Income Tax Appellate Tribunal - Madras
Chengalrayan Co-Operative Sugar Mills ... vs Deputy Commissioner Of Income Tax on 17 September, 1997
Equivalent citations: [1998]65ITD475(MAD)
ORDER
Abdul Razack, J.M.
1. These two appeals are filed by the assessee and the assessment years involved are 1986-87 and 1987-88.
2. In the appeal relating to the asst. yr. 1986-87 (ITA No. 960/Mad/91) the key controversy is whether or not the excise duty incentive/rebate (for short 'EDI') of Rs. 1,24,05,255 received by the assessee is assessable to tax as business income. The other common dispute in the appeals for the asst. yrs. 1986-87 and 1987-88 is whether the tax authorities were right in holding that the expenditure on maintenance of guest house including depreciation is allowable. The third dispute in the appeal relating to the asst. yr. 1986-87 is whether interest received from bank on the deposit of Molasses Storage Fund is assessable to tax or not.
3. We shall first deal with the disputes regarding the expenditure on guest house maintenance and the bank interest on Molasses Storage Fund.
4. We have heard both sides on these two disputes in the two assessment years. In our view, the provisions of sub-s. (4) r/w sub-s. (5) of s. 37 of the IT Act, 1961, clearly debar the assessee from laying any claim for allowability of expenditure incurred on the maintenance of the guest house. We, therefore, agree with both the lower tax authorities that the expenditure on the maintenance of guest house is not allowable for both the assessment years under appeal, namely, 1986-87 and 1987-88. Since the law is very clear on the subject, the decisions relied upon by the assessee's counsel Sri Devanathan are inapplicable and on that basis we cannot give any relief to the assessee.
5. Regarding the assessability of bank interest on Molasses Storage Fund, we agree that the matter stands covered in favour of the assessee and against the Revenue by the decision of this Tribunal rendered in the case of Dy. CIT, vs. The Ambur Co-operative Sugar Mills Ltd., as per order dt. 28th March, 1996, relating to the asst. yr. 1990-91 in ITA No. 1826/Mad/94. Copy of the said order has been perused by us and this Tribunal has relied upon the decision of the Karnataka High Court in the case CIT vs. Pandavapura Sahakara Sakkare Kharkane Ltd. (1992) 198 ITR 690 (Kar). The reasoning of our learned Brothers in the said order is quite fair and reasonable and we do not think that any other view is required to be taken by us. The assessee succeeds on this point.
6. This leaves us to decide the key controversy in the appeal relating to the asst. yr. 1986-87 namely, whether or not the EDI is assessable as business income. But before we decide the issue let the facts come on record which run like this. On the basis of the recommendation of Sampat Committee for establishing sugar factories, the Government of India, Ministry of Agriculture, Department of Food, Directorate of Sugar, Krishi Bhavan, New Delhi, in File F. 17/80-PC/Govt. of India through letter dt. 15th November, 1980, addressed to all sugar factories has stated that in order to mitigate the hardship caused to the sugar industry in the establishment of new sugar factories and for effecting substantial expansions in the existing sugar factories, caused by a steep rise in the cost of plant and machinery needed for such sugar projects, the Government sanctioned a scheme in November, 1975, to provide incentives to the sugar factories and expansion schemes. The incentives consisted partly, of higher percentage of levy-free sugar quota and partly of concession in excise duty. The scheme came into effect from 1st November, 1975, and envisaged that new factories and expansion projects should, over a period of five years from the date of commencement of production/completion of expansion, be compensated for the shortfall likely to be incurred on account of the burden imposed by the higher capital cost. In para 5 of the said letter it is further stated :
"The beneficiaries of the scheme should ensure that the surplus funds available by way of incentives are utilised only for the payment of term loans, if any, outstanding from the Central financial institutions. The factories should submit a certificate to this effect annually duly certified by their statutory auditors. Failure to submit the above certificate will result in the holding up of release of extra free sale quota for the succeeding year."
