Income Tax Appellate Tribunal - Vizag
Additional Commissioner Of Income Tax vs Chodavaram Co-Op. Sugars Ltd. on 23 August, 2002
Equivalent citations: [2003]86ITD139(VISAKHA)
ORDER
P. Majhi, A.M.
1. ITA No. 70/V/2001 is filed by the Revenue against the order of CIT(A), Visakhapatnam dt. 14th Nov., 2000, for asst. yr. 1996-97 whereas ITA No. 160/V/2002 has been filed by the assessee against the order of CIT(A), Visakhapatnam, dt. 31st Jan., 2002 for asst. yr. 1997-98. Both the appeals were heard together and are disposed of in a common order for the sake of convenience.
2. The main point of dispute in both the appeals is as to whether the incentive received by the assessee is to be treated as capital receipt or revenue receipt. While completing the assessments the AO held that the incentive received from the Government of India of Rs. 2,56,55,000 for asst. yr. 1996-97 and Rs. 3,32,15,000 for asst. yr, 1997-98 as revenue expenditure (sic-receipt) in place of treating the same as capital receipt as claimed by the assessee. The CIT(A) for the asst. yr. 1996-97 held the issue under dispute in favour of the assessee and his successor CIT(A) held the issue against the assessee for the asst. yr. 1997-98.
3. The assessee cooperative society carries on business in manufacture and sale of sugar. It had filed its return for asst. yr. 1996-97 on 31st Oct., 1996, admitting taxable income of Rs. 4,04,92,680. Subsequently it filed a revised return on 10th Dec., 1999, admitting income of Rs. 1,48,37,680. The resultant reduced income was due to the claim of incentive received of Rs. 2,56,55,000 as capital receipts, which was earlier shown as revenue receipt. For the asst. yr. 1997-98 the assessee had filed return on 29th Oct., 1997, admitting income of Rs. 3,55,43,612. In this year the assessee had claimed the incentive received as capital receipt in the return itself.
4. At the outset it would be pertinent to give in brief the background of the case as gathered from the documents furnished. When the factory was set up its capacity for manufacture of sugar was 1,000 tons per day. Subsequently, it was expanded to 1,600 tons per day in the year 1975-76. Its capacity was further expanded from 1,600 tons to 2,500 tons per day in the year 1991. This installed capacity was increased by taking advantage of the Government of India revised incentive scheme "for new sugar factories and expansion projects, licensed/to be licensed during the period from 7th July, 1990 to 31st March, 1994". This scheme was introduced by directorate of sugar, ministry of food, Government of India vide Notifications No. 3(4)/89-PC/Volume-III, dt. 10th March, 1993 and No. 3(4)789-PC/Volume-HI, dt. 3rd Jan., 1994, The scheme was introduced with the main object to augment indigenous sugar production by mitigating hardship involved in setting up higher cost sugar units enabling viability of sugar mills through higher free sale quota. One of the salient features of the scheme was to enable the central financial institutions to extend the sugar mills term loans for setting up the plants and expansion projects. The scheme also enabled the entrepreneurs to utilise the surplus funds generated through higher free sale quota for repayment of term loans advanced by Central Financial Institutions and Sugar Development Fund. Thus, the scheme was designed keeping in mind two vital public purposes i.e., augmentation of indigenous sugar production by encouraging the entrepreneurs to set up factories which are otherwise highly capital intensive, to induce the Financial Institutions and Sugar Development Fund to extend term loans and to ensure repayment of loans through the incentives. As per the scheme of incentive the Government was not to take any quantity of sugar as a levy sugar or to take lower quantity of such sugar, the sugar factories were allowed to sell the same in the open market and the price difference received was treated as incentive. The incentive allowed through the scheme is not to meet any recurring cost or to meet revenue expenses or to meet the losses of sugar mills caused due to lower realisation of price or higher cost of production of sugar but to extend capital assistance. The Government of India through this scheme allowed to generate additional funds for meeting the capital cost of new units and expansion of other eligible sugar mills and not to recoup any revenue expenses or losses. The scheme also involves sacrifices on the part of the Government by foregoing sugar at lower rate otherwise available to it by way of levy sugar for meeting capital costs of sugar mills.
5. As per the incentive scheme the assessee had become eligible by way of release of additional free sale sugar quota, which it was entitled to sale in the open market. The difference of price between the levy sugar and non-levy sugar sold in the open market is the amount of incentive allowed by the Government of India for setting of new project or expansion project. This incentive so received has to be utilised by the sugar mills for the repayment of term loans outstanding if any at the time of receipt of incentive.
