Export subsidy linked to trading activity treated as business income and taxed as revenue receipt

Export subsidy received on surrender of import entitlement was treated as revenue receipt chargeable as business income because it was granted for export performance and was directly linked to the quantity exported. The amount arose from trading operations and operated as an additional payment for goods sold abroad, so it was part of profits and gains of business rather than a capital or casual receipt. The absence of section 28(iv) for the relevant assessment year did not alter this character, as the receipt still fell within section 28. The subsidy was therefore taxable as income.

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Issues: Whether the export subsidy received on surrender of import entitlement was a revenue receipt chargeable as business income.

Analysis: The subsidy was received in consideration of export performance under the export incentive scheme and was directly linked to the quantity of goods exported. It arose in the course of the assessee's trading operations and constituted an additional payment for the exported goods. The absence of section 28(iv) for the relevant assessment year did not take the receipt outside the scope of section 28, because the amount still fell within profits and gains of business. A receipt earned by reference to business activity and accruing from carrying on the business is of a revenue character, not a casual or capital receipt.

Conclusion: The export subsidy of Rs. 2,33,662 was taxable as the assessee's income and the answer is in favour of the Revenue.

Ratio Decidendi: A receipt received in the course of business and directly linked to trading activity, including export-linked incentives, is revenue in character and chargeable as business income under section 28 of the Income-tax Act, 1961.

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