to the decision of the Supreme Court in Meenakshi Achi v. CIT [1966] 160 ITR 253. In that case a statutory fund had been created under which all cesses collected were deposited. Out of this fund assessees were paid certain amounts corresponding to the amount of rubber produced by them. The question arose as to whether the amounts received were revenue receipts. It was held that it was a revenue receipt as the amount was paid on the basis of rubber produced by them and the expenditure incurred for maintaining the rubber plants and producing the rubber. The principle that emerges from these cases appears to be that an amount which is received by anassessee in the course of its business and which accrues as a result of the business carried on, is a revenue receipt and not a receipt of a casual nature. Section 28(i) seeks to tax profits and gains of business. The amount in question would not have been paid to the assessee had he not manufactured cloth and yarn and exported it. The labelling of the payment as an export subsidy does not alter its character, for the amount is paid by reference to the amount of goods exported. The payment being directly proportionate to the quantity of goods exported is a revenue receipt, for it is an additional payment received for the goods sold by way of export.

5. Thus, the fact that Section 28(iv) was not on the statute book during the assessment year in question, would not take the payment outside the purview of the words 'profits and gains of business' which are taxable under Section 28. It must, therefore, be held that the amount of Rs. 2,33,662 received by the assessee was the assessee's income.

6. We, accordingly, answer the questions as under :

7. Question No. 1.--In the negative, in favour of the department andagainst the assessee.

8. Question No. 2.--In the affirmative, in favour of the department andagainst the assessee.

9. Question No. 3.--In the negative (sic), in favour of the department and against the assessee.

10. Question No. 4.--In the affirmative, in favour of the department andagainst the assessee.

11. The department is entitled to its costs which are assessed at Rs. 200. Counsel's fee is also assessed at the same figure.


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