Served From India Scheme duty credit used for capital goods is a capital adjustment, not taxable income.

Duty credit scrips issued under the Served From India Scheme, when restricted to import or domestic procurement of capital goods and used only to meet excise or customs duty on those assets, were held not to constitute taxable income. The scrips were non-cash, non-transferable, and linked to foreign exchange earnings; their use merely reduced the acquisition cost of fixed assets and did not create a revenue accretion in the assessee's hands. On that basis, the credit was treated as a capital adjustment rather than a taxable revenue receipt, and the additions made on this account were unsustainable.

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Issues: Whether credit received under the Served From India Scheme, when utilized against excise and customs duty on purchase of capital goods, constituted taxable income under the Income-tax Act.

Analysis: The Scheme granted duty credit scrips linked to foreign exchange earnings and permitted their use only for import or domestic procurement of capital goods, subject to actual user and non-transferability conditions. The scrips were not cash receipts and, on the facts found, were used only to reduce the duty component of capital assets acquired by the assessee. The effect of the credit was to lower the acquisition cost of capital goods brought into the fixed asset block, not to generate a revenue accretion in the assessee's hands. In that setting, the credit did not answer the description of income and could not be taxed as a revenue receipt merely because it was capable of being quantified monetarily.

Conclusion: The credit under the Scheme was not taxable income and was not liable to be assessed as revenue receipt.

Final Conclusion: The additions made on account of Served From India Scheme credit were unsustainable, and the assessee succeeded while the Revenue failed.

Ratio Decidendi: A duty credit scrip restricted to acquisition of capital goods and used only to meet excise or customs duty on such capital assets is a capital adjustment and not taxable income.

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