TaxTMI 
TaxTMI 
2026 (9) TMI 511
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Objection no. 134/Mum/2025 by the assessee and two cross-appeals - one each by the Revenue and the assessee in ITA No. 3138/Mum/2023 and ITA No. 2873/Mum/2023 (assessment year 2017-18). Brief facts :- 3. The assessee is a company engaged in the business of manufacturing of specialty chemicals and bulk drugs. 4. It is necessary to note that in the Return of Income (RoI) filed by the assessee, the assessee had claimed the amount (assistance) received under the Merchandise Exports from India Scheme (MEIS) under the Foreign Trade Policy, 2015 (FTP) as revenue receipt. 5. The Assessing Officer ('AO' for short) passed the assessment order dated 10.12.2018 (assessment year 2016-17) and 06.09.2019 (assessment year 2017-18). The assessee challenged the assessment orders before the Commissioner of Income Tax (Appeals) ('CIT(A)' for short). Insofar as the assistance received under the MEIS is concerned, an additional ground was raised before the First Appellate Authority that the said receipt was a capital receipt. The learned CIT(A) by order dated 20.06.2023 and 21.06.2023 for assessment years 2016-17 and 2017-18 respectively has allowed this part of the challenge holding that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evel playing field vis-à-vis exporters in other countries. Therefore, such a benefit/assistance given to Indian exporters (like the assessee) is in the nature of assistance which would be revenue in nature, notwithstanding the nomenclature of 'reward' given in FTP 2015/MEIS. Reliance in this regard is placed on the reply given by the Commerce Minister on the floor of the house stating that MEIS provides assistance to encourage exporters. The learned CIT-DR has referred to the meaning of government assistance in Advanced Law Lexicon as under:- "Assistance - the act of assisting, help, aid, succor, support. Government Assistance - action by government designed to provide an economic benefit specific to an enterprise or range of enterprises qualifying certain criteria." 12. It is submitted that MEIS clearly falls within the meaning of government assistance which is given to exporters for facilitating export of notified products to notified markets. It is submitted that such assistance clearly falls within the provisions of Section 2(24)(xviii) as introduced by Finance Act, 2015. It is submitted that the phrase 'by whatever name called' is wide enough to inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decision of Division Bench in case of DCIT vs Eris Lifesciences Ltd Cements (ITA No. 847-850/Ahd/2025 dated 09-12-2025) and the decision of the Division Bench in case of India Cements vs DCIT (ITA No. 2174/CHY/2024 dated 02-01-2026. 14. The learned Counsel for the assessee has made the following submissions :- (i) The FTP under which the MEIS was introduced is intended to provide a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the "Make in India" vision of the Prime Minister. (ii) The policy is aimed at supporting both the manufacturing and services sector, with a special emphasis on improvement of ease of doing business. (iii) The objective of the scheme is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, especially those having high export intensity, employment potential and thereby to enhance the country's export competitiveness. (iv) It is submitted that thus the dominant object is to improve the export competitiveness of the 'country as a whole' and not an individual assessee. Theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in wherein the challenge was with respect to violation of fundamental rights under Article 14, 19 and 21 of the Constitution of India. It is pointed out that the High Court did not express any opinion on the merits of the matter. Reliance is placed on the decision of Supreme Court in CIT vs Sun Engineering Works (P.) Ltd., 198 ITR 297 (SC) in order to submit that a decision is only an authority for what it actually decides. 17. It is submitted that the benefit under the MEIS does not answer any of the categories as enumerated in Section 2(24)(xviii) of the Act for which the learned counsel has referred to various Dictionary meanings. It is submitted that MEIS, on the other hand, is in the nature of a 'reward' as noted in para 3.04 of the FTP as under:- "3.04 Entitlement under MEIS Exports of notified goods/products with ITC[HS] code, to notified markets as listed in Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of rewards on various notified products [ITC(HS) code wise). The basis of calculation of reward would be on realised FOB value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is submitted that a Constitution Bench of the Supreme Court in Commissioner of Customs (Import) Mumbai vs Dilip Kumar & Co., (2018) 95 Taxmann.com 327 has held that any ambiguity in a charging provision needs to be construed in favour of the tax payer. It is submitted that without prejudice to the submission that MEIS scrips do not fall within the scope and ambit of Section 2(24)(xviii) of the Act even in view of the conflicting decisions rendered by the different Benches, the same has to be resolved in favour of the respondent-assessee. 24. Lastly, it is submitted that a deeming provision has to be strictly construed as held by the Supreme Court in Cape Brady Syndicate vs IRC, (1921) 1 KB 64, CIT vs Ajax Products Ltd., 55 ITR 741 (SC) and Hansraj Gordhandas vs CCE and Customs, AIR 1970 SC 755. 