The said letter has been placed at p. 65 of the paper-book filed by the assessee's counsel during the course of hearing of the appeal.
7. During the previous year commencing from October, 1984, and ending with September, 1985, which is relevant to the asst. yr. 1986-87, the assessee received a sum of Rs. 1,12,28,283.59 ps. as total purchase price benefit for free sale sugar quota of 1366.75 qtls. of sugar and Rs. 11,76,972 as excise duty benefit calculated @ Rs. 12 per quintal for 98,081 quintals of free sale sugar quota. Full and complete details are given in p. 97 of the paper-book filed by the assessee in this appeal.
8. The purchase price and excise duty rebate/benefit aggregating Rs. 1,24,05,255 was credited by the assessee to the P&L a/c for the period ending 30th June, 1985, which is placed at p. 24 of the paper-book. But the appellant-assessee while filing the IT return deducted this sum of Rs. 1,24,05,255 from the profits on the ground that it was a central subsidy being a capital receipt.
9. The assessee's counsel, Shri Devanathan, fairly conceded when put to him that excise duty liability is payable no sooner sugar is produced and that it is taken to the "excise duty paid account" in the ledger maintained by the appellant-assessee and our attention was drawn to the copies of the ledger extracts of "excise duty paid account" placed at pp. 14 to 19 of the paper-book. Our attention was also drawn by the learned counsel for the assessee to few specimen Government orders, placed at pp. 4 and 5 and 10 of the paper-book, issued by the Civil Supplies Department of the Food and Agricultural Ministry, permitting the assessee to sell sugar in free sale market. The assessee's counsel also referred to the xerox copy of three specimen gate-pass for removal of the excisable goods from a factory or a warehouse on payment of duty which are placed at pp. 11 to 13 of the assessee's paper-book.
10. This total benefit of Rs. 1,24,05,255 was treated by the AO as income chargeable to tax as profits and gains of business and profession as provided in s. 28(iv) of the IT Act. On appeal, the Commissioner of Income-tax (for short 'Commissioner') confirmed the addition but not under s. 28(iv) of the Act but under s. 28(iiic) of the Act. This is how the controversy has arisen for our decision.
11. The assessee's counsel Shri Devanathan submitted as under :
(a) The purchase price and excise duty rebate/incentive received under the incentive scheme of the Government of India is not a revenue receipt but a capital receipt and hence not taxable;
(b) the total incentive/benefit of Rs. 1,24,05,255 is a capital subsidy and on the basis of the decision of the Supreme Court in the case of CIT vs. P. J. Chemicals Ltd. (1994) 210 ITR 830 (SC), it was not assessable as business income;
(c) the receipt on price and excise duty rebate/incentive was neither a benefit nor perquisite and, therefore, cannot be treated as business income under s. 28(iv) of the Act nor excise duty drawback or refund against exports to be assessed under s. 28(iiic) of the Act as has been done by the Commissioner in the impugned order;
(d) the benefit received on free sale sugar was utilised by the appellant-assessee for liquidating term loans and hence it should be treated as diversion of income by overriding title and, therefore, not assessable to tax as has been by the AO. He referred to certificate of a Chartered Accountant placed at p. 36 of the paper-book to support his argument.
The assessee's counsel also relied upon the below given decisions :
(i) Order dt. 18th October, 1993, of Madras 'A' Bench of this Tribunal in the case of Tamil Nadu Sugar Corpn. Ltd. vs. ITO, for asst. yrs. 1985-86 & 1986-87 being ITA Nos. 3709 & 3710/Mad/88 which has since been reported in (1993) 45 ITD 11 (Mad);
(ii) Order dt. 14th May, 1992 of Calcutta 'A' Bench of this Tribunal in the case of Balrampur Chini Mills Ltd. vs. ITO, relating to asst. yrs. 1986-87 & 1987-88 being ITA Nos. 2032 & 2033/Cal/1988;
(iii) decision of Calcutta 'E' Bench of this Tribunal in the case of Babhnan Sugar Mills Ltd. vs. Asstt. CIT since reported in (1997) 57 TTJ (Cal) 72; and
(iv) decision of Chandigarh Bench of this Tribunal in the case of Ludhiana Steels (P) Ltd. vs. Dy. CIT since reported in (1996) 56 ITD 394 (Chd).
