TaxTMI 
TaxTMI 
2024 (10) TMI 1706
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....ome declaring total income of Rs..1,84,14,130/- by claiming exemption of Rs..1,30,75,203/- towards receipts on transfer of MEIS license. The Assessing Officer completed the assessment proceedings, inter alia, making addition of Rs..1,30,75,203/- treating receipts on transfer of MEIS license as income as against capital receipt vide his order dated 27.03.2021 under section 143(3) r.w.s. 143(3A) & 143(3)(3B) of the Income Tax Act, 1961 ["Act" in short]. The ld. CIT (A) confirmed the same. 4. Before us, the ld. AR Shri Suraj Nahar, C.A. submits that the receipt on transfer of MEIS license is a capital receipt and is not chargeable to tax under the head profits and gains of business or profession. He argued that the receipt on transfer of MEIS license is not an incentive as per the provisions of section 2(24)(xviii) of the Act. The ld. AR relied on the decision of the Coordinate Bench in assessee's own case for the assessment year 2017-18 and prayed that the same may be followed. 5. The ld. DR Ms. Gouthami Manivasagam, JCIT supported the orders of authorities below. 6. Having heard both the parties and perused the material available on record. In the assessment order, the Asse....
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....l. The case of petitioner certainly does not fall within this exception. We also do not find that by inserting the impugned sub clause there is any perversity or gross disparity resulting in clear or hostile discrimination. 42 As noted earlier it is trite that the legislature is the best forum to weigh different problems in the fiscal domain and form policies to address the same including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. In the very nature of taxing statutes, legislature holds the power to frame laws to plug in specific leakages. The mere fact that the institution of tax by virtue of the impugned sub clause falls more heavily on petitioner cannot result in its invalidity. 43. In light of the above, in our view, the amendment to section 2(24) by the insertion of sub-cause (xviii) of the Finance Act, 2015, is a perfect example of a legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. The submissions of petitioner though appear to be of fiscal conce....
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....on, there was no adjudication nor law laid down by the Hon'ble High Court of Bombay with regard to the applicability of words or items as contemplated in sub-clause (xviii) to section 2(24) of the Act, thus, we do not find force in the arguments of the ld. DR that the Hon'ble High Court of Bombay was pleased to hold all incentives given in general form by the Government for whatever purpose or objective are to be treated, as income. 19. We find the orders of this Tribunal in assessee's own case for AYs 2011-12, 2012-13, 2013-14, 2016-17, 2014-15 and 2015-16 are at pages 112 to 147 of the assessee's paper book. The consolidated order for AY 2011-12 & 2012-13 at page 112 of the paper book, on perusal of the relevant part at page 118 in para 9, we note that a question arose for consideration before the Tribunal that when the assessee was given incentive for exploring the new markets across the globe, whether such incentive would be a capital receipt or revenue receipt? The Tribunal followed the decision of the Hon'ble Supreme Court in the case of CIT v. Ponni Sugars & Chemicals Ltd. 306 ITR 392, held the incentives provided by the Government of India for exploring the new mar....
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....mination of the facts in the case of Hyundai Motors India Ltd. V. ACIT (supra), it is clear from para 34, the issue therein was with regard to "FMS" as it is mentioned in para 8 of the decision of the Hon'ble High Court of Rajasthan in the case of PCIT v. Nitin Spinners Ltd. (supra). Therefore, we find force in the arguments of the ld. AR that the facts in the case of Hyundai Motors India Ltd. V. ACIT (supra) and in the case of PCIT v. Nitin Spinners Ltd. (supra) are relating to "FMS" only. Further, we note that as aggrieved by the decision of the Hon'ble High Court of Rajasthan in the case of PCIT v. Nitin Spinners Ltd., the Revenue preferred SLP in Civil Diary No. S-179 of 2020 before the Hon'ble Supreme Court, which in turn dismissed the said SLP vide its order dated 31,.08.2021, thereby, it clearly manifest the subsidy granted by Government of India to enhance Indian export potential in the international market, is a capital receipt, not chargeable to tax. 23. Further, we may not accept the arguments of the ld. DR that the order of this Tribunal in the case of Hyundai Motor India Ltd. V. ACIT (supra) is binding on us to hold as a revenue receipt in view of the ord....
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....fficer that there is no applicability of section 28 and 56 of the Act, but, however, the Assessing Officer held the case of the assessee falls under sub-clauses (iiia), (iiib), (iiic), (iiid) & (iiie) to section 28 of the Act r.w.s. 2(24) and section 56 of the Act. On examination of the said provisions, we find the reasoning of the Assessing Officer in treating the sale of MLFPS as business income. In this regard, we shall examine as to whether the sale of scrips of MLFPS would fall under the provisions of section 2(24)(xviii) of the Act. We note that export from India, schemes are brought under Chapter 3 of Foreign Trade Policy between 01.04.2015 to 31.03.2020, which are placed on record at page 2 of the paper book by the ld. AR and reproduced relevant position herein below: Chapter 3 EXPORTS FROM INDIA SCHEMES 3.00 Objective The objective of schemes under this chapter is to provide rewards to exporters to offset infrastructural inefficiencies and associated costs involved and to provide exporters a level playing field. 3.01 Exports from India Schemes There shall be following two schemes for exports of Merchandise and Services ....