25. It is submitted that the learned CIT(A) has rightly come to the conclusion that the MEIS scrips are in the nature of a 'reward' which is not taxable as a revenue receipt and the question be answered accordingly. Consideration:- 26. We have carefully considered the rival submissions made. MEIS is a part of the Foreign Trade Policy, 2015-20 notified under the Foreign Trade (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facilities and incentives to certain new industrial undertakings, which commenced production on or after 01.01.1969. The incentives were in the nature of refund of sales tax on raw material, finished goods and machinery and a subsidy on power 'consumed for production'. The Supreme Court found that all the incentives were essentially 'production incentives', in the sense that the undertaking was entitled to the incentives only after commencement of production and were operational subsidies. Although the subsidies were given to encourage the setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the state more profitable, the Supreme Court found that the incentives and the subsidies were essentially of a revenue nature liable to tax. 30. In the case of Ponni Sugars & Chemicals Ltd. (supra), the assessee-company had received subsidy under the Incentive Subsidy Scheme, 1980. The incentives were in the nature of a higher free sale sugar quota and secondly to allow the manufacturers to collect excise duty on the sale price of free sale sugar in excess of the normal quota, however, restricting the payment to the government to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2(24) of the Act is wide enough to take into its ambit all types of government aid, the nomenclature notwithstanding, which would partake of the nature of an 'income' especially going by the intent of the legislature. For this purpose, reliance is placed on the decision of the Bombay High Court in the case of Serum Institute of India (supra). 32. In order to appreciate the rival contentions, it is necessary to deal with the decision in the case of Serum Institute of India (supra) in some details. That was a case where the petitioner-assessee had challenged the constitutional validity of sub-clause (xviii) of Section 2(24) of the Act, inter alia, on the ground that the said amendment seeks to tax a 'capital receipt' as 'income' which is constitutionally impermissible. It was contended that the amendment obliterates the clear, well established and fundamental distinction between income and capital receipt which runs counter to the constitutional scheme that a tax can be imposed only on income and the nature of any such government aid has to be determined on the basis of a "purpose test". In short, the material contention before the High Court was that the impugned sub-clause is co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity. The policy of a tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstance that its imposition might tend towards diminution of the earnings or profits of the persons of incidence, like in the case at hand - savings get reduced resulting in lower profitability, does not, per se, and without more, constitute violation of the rights under Part III of Constitution of India. 33. The chronology of events is pivotal in assessing the merits of petitioner's arguments against the constitutional validity of section 2(24) (xviii) of the Act. When petitioner applied for the subsidy, the amendment to the Act specifically the inclusion of sub-clause (xviii) to Section 2(24), had been in effect for more than two years. This timeline is not merely incidental but is of substantive significance for sever....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se 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 concern were, in our view, more an argument of diminished profits and a narrow interpretation of income which the Apex Court has time and again expanded. The submissions of petitioner fall short of appreciating the overarching legislative intent to foster a comprehensive and equitable taxation regime. The amendment to Section 2(24) by insertion of the impugned sub-clause that includes various subsidies and concessions only indicates the well established jurisprudential path ensuring that the income tax laws remain attuned to the economic realities and continue to serve as a vital cog in the nation's fiscal machinery. As submitted by ASG, it is the duty of the legislature to ensure that taxation policy reflects a balance betwe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n taxable). The Bombay High Court upheld the constitutional validity and held that the amendment to Section 2(24) by the insertion of sub-cause (xviii) of the Finance Act, 2015, is a clear legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. 