On the basis of the above submissions and the case law relied, the assessee's counsel prayed for deleting the addition of Rs. 1,24,05,255.
12. The Departmental Representative, on the other hand, countered the arguments of the assessee's counsel and further submitted that the receipt of Rs. 1,24,05,255 was a benefit to the appellant-assessee in the course of carrying on of business and as such assessable as business income under s. 28(iv) of the Act. The learned Departmental Representative supported the reasoning and finding of the AO given in the assessment order. According to the Departmental Representative, the receipt of the purchase price and excise duty incentive/rebate was not a capital subsidy at all but it was a pure and simple business income assessable under s. 28(iv) of the Act. The Departmental Representative urged for dismissal of the assessee's appeal.
13. In our considered opinion which we have formed after hearing both sides and perusing the materials on record and the relevant case law on the controversy involved, the addition made by the AO of Rs. 1,24,05,255 being purchase price and excise duty rebate/incentive received by the assessee during the previous year is assessable as business income. Total income earned by any person during the previous year relevant to an assessment year is chargeable to tax at the prescribed rates as provided in s. 4 of the IT Act. Income has been inclusively defined in s. 2(24) of the Act and according to sub-cl. (i) profits and gains is income. The benefit received by the assessee from the Government towards purchase price and excise duty rebate is nothing but a gain to the assessee and, therefore, income assessable to tax as has been done by the AO. Apart from this, the sub-cl. (vd) to s. 2(24) of the Act says that the value of any benefit or perquisite taxable under sub-cl. (iv) of s. 28 is also income. When we turn to s. 28(iv) we find that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession is assessable as business income. According to the provisions of s. 28(iv) r/w s. 2(24)(vd) of the Act, it is clear that the benefit of purchase price and excise duty rebate received by the assessee during the previous year ending 30th September, 1985, pursuant to various Government orders is nothing but a gain and benefit received by the assessee and, therefore, it is income, not only according to the definition of income laid down in s. 2(24)(i) but also as per s. 2(24)(vd) r/w s. 28(iv) of the Act. The facts of the case clearly go to establish that what the assessee received pursuant to the various Government orders was positively and undoubtedly a benefit and, therefore, rightly assessed to tax by the AO. We are unable to accept the argument advanced by the assessee's counsel that the purchase price and excise duty rebate/incentive is a capital subsidy and, therefore, not taxable. What the assessee received is nothing but a grant or a concession to meet and recoup the revenue expenditure viz., purchase price and excise duty already incurred by the assessee and debited in its accounts, as is evident from the copies of P&L a/c finding place in the paper-book filed by the assessee's counsel. According to us the benefit/gain received by the assessee is neither a capital subsidy nor a capital receipt.