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....ted costs involved therein. We find, admittedly, the assessee is an exporter falling under 3.01 (i) Merchandise Exports from India Scheme (MEIS) concerning the reward as explained in Chapter 3 regarding objective of schemes provided to exporters. 27. Now, let us examine the Chapter 3 - with reference to 3.00 & 3.01(i) r.w. provisions under section 2(24)(xviii) of the Act. We already held that the objective of the scheme is to provide rewards to exporters falling under MEIS of Foreign Trade Policy - 2015 framed by the Government of India to exporters for level playing field. In view of the same, let us examine the arguments of the ld. DR as to whether the provisions under section 2(24)(xviii) of the Act are attracted to the facts of the present case or not, for better understanding, the provisions under section 2(24)(xviii) of the Act inserted by the Finance Act, 2015, w.e.f. 01.04.2016 is reproduced herein below for ready reference: (xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agen....
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....h and as its name indicates, a cash incentive has a clear monetary value being granted to motivate employees/company(s) to achieve the target/ company's overall revenue, etc. The term "reimbursement" means any expenditure which has been incurred by the assessee is being given back to the assessee. Since the expenditure would have been met in cash, the reimbursement of the same would also be in cash. As per Central Board of Indirect Taxes and Customs, "duty drawback" is a trusted and time-tested scheme administered by CBIC to promote exports. It rebates the incidence of Customs and Central Excise duties, chargeable on imported and excisable material respectively when used as inputs for goods to be exported. This WTO compliant scheme ensures that exports are zero-rated and do not carry the burden of the specific taxes. So duty drawback can either be in cash or in kind granted by the Board. "Waiver" or "Concession" falls under the category of discount on any amounts payable or paid. Therefore, we find the word and expressions by way of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement made in sub-clause (xviii) of section 2(24) of the Act....
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....ding of the above judgements along with written note of the ld. AR, we note that the meaning of an unclear or ambiguous word or phrase can be determined by the words surrounding it and the words surrounding the words "by whatever name called" are the words subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement. Therefore, in our opinion, that the words "by whatever name called" only qualifies the words "subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement" and not the word "assistance". As canvassed by the ld. AR, we note that the principle of ejusdem generis focuses on interpreting a general term in a list based on specific accompanying terms, taking support from the decision of Hon'ble Supreme Court in the case of Lokmat Newspaper Pvt. Ltd. v. Shankar Prasad (supra), Municipal Corporation of Greater Bombay v. Bharat Petroleum Corporation Ltd. (supra) and Grasim Industries Ltd. v. Collector of Customs (supra), in our opinion, the words "by whatever name called" do not expand the scope of the word "assistance", but, only expands the scope of the words "subsidy or grant or cash incentive or duty drawback o....
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....f business or profession" or "income from other sources". In case of any conflict between the provisions of the Income Tax Act and the ICDS, the provisions of the Act shall prevail to the extent. We find this ICDS deals with the treatment of Government grants. The Government grants are sometimes called by other names such as subsidies, cash incentives, duty drawbacks, waiver, concessions, reimbursements, etc. We find the treatment of Government grants at page 12 & 13 of the paper book, which is reproduced herein below for better understanding: Treatment of Government Grants 5. Where the Government grant relates to a depreciable fixed assets or assets of a person, the grant shall be deducted from the actual cost of the asset or assets concerned or from the written down value of block of assets to which concerned asset or assets belonged to. 6. Where the Government grant relates to a non-depreciable asset or assets of a person requiring fulfilment of certain obligations, the grant shall be recognised as income over the same period over which the cost of meeting such obligations is charged to income. 7. Where the Government grant is of such a nature....
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.... Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India's export competitiveness. 36. In reply, the ld. CIT-DR Shri Palanikumar contended the benefit of MEIS under Foreign Trade Policy-2015 are received on a year to year basis, is a revenue receipt, but not a capital receipt. We note that merely because a receipt is received on a year to year basis, is a revenue receipt is not acceptable for the reason that this Tribunal for AYs 2011-12 to 2016-17 i.e., five assessment years held the receipt of sale of scrips under MLFPS based on Foreign Trade Policy-2015 is a capital receipt, we find no contrary view brought on record by the appellant-revenue, therefore, we find force in the arguments of the ld. AR that the reward under the Foreign Trade Policy-2015 by way of MEIS scrips is given as a percentage of turnover cannot make the same as a revenue receipt, moreover, the manner of determining the benefit by itself cannot change the character of a capital receipt in....