38. Faced with a situation where the "purpose test" has been holding field since long and the constitutional validity of Section 2(24)(xviii) of the Act, being upheld by the jurisdictional High Court, in our humble opinion, the issue as referred to this Bench, has to be resolved on facts as to the nature of the benefit which is extended under the MEIS scheme We therefore proceed to decide it in the backdrop of both, i.e. the provisions of Section 2(24)(xviii) of the Act as introduced w.e.f. 01.04.2016, taking into consideration the legislative intent behind the said amendment and the "purpose test". Examination in the context of Purpose Test: 39. We have already referred to the decisions of the Supreme Court in case of Sahney Steel Press Works Ltd (supra) as well as in case of Ponni Sugars and Chemicals Ltd (supra) wherein the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts; gram udyog products; and other products, from time to time. 45. The objective of the Incremental Export Incentivize Scheme (IEIS) was to grant incentive on incremental exports made during the period January-March 2013 over the base period January-March 2012. The incentive would be granted to an IEC holder at the rate of 2% on the incremental growth of exports made to USA, EU and Asian Countries (Latin American and African countries have been added subsequently) during this particular quarter i.e., January-March 2013 which was extended for the year 2013-14. 46. Now, coming to MEIS Scheme, in para 3.03, it specifically defines the objective of the Merchandise Exports from India Scheme (MEIS), wherein it is provided that the objective of the said scheme is to offset infrastructural inefficiencies and associated cost 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. 47. In terms of entitlement under the MEIS scheme, para 3.04 provides that the export of notified goods/products to notified markets as listed in Appendix-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t scrips and goods imported/domestically procured against them shall be freely transferable. The duty credit scrips can be used for payment of customs duty for import of inputs or goods except items listed in Appendix 3A, payment of excise duties on domestic procurement of inputs or goods, including capital goods as per DOR notification, payment of service tax on procurement of services as per DOR notification, and payment of customs duty and fee as per paragraph 3.18 of the Foreign Trade Policy. 51. It is equally important to note as to who are eligible to claim the rewards under the MEIS scheme which is provided in para 3.17 under the heading "Transfer of Export Performance". Clause (b) of para 3.17 provides that MEIS rewards can be claimed either by the supporting manufacturer, (along with disclaimer from the company/firm who has realized the foreign exchange directly from overseas), or by the company/firm who has realized the foreign exchange directly from overseas. In other words, both manufacturer, exporter as well as merchant exporter, are eligible for MEIS rewards and then it talks about certain ineligible categories which we need not elaborate. 52. The Supreme Court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t inherent in the ordinary course of exporting, such as freight, logistic, other related forseen/unforeseen transaction cost in relation to export of goods and thus to compensate for infrastructural handicaps/challenges in relation to export of goods, which, at times are beyond the control of the exporters and thus leading to inefficiencies, both in terms of time and cost. The objective is thus to compensate the exporters for such costs and to encourage them in maintaining their export competitiveness vis-à-vis other exporters. This is qualitatively identical to Sahney Steel fact pattern, where the subsidy was meant to meet recurring expenses and was not for acquiring the capital asset and not granted for production of or bringing into existence any new asset. We find that there is nothing in the MEIS objective which speaks of setting up of new unit, capacity expansion, or capital investment, the touchstone that made the Supreme Court treat the sugar schemes as capital in Ponni Sugars case. We therefore find that on the purpose test, MEIS scheme aligns with the revenue side of the Ponni Sugars decision. 54. Further, we find that one of the decisive fact before the Supreme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imposes no repayment/capital application condition. This absence is significant, as it was precisely this factual matrix, and not the mere fact that the incentives were routed through price/duty mechanism, that led the Supreme Court to override the Revenue's "price is inherently revenue" argument. 57. We therefore find that applying the ratio so laid down by the Supreme Court and comparison of the schemes against the criteria identified by the Supreme Court in terms of object test, we find that under the Sugar Incentive Scheme, the object was to set up/expand the unit, whereas under the MEIS Scheme, the object is to offset export cost and improve competitiveness. Secondly, in terms of utilization obligation, under the Sugar Incentive Scheme, it was mandatory to be utilized for loan repayment for new/expanded unit, however, in the MEIS Scheme, it is freely usable and transferable and can be monetized. In terms of eligibility criteria, under the Sugar Incentive Scheme, it was for new units or the units undertaking substantial expansion, whereas under the MEIS Scheme, all qualifying exporters, both manufacturer-exporters as well as the merchant exporters, are eligible to claim ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and at the same time, allowing reasonable margins and profitability, the incentives have been provided to pharmaceutical companies in general and the assessee company in particular. In the instant case, it is not even the case of the assessee that by virtue of the MEIS Scheme, it has led to setting up of new manufacturing units or the expansion of the existing manufacturing units. The assessee, being a manufacturer of pharmaceutical drugs and already in the business of manufacture