14. It is very well-known that the purpose for which a rebate or concession is given qualifies and determines its nature. The imposition of condition in para 5 of the letter dt. 15th November, 1980, of the Food & Agricultural Ministry, Government of India, is more as a safeguard to ensure that the rebate given to the sugar factories is properly utilised. That condition per se is not determinative of the character or nature of the receipt. It is well-known and accepted principle of law that receipt of a subsidy, rebate or concession, etc., is given to recoup an expenditure incurred and laid out in the course of carrying on of the business. If it is given to recoup revenue expenditure then it is a revenue receipt and not a capital receipt. The facts of the case clearly establish that what the assessee received was to recoup the revenue expenditure already incurred in the course of carrying on of a business. Had the assessee not carried on the business it would not have been eligible or entitled to any rebate-incentive towards excise duty or purchase price as it has received pursuant to the recommendation of the Sampath Committee. We are fortified in saying so on the strength of the decision of the Hon'ble Supreme Court in the case of V. S. S. V. Meenakshi Achi & Anr. vs. CIT (1966) 60 ITR 253 (SC). In that case, rubber planters were paid amounts from the fund earmarked on the basis of rubber produced. The question before the apex Court was whether the receipt was a revenue nature or not. His Lordship Justice K. Subba Rao speaking for the Bench observed that if the payments are made to recoup the revenue expenditure then the receipt is also of a revenue nature. We are also reminded of the decision of the Andhra Pradesh High Court in the case of Panyam Cements & Minerals Industries Ltd. vs. Addl. CIT (1979) 117 ITR 770 (AP). In that case on the recommendation of a committee the assessee received concessional rate of tariff of power consumed for a period of five years from the date of commencement of the production ranging between 25 to 50 per cent. of the existing rates. The AO brought to tax the benefit received by the assessee in power tariff/charges. The Tribunal agreed with the Revenue authorities. The High Court of Andhra Pradesh on a reference under s. 256(1) of the Act agreed with the conclusion of the Tribunal that the rebate/concession given in power tariff/charges was a revenue receipt and rightly taxed by the Revenue authorities because it was in the course of carrying on business. The facts of the present case are very near to the facts in the case of Panyam Cements & Mineral Industries Ltd. (supra) before the Andhra Pradesh High Court. If we apply the ratio decidendi of the Andhra Pradesh High Court in the aforestated case, then there is no escapement from the conclusion that the sum of Rs. 1,24,05,255 as benefit and gain has been rightly taxed as business income by the AO.
15. The Punjab & Haryana High Court in the case of Ludhiana Central Co-operative Consumers Stores Ltd. vs. CIT (1980) 122 ITR 942 (P&H) at p. 947 have also observed that the character of the receipt has to be seen if it has been given to recoup or meet the revenue expenditure, then it is a revenue receipt in the hands of the assessee. The payment of purchase price for sugarcane and excise duty on conversion into sugar is a revenue expenditure forming part of the cost of sugar produced and since the assessee received back the same clearly goes to show that it was granted to meet and recoup the revenue expenditure already incurred and reflected in the accounts maintained by the assessee. On this reasoning also, the action of the AO requires to be upheld.
16. The assessee paid excise duty no sooner the sugar got manufactured and produced because under the excise law, excise duty is attracted and becomes payable no sooner the production is complete. The assessee paid excise duty as is evident from the entries made in the excise duty paid account, copies of which account have been placed in the paper-book which we have earlier referred to above in this order. Since the purchase price of sugar has been claimed as a revenue expenditure, as is seen from the copies of trading and P&L a/c finding place in the paper-book, there can be no doubt that whatever benefit is received in return by the assessee from the Government towards purchase price as well as the excise duty rebate is a benefit clearly assessable as income by virtue of s. 2(24)(vd) r/w s. 28(iv) of the Act.
17. The assessee credited the total benefit of Rs. 1,24,05,255 to its P&L a/c and therefore, the gross profit in the sugarcane account was to the tune of Rs. 2,43,43,979.66 ps. This gross profit is again carried to the main P&L a/c and clubbed with the gross profits of other trading activities carried on by the assessee as is evident from page 30 of the paper-book filed by the assessee's counsel. The assessee thus earned a net profit of Rs. 1,86,33,661 which inclusive of the gross profit of Rs. 2,43,43,979.66 ps. (refer pp. 30 and 31 of the paper-book). According to the assessee, the entire rebate towards purchase price and excise duty aggregating Rs. 1,24,05,255 is profits and gains of its business and the same is not income but a capital receipt. The assessee holds out to the entire outside world that the benefit it received in purchase price and excise duty rebate is income but to the Revenue authorities it contends that the same is not revenue receipt or income but a capital receipt and deducts it from the taxable income on the ground that it is a subsidy received from the Central Government. We do not approve this approach and conduct of the assessee. We, are, therefore, firmly of the opinion that the entire benefit of Rs. 1,24,05,255 towards purchase price and excise duty rebate/incentive is income as per law and correctly brought to tax by the AO.