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....ipt in the hands of the assessee (respondent herein) as held by the High Court. He further contended that similarly retention of the collective excise duty on the sale price of free sale sugar in excess of the normal quota and paying to the Government only the excise duty payable on the price of levy sugar resulted in revenue generation in the hands of the assessee which contention of the Department has been erroneously rejected by the High Court. According to the learned counsel, under the Scheme, there were two distinct concepts, namely, the concept of accrual of income in the hands of the assessee and the concept of application of additional funds generated thereunder. According to the learned counsel, application of additional funds is neither material nor relevant for deciding the character of the incentive subsidy. In this connection, learned counsel placed reliance on the judgment of this Court in the case of Sahney Steel and Press Works Ltd. and Ors. v. CIT reported in (1997) 228 ITR 253. 8. Shri Ganesh, learned senior counsel appearing on behalf of the assessee submitted that the benefits were conferred on the assessee under the 1980 and 1987 Schemes, namely, addi....
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....he factory should be able to generate sufficient funds to repay the instalments of the term loans. Under Para 21.0 the said Committee stated that five possible incentives for making a sugar plant economically viable unit could be provided for, namely, capital subsidy, allowing a larger percentage of free sale sugar, high levy sugar price, allowing rebate on excise duty and remission of purchase tax. In this case, we are concerned with allowability of a larger percentage of free sale sugar and rebate on excise duty. Following the said Report of the Sampat Committee, the above Schemes came to be formulated. 11. We have examined in this case the 1980 and 1987 Schemes. Essentially all the four schemes are similar except in the matter of details. Four factors exist in the said Schemes, which are as follows: (i) Benefit of the incentive subsidy was available only to new units and to substantially expanded units, not to supplement the trade receipts. (ii) The minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units. (iii) Increase in the free sale sugar quota depended upon increase in the production capa....
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.... the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in j....
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....tructure inefficiencies, but, not for the purpose of running the business more profitably. It is noted further that though the said amounts are brought into profit and loss account claimed as exempt in the return of income, we find the said treatment in the books of accounts by itself cannot be determinative of taxability, we, therefore, hold that the same treatment of amounts received by way of sale of MEIS scrips as credited to the profit and loss account cannot alter the receipt, in our opinion, does not fall in the definition of income even after insertion of sub-clause (xviii) to section 2(24) of the Act. Thus, it is a capital receipt, not chargeable to tax. Therefore, the contention of the ld. DR relying upon the decision in the case of Sahney Steels & Works Ltd (supra) is not acceptable. 39. In the case of ACIT v. Gravita Metal Inc in ITA No. 594/Asr/2019 for AY 2016-17 dated 15.06.2023, the Amritsar Bench of ITAT held as under: 16. The Ld. AR argued that 'exemption' and 'subsidy' are two separate and independent words and which are not defined. He contended that therefore, the general meaning of these words are required to be considere....
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.... him on account of the legislature's failure to express itself clearly'. This principal of law is quoted referred by Hon'ble Supreme Court in case of "Checkmate Services Pvt. Ltd. Vs. CIT", (2022) 448 ITR 518 vide Para 50 of its judgement. 19. Respectfully, applying the above settled principal of law, to the interpretation of the Notification No. 56/2002 dtd. 14.11.2002 as amended by Notification No. 19/2008 dt. 27.03.2008, the assessee is granted exemption from payment of excise duty to the balance part of 36% of total excise duty collected. Since, the word 'exemption' in not included in the of ambit the Section 2(24)(xviii) of the Act, though it specifically includes the words subsidy, grant, cash incentive, duty drawback, waiver, concession & reimbursement. and hence, in the absence of inclusion of word 'exemption' under the said clause, we are of the considered view that the scope of this section cannot be enlarged to include exemption by interpreting that it is subsidy. Accordingly, the addition of Rs. 1,85,49,324/-, confirmed by Ld. CIT (A) is held to be unjustified and bad in law. As such, the part addition confirmed by Ld.....
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....s which are covered under FPS list would be given incentive of 2% on FOB value of the export. In other words, it is an incentive given by the Government for exploring the new markets across the globe. The question arises for consideration is when the assessee was given incentive for exploring the new markets across the globe, whether such incentive would be a capital receipt or revenue receipt? The Apex Court in the case of Ponni Sugars & Chemicals Ltd. (supra) had an occasion to examine an Identical situation and observed that if the object of the subsidy was to enable the assessee to carry on the business more profitably, then the receipt is on the revenue account. On the other hand, if the object of assistance was to enable the assessee to set up a new unit or expand the existing unit, then the receipt is on the capital account. In the case before us, the Government of India provided the incentive for exploring the new markets across the globe. Exploring a new market for a specified area would naturally expand the market area of the assessee. The incentive given to the assessee is not for running the business profitably but for expanding the market area. Therefore, this Tribunal....