and exports (having availed the benefits of earlier export promotion schemes in the earlier years), and being eligible to avail the MEIS scheme and by virtue of export of specified goods to specified export markets, has been granted the duty credit scrips under the MEIS Scheme. We therefore find that from the perspective of "purpose test" so laid down by the Supreme Court in the Ponni Sugar case, the MEIS rewards are clearly classifiable as revenue receipts forming part of the assessee's business income and not as capital receipts. Examination in the context of Section 2(24)(xviii) of the Act : 60. Section 2(24)(xviii) of the Act as introduced w.e.f. 01.04.2016 reads as under :- "2(24) "i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ernment grants provides that all Government grants except relating to depreciable asset shall be recognised as income in accordance with the provisions of the said ICDS. The existing provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act already contained the guidance for treatment of Government grants relating to acquisition of an asset. However, there was no specific guidance available under the provisions of the Income-tax Act for treatment of other Government grants. During the public consultations for ICDS, the stakeholders suggested that in order to avoid any future controversy in this matter, there should be specific provision in the Income-tax Act for treating these Government grants as income. The Accounting Standard Committee, which drafted the ICDS, has also examined the suggestions/comments received during public consultations and suggested that the issue of legislative amendment for bringing certainty in this matter may be examined. In order to avoid any future litigation and controversy in this matter, the definition of income under clause (24) of section 2 of the Income-tax Act has been amended so as to provide that the income shall include as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofession carried out by him. Therefore, any welfare subsidy provided by the Central or state government or any local authority/body/agency and which is received by an individual in his/her personal capacity will not be construed as income in terms of the amended definition of income in terms of section 2(24)(viii) of the Act, besides the two exceptions specifically carved out. 64. Now, coming to Rule of ejusdem generis, which has been pressed in support by the ld Counsel for the assessee. In this regard, we can refer to the decision of the Supreme Court in case of D N Singh vs CIT (2023) 454 ITR 595 (SC), available as part of the legal compilation submitted by the assessee (pages 46-79) wherein the Supreme Court referred to its earlier decisions in case of CIT vs SMIFS Securities Ltd 13 SCC 488, Rohit Pulp and Paper Mills Ltd vs Collector of Central Excise 3 SCC 447 and Rainbow Steels Ltd vs CST 2 SCC 141 and has laid down how the aforesaid rule of construction should be applied in a particular case and has held in para 73-76 as under: "73. Section 69A provides for unexplained 'money, bullion, jewellery'. It is thereafter followed by the words 'or other valuable articl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a generic word receives a limited interpretation by reason of its context is well established. In the context with which we are concerned, we can legitimately draw upon the "noscitur a sociis" principle. This expression simply means that "the meaning of a word is to be judged by the company it keeps." Gajendragadkar, J. explained the scope of the rule in State of Bombay v. Hosptial Mazdoor Sabha [(1960) 2 SCR 866 : AIR 1960 SC 610 : (1960) 1 LLJ 251] in the following words: (SCR pp. 873-74) "This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in "Words and Phrases" (Vol. XIV, p. 207): "Associated words take their meaning from one another under the doctrine of noscitur a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim ejusdem generis". In fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciis and how it compares with ejusdem generis, the following statement in G.P. Singh (supra) on Statutory Interpretation is apposite: "It is a rule wider than the rule of ejusdem generis; rather the latter rule is only an application of the former." 65. As held by the Supreme Court, the principle of ejusdem generis applies where the statue contains enumeration of specific words, the subject of enumeration constitutes a class or category, that the class or category is not exhaustive by the enumeration, that the general terms follow the enumeration and there is no indication of a different legislative intent. The same principle applies while construing rule of noscitur a sociis which is wider than the rule of ejusdem generis and the latter being the application of the former. It was held that the rule of noscitur a sociis is only a rule of construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It was held that it is only where the intention of the legislature in associating wider words with words of narrower significance is doubtful or otherwise no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contentions based on the 'definition' of the various clauses as relied upon by the ld Counsel for the assessee in the context of "reward" under the MEIS Scheme which is subject matter of consideration before us. 69. In our considered view, 'reward' would take into its ambit one or the other categories as set out in Section 2(24)(xviii) of the Act. For