18. Reliance by the assessee's counsel on the decision of the Hon'ble Supreme Court in the case of P. J. Chemicals Ltd. (supra) is wholly misplaced and inapplicable as in that case the Hon'ble Supreme Court has laid down that the receipt of subsidy for purchase of plant and machinery is not deductible from the cost as per the provisions of s. 43(1) of the Act. In that case, the Hon'ble Supreme Court has not given any finding or decision that the subsidy received is not income or that it is a capital receipt. The issue before the Hon'ble Supreme Court in P. J. Chemicals case (supra) was wholly different.
19. We also cannot agree with or accept the argument advanced by the assessee's counsel that since the benefit received from the Government was utilised for the purpose of liquidating term loans it, therefore, amounted to diversion of income at source by an overriding title, namely, the Sampath Committee report for establishing sugar factories. A glance of balance sheet as on 30th September, 1985, which is placed at p. 32 of the paper-book reveals that the total borrowings as on that date were to the tune of Rs. 42,65,694 as against the total borrowings of Rs. 64,91,665 as on 30th September, 1984. Thus, there has been reduction in borrowings over a year to the extent of Rs. 22,25,971 only. We are, therefore, not able to give any credence to the certificate given by Sri S. Parameswaran, Chartered Accountant, which is placed at p. 36 of the paper-book. Moreover, it cannot be said that the term loans have been repaid from out of the purchase price and excise duty rebate of Rs. 1,24,05,255. The turnover of the assessee in the sugar cannot itself as on 30th September, 1985, is nearly to the tune of Rs. 13 crores. It, therefore, cannot be contended by the assessee that the loans have been repaid during the previous year ending 30th September, 1985, from out of purchase price and excise duty rebate. At best it could be said as application of income but not diversion of income at source by overriding title.
20. Having regard to these facts and the clear provisions of s. 2(24) (i), 2(24)(vd) and s. 28(iv) of the Act, the decisions of various Benches of this Tribunal relied upon by the assessee's counsel become inapplicable and distinguishable and we are therefore, unable to allow the assessee's appeal in respect of this controversy on the basis of those decisions. The clear provisions of s. 2(24)(i) and (vd) and s. 28(iv) were not placed or brought to the notice of our learned brothers in those cases for their consideration and, therefore, the assessee cannot get the benefit of those decisions, which are per incuriam.
21. It is well settled that there is no res judicata in proceedings under the IT Act. The Hon'ble Supreme Court in the case of Joint Family of Udayan Chinubhai vs. CIT (1967) 63 ITR 416 (SC) at p. 423 held as under :
"... It is true that an assessment year under the IT Act is a self-contained assessment period and a decision in the assessment year does not ordinarily operate as res judicata in respect of the matter decided in any subsequent year, for the AO is not a court and he is not precluded from arriving at a conclusion inconsistent with his conclusion in another year. It is open to the ITO, therefore, to depart from his decision in subsequent years, since the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made."
22. Again in the apex Court in the case of CIT vs. Brijlal Lohia & Mahabir Prasad Khemka (1972) 84 ITR 273 (SC) at p. 277 held as under :
"The fact that in the earlier proceedings that Tribunal took a different view of those deeds is not a conclusive circumstance. The decision of the Tribunal reached during those proceedings does not operate as res judicata. As seen earlier there was a great deal of more evidence before the Tribunal during the present proceedings, relating to those gift deeds."
