Export-linked government support treated as taxable trading receipt where it reduces business costs and boosts competitiveness.

Cash compensatory support received under an export incentive scheme was treated as a trading receipt on revenue account because it arose directly from export activity and was linked to the exporter's business performance. The payment was not regarded as a gratuitous bounty or a capital subsidy, since its purpose was to reduce business costs and improve competitiveness in the export market. Accordingly, the receipt was includible in business income rather than exempt as a non-trading grant.

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Issues: Whether cash compensatory support received by an exporter of specified engineering goods was taxable as a trading receipt or was a non-taxable bounty, subsidy, or capital receipt.

Analysis: The receipt was examined in the context of the export incentive scheme, its linkage with export performance, and the exporter's right to receive the amount under the scheme. The relevant test was whether the amount was a trade receipt received in the course of business. The payment was held to be connected directly with export activity, intended to reduce costs and improve competitiveness in the export market, and was not a gratuitous payment unrelated to business operations. The earlier authorities distinguishing non-trading grants for alien purposes from receipts received as part of business were applied, and the support was treated as an incentive inseparable from the export business. The receipt was therefore held to be on revenue account and includible in business income.

Conclusion: The cash compensatory support was taxable as a trading receipt and not exempt as a bounty, subsidy, or capital receipt.

Ratio Decidendi: A government payment granted to an exporter because of export activity, and intended to reduce business costs or improve trading competitiveness, is a taxable trading receipt on revenue account.

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