instance, 'grant' which is defined as "grant which is made by the government to any enterprise whose promotion is considered to be in public interest" in as much as the objective of the MEIS, as noticed earlier, is enhancing country's export competitiveness. Thus, in our view, applying the principle of ejusdem generis, the phrase "by whatever name called" at the end of the seven categories as set out in clause (xviii) of Section 2(24) of the Act would certainly include assistance given under MEIS as a reward. The only condition for getting such assistance/reward is realisation of export proceeds/foreign exchange. We are also unable to accept the contention on behalf of the appellant-assessee that the dominant object of the scheme being improvement of export competitiveness of the "country as a whole" and not as an individual asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... tax it as income by statutory deeming definition which is all pervasive enough to take into consideration the assistance by way of rewards extended under the MEIS Scheme. 72. Now, coming to the decisions relied upon by both the ld. Senior Counsel and ld CIT-DR for the Revenue. In Mayur Uniquoters Ltd. (supra), the following question no. 7 was raised by the assessee :- "7. On the facts and circumstances of the case, the appellant wishes to lodge claim of Export Incentives availed in the form of MEIS of Rs. 2,89,31,297/-as capital receipt in computing tax liability under the normal provision of the Act." 73. The Division Bench dealt with the said ground in para 21 onwards. The Bench noted the objective of the scheme and particularly relied upon the term 'reward' as used therein, which according to the Division Bench was different from the term 'assistance'. The Bench has also noticed the decision of Jammu & Kashmir High Court in M/s. Shree Balaji Alloys (supra), wherein it was held that the excise duty refund, interest subsidy and insurance subsidy received with the object of creating avenues for perpetual employment in the State for accelerated industrial development....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bservations of the Bench in para 85:- "85. We find considerable force in the above argument. The legislature, in its wisdom, has adopted a wide and inclusive language in Section 2(24)(xviii), covering a range of governmental aids from subsidies to reimbursements. Yet, despite its expansive sweep, the provision does not include "reward." The use of the phrase "by whatever name called" in clause (xviii) does not automatically encompass every form of State support, especially where the scheme itself is distinct in substance and form. The MEIS scheme was conceptualised not as a profit-linked assistance or cost-reimbursement mechanism, but as a policy instrument to reward exports to incentivised markets, framed under the Foreign Trade Policy. This distinction is not merely semantic but structural. The tradable duty credit scrips awarded under MEIS are not calculated based on cost, loss, or business exigency, but rather as a fixed percentage of FOB value of eligible exports. Such scrips, granted to stimulate economic activity and trade flows, partake the nature of a capital accretion rather than a revenue inflow." 77. We find that the Division Bench noticed that the legislatu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 or waiver or concession or reimbursement". We thus, hold that the word "assistance" is independent of the words "by whatever name called" and words "by whatever name called" are not qualifying the word "assistance". By applying the same finding, let us see the difference between the words "reward" and "assistance". As per the note given by the ld. AR, the term "reward" is defined as a "thing given in recognition of service, efforts or achievement", whereas, the term "assistance" is defined as the provision of money, resources or information to help someone, thus, we find a "reward" is granted in a recognition of services, an assistance is given to someone as a help, but not in recognition of a service rendered. Therefore, in our opinion, there is a clear difference between the words "reward" and "assistance", thus, we hold the "reward" as in the Foreign Trade Policy - 2015 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e & Industry to accelerate industrial development for the state of Jammu & Kashmir and as per which, the new industrial units were entitled to 100% excise duty exemption for period of ten years from date of commencement of commercial production. In that factual background, cross-appeals were filed and taken up by the Coordinate Bench and the additions were deleted following the principle of hypothetical income and going by the fact that "exemption" is not specified in the amended definition of income u/s 2(24)(xviii). It can be seen that the predominant object of the exemption was the overall industrial development of a region. In our considered view, the case turned on its own facts. 81. In Hyundai Motors (supra), the Division Bench has held that the effect of the amendment by way of introduction of section 2(24)(viii) is that various concessions etc. provided by specified authorities by whatever name called will be included within the meaning of income subject to exceptions stated therein. It was held that the phrase "by whatever name called" captures the essence of the amendment as brought out by the legislature and the same in crystal clear terms expresses the intention of t....