23. On the principle of res judicata, the Patna High Court in the case of Jhaverbhai Patel vs. CIT (1976) 103 ITR 728 (Pat) at p. 733 held as under :
"From an analysis of facts as noticed by the Tribunal, which I have already recapitulated earlier, it is clear that the Tribunal has felt coerced by its earlier decision on the question regarding the nature of the gifts. There I must say, the Tribunal was not well instructed in law, for, it is well-settled that the fact that in the earlier proceedings the Tribunal took a different view of the gifts was not a conclusive circumstance, the decision of the Tribunal reached in those proceedings did not and could not, in law, operate as res judicata. Reference in this connection may be made to a decision of the Supreme Court in the case of CIT vs. Brij Lal Lohia (supra). Decisions may be multiplied but the principle of law is so well settled that I do not see any necessity for it. I have thus no hesitation in answering the first question as reframed in the negative as it must be held that the Tribunal was not correct in coming to the conclusion that the gifts were inchoate and incomplete only on the ground that this question was concluded by the Tribunal's previous order in relation to the asst. yr. 1954-55."
24. The Calcutta High Court in the case of Namdang Tea Co. Ltd. vs. CIT (1982) 138 ITR 326 (Cal) have held at p. 333 of the said reports that on the question of principle of law, one Tribunal is not bound by the decision of another Tribunal and that as per settled law the decision of the ITO or a Tribunal in regard to a particular year does not operate as res judicata for the subsequent year.
25. The Allahabad High Court also had an occasion to consider the applicability of the principles of res judicata in the case of Ambika Prasad Sonar vs. CIT (1987) 168 ITR 444 (All) and the pertinent observations of their Lordships are at p. 453 which read as under :
"As stated earlier, the Tribunal was largely influenced in its decision that it took by the fact that such income in the earlier years was assessed in the hands of the family. That, by itself, is no ground for sustaining the clubbing of income earned by Panna Lal and Prem Chand in the hands of the family. It is settled that the rule of res judicata or estoppel by record, which applies to the decisions of the civil Courts has no application to the decisions of the IT authorities, so as to debar determination of a question decided in the previous assessment years from being reopened in proceedings relating to the subsequent years."
26. Even the Madras High Court in the case of CIT vs. L. G. Ramamurthi & Ors. (1977) 110 ITR 453 (Mad) have laid down that ordinarily one Bench has to follow the decision given by an earlier Bench unless and until fresh materials or the correct law is placed before the other Bench of the Tribunal. In the instant case the facts which we have culled out in this order and the statutory provisions which we have referred to were not brought to the notice of our learned brothers in the various decisions of this Tribunal relied upon by the assessee's counsel.
27. In Mamleshwar Prasad vs. Kanhaiyalal 1975 (2) SSC 232 : AIR 1975 SC 907 Krishna Iyer, J. while interpreting the principles of per incuriam observed thus :
"Certainty of the law, consistency of rulings and comity of Courts, all flowering from the same principle, coverage to the conclusion that a decision once rendered must later bind like cases. It is no doubt true that in exceptional instances, where, by obvious inadvertence, or oversight, a judgment fails to notice a plain statutory provision or obligatory authority, running counter to the reasoning and result reached, it may not have the sway of binding precedents. But it should be a glaring case, an obstructive omission."
Further, in the said judgment, it is also observed as under :
"Incuriam literally means 'carelessness'. In practice per incuriam appears to mean per ignoratium. English Courts have developed this principle in relation to the rule of stare decisis. The 'quotable in law' is avoided and ignored if it is rendered, 'in ignoratium of a statute or other binding authority'. Same has been accepted, approved and adopted by this Court while interpreting Art. 141 of the Constitution which embodies the doctrine of precedents as a matter of law."
28. The Hon'ble Supreme Court in a recent judgment in the case of Secretary, Jaipur Development Authority vs. Daulat Mal Jain, decided on 20th September, 1996 and reported in (1997) 1 SCC 35 at p. 50, para 24 has observed that :
"If some persons derived benefit by illegality and had escaped from the clutches of law, similar persons cannot plead, nor the Court can countenance that benefit had from infraction of law and must be allowed to be retained. Can one illegality be compounded by permitting similar illegal or illegitimate or ultra vires acts ? Answer is obviously no."
29. The apex Court in the well-known case of Yadu Nandan Garg vs. State of Rajasthan (1996) 1 SCC 334 at p. 356 has observed that :
"the wrong exemption under wrong action taken by the authorities will not clothe others to get the same benefit nor can Art. 14 be pressed into service on the ground of invidious discrimination."
On the same lines were the observations of their Lordships of the Supreme Court in the case of Chandigarh Administration vs. Jagjit Singh (1995) 1 SCC 745. In Coromandel Fertilisers Ltd. vs. Union of India (1984) SCC (Tax) 225, it was held in para 13 :
"Wrong decision in favour of any party does not entitle any other party to claim the benefit on the basis of the wrong decision. In that case, one of the items was excluded from the schedule, by wrong decision, from its purview. It was contended that authorities could not deny benefit to the appellant, since he stood on the same footing with the excluded company. Art. 14, therefore, was pressed into service. This Court had held that even if the grievance of the appellant was well-founded, it did not entitle the appellant to claim the benefit of the notification. A wrong decision in favour of any particular party does not entitle another party to claim the benefit on the basis of a wrong decision. Therefore, the claim for exemption on the anvil of Art. 14 was rejected."
30. From the conspectus and analysis of the decisions of the apex Court as well as the various High Courts, it is abundantly clear that the principle of res judicata is not applicable and no person can derive any benefit or advantage from the decisions which are not based on the correct statutory provisions or the decisions of the apex Court. We reiterate that this appellant, therefore, cannot get relief from us on the basis of the various Tribunal decisions relied upon and which we have recorded elsewhere in this order.
31. We, therefore, agree with the AO that the sum of Rs. 1,24,05,255 being purchase price and excise duty rebate/incentive is a benefit and, therefore, an income from business assessable to tax as provided in s. 2(24)(vd) r/w s. 28(iv) of the IT Act, 1961. We agree with the assessee's counsel that the Commissioner was not justified in confirming the addition taking the aid of provisions of s. 28(iiic) of the Act. But we agree with the conclusion of the Commissioner that the sum of Rs. 1,24,05,255 is taxable as business income of the previous year relevant to the asst. yr. 1986-87.
32. In the result, the appeal for the asst. yr. 1986-87 is partly allowed whereas the appeal for the asst. yr. 1987-88 is dismissed.
P.S. Kalsian, A.M.
1. I have perused the order of my learned brother. I agree with his conclusion. However, I would like to mention some facts of the case. The Govt. of India set up a committee on 5th April, 1974, to examine the viability of sugar factories. The Chairman of the committee was Shri S. V. Sambath, Joint Secretary to the Govt. of India. Consequent upon the recommendations of this committee, the Govt. of India, Ministry of Agriculture and Irrigation, Department of Food, vide letter dt. 6th December, 1975, allowed incentives to sugar factories for a period of 5 years from the date of commencement of production in each of the new sugar factories and for expansion schemes. The concessions or incentives were linked to the actual cost of a 1,250 tonnes standard plant as prescribed by the Government. These concessions were available when the FOR cost of plant and machinery was above Rs. 200 lakhs subject to a maximum of Rs. 400 lakhs. If the FOR cost of the plant and machinery was below Rs. 200 lakhs, incentives under the scheme was not available. Basically two concessions which are involved in these appeals before us were provided to the sugar factories as under :
2. First, the percentage of levy-free quota of sugar for different slabs of FOR cost of plant and machinery and for low, medium and high recovery area was prescribed.
2.1 Second, the new sugar factories were required to pay excise duty in accordance with the normal rate applicable to the existing units on the basis of 65 to 35 ratio of levy and free sale sugar.
2.2 There was, however, condition that the beneficiaries of the scheme should ensure that the surplus funds available by these incentives would be utilised only for the payment of term loans from the Central financial institutions, in accordance with the rates prescribed by them.
2.3 This scheme came into effect from November, 1975, and was applicable to new sugar factories and expansion projects over a period of 5 years from the date of commencement of production/completion of expansion.
3. Subsequently, the Ministry of Agriculture, (Department of Food), Govt. of India, vide No. 17/80-PC, dt. 15th November, 1980, revised the aforesaid scheme from the sugar year 1980-81 also. The revised scheme effective from the new year 1980-81 was applicable to new sugar factories and for expansion projects and the units covered by 1975 scheme. The same benefits which were provided by the Government of India vide letter dt. 6th December, 1975, were further continued from the sugar year 1980-81. The same condition was imposed by the Government of India that beneficiaries of this scheme, i.e., sugar factories should ensure that the surplus funds available by way of incentives are utilised only for the payment of term loans, if any, outstanding from the Central financial institutions. It may be mentioned that the assessee has to make payment of term loan out of the income or profit and gains of business.
4. The assessee-company also obtained benefit under this scheme. Under the scheme the assessee has been allowed additional higher levy free quota of sugar and concession in respect of payment of excise duty. The amount of Rs. 1,24,05,255 consists of the following amounts :
Rs.
(i) Extra price realised from the dealers/customers on sale of additional free sales of sugar 1,12,28,283
(ii) Excise duty collected from the customers which was not paid to the Government 11,76,972
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Total 1,24,05,255
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As the result of policy and scheme of the Government of India, the assessee collected extra amount of Rs. 1,12,28,138 from the dealers/customers on account of additional free sale of sugar because the price charged by the assessee on free sale sugar was more than price of levy sugar. The assessee could not receive extra amount of Rs. 1,12,28,138 if the assessee had not been allowed additional quota of free sale sugar. Similarly, in view of the policy and the scheme of the Government, the assessee was required to pay less excise duty to the Government than what was collected from the dealers/customers by the assessee. The duty collected by the assessee from the dealers/customers which was not paid to the Government of India amounted to Rs. 11,76,972.
5. Though the Government of India imposed the condition that the surplus funds generated under the scheme are utilised only for the payment of term loans, if any, outstanding from the Central financial institutions. But there is no evidence to show that the surplus funds realised by the assessee as a result of excess price of free sales of sugar charged from the dealers/customers and surplus of excise duty realised from dealers/customers due to less payment to the Government was utilised by the assessee for payment of loans from the Central financial institutions. Therefore, when the assessee has not satisfied the conditions imposed by the Government of India then the concept of the scheme as such itself is not applicable to the assessee. The assessee by making use of the scheme collected extra amount which are purely in the nature of trading receipts. The assessee-company itself has treated the amount of Rs. 1,24,05,255 as income by crediting the same to profit and loss. The assessee has utilised the amount of Rs. 1,24,05,255 for its own business purposes. Under the circumstances, there is no justification for treating the amount of Rs. 1,24,05,255 as capital receipts. I, therefore, agree with the learned brother that the amount of Rs. 1,24,05,255 is taxable as revenue receipts.
6. The assessee has collected the amount of Rs. 1,24,05,255 from dealers/ customers as part and parcel of trading receipts. The utilisation of this amount, even for payment of term loan to Central financial institution does not affect the nature of receipt. Nature of receipt has to be determined under the provision of IT Act from the commercial point of view. The amount of Rs. 1,24,05,255 is not a receipt from Government. But the amount has been realised by the assessee from dealers/customers as price of free sale sugar was more than the price of levy sugar. The purpose of allowing higher quota of free sale sugar was to enable the assessee to pay term loan of financial institution which can be paid only out of the amount of Rs. 1,24,05,255 form part of income of the assessee.