6. To avail the benefit of the scheme, the assessee had taken loans of Rs. 624 lakhs from financial institutions out of the expansion project cost of Rs. 836 lakhs. The balance of Rs. 212 lakhs was met from internal sources. The term loans were taken from financial institutions like IFCI, IDBI, ICICI and IRBI and Sugar Development Fund. Out of the total loan of Rs. 624 lakhs, Rs. 379 lakhs was obtained in asst. yr. 1990-91 and the balance of Rs. 245 lakhs was obtained in asst. yr. 1991-92. As per the terms and conditions of the loan agreement with the financial institutions, the loan was to be repaid in 20 quarterly instalments starting from 15th April, 1991, in case of default in the loan repayment there was provision for penal charges @ 2 per cent per annum by way of liquidated damages. The repayment of principal and interest in respect of loans obtained, from Sugar Development Fund was to be paid after the expiry of one year of the term of IFCA loan. The repayment of loans to financial institutions started from asst. yr. 1992-93 and was completely repaid by the asst. yr. 1995-96. As regards repayment of loan of SDF it started from asst. yr. 1996-97 and was completely repaid by asst. yr. 2000-2001.
7. The construction and expansion of the factory was completed in January, 1992, and the increased capacity of 2,500 tons per day commenced from February, 1992. However, the Government of India, after being satisfied that the assessee fulfilled all the terms and conditions envisaged in the scheme, released the sugar quota vide its release certificate dt. 7th March, 1995. On sale of additional free quantity sugar released, the assessee realised the incentive amount of Rs. 766 lakhs from asst. yrs. 1996-97 to 1999-2000.
8. In the meantime, the assessee had repaid the entire loan obtained from financial institutions during asst. yrs. 1990-91 and 1991-92 by 31st Oct., 1995. The loan repayment was made earlier before receipt of the incentives in anticipation of the Government approval and in compliance to the terms and condition's on which the loans were sanctioned by the financial institutions and to avoid penal interest. The repayment of loan to Central financial institutions was made out of internal resources of the society by operating cash credit account on 'pledge of sugar stock. All these facts were intimated to the Government of India and were reflected in the utilisation certificate submitted to the Government as per the conditions of the incentive scheme.
9. While completing the assessment the AO treated the amount received under the incentive scheme as revenue receipt. He held that the surplus funds were received from sale and accordingly they are trading in nature. As incentive was given to the assessee by way of sale proceeds, they have to be treated as sale and not otherwise. He also held that certain conditions stipulated by the Government as a regulatory agency cannot alter the nature of receipt. He further held that the utilisation of incentive was nothing but application of income and the same cannot be treated as capital receipt. The AO while considering the nature of the receipt heavily relied on para 12 of the incentive notification dt. 10th March, 1993, which states that the beneficiaries of the incentive scheme shall ensure that the surplus funds generated through sale of incentive sugar are utilised for the repayment, of term loans, if any, outstanding from the Central Financial Institutions/Sugar Development Fund.
9.1. The AO held that the scheme could be availed only by those assessees who have outstanding loans from financial institutions as on the date of availing incentive out of sale of sugar in open market. In the case of the assessee by the time incentives were availed it had already repaid the loans and was under no obligation to spend the money for a particular purpose. As such it did not utilize the surplus funds generated by way of higher free sale sugar in the manner suggested by the Government He further held that the assessee was free to use the surplus funds and it had nothing to do it with the setting up of the industry. The incentive given to the assessee had gone only to supplement its profit and, therefore, it was in the nature of revenue. In support of his conclusion the AO relied on the judgment of the Hon'ble Supreme Court in the case of Sahaney Steels & Press Worts Ltd. etc. v. CIT (1997) 228 ITR 253 (SC).
9.2. Against this order the assessee went on before the CIT(A). The learned CIT(A) before deciding the issue in favour of the assessee analysed the history of sugar production, the growth of sugar mills, the hesitation of financial institutions to finance sugar projects due to non-viability of sugar mills due to high capital cost and poor return of capital employed and the incentive returns brought in by Government of India from time to time, including the incentive scheme of 1993 and held that the Government of India has extended the incentive for meeting prohibitive capital cost required to set up sugar mills or for expansion of existing sugar mills for achieving targets of indigenous sugar production. He also held, following the judgment of the Hon'ble Supreme Court in the case of V.S.S.V. Meenakshi Achi & Am. v. CIT (1996) 60 ITR 253 (SC) that the purpose of subsidy ultimately determines the nature of subsidy. In the case of the assessee the moneys were received from different Financial Institutions and Sugar Development Fund only to meet the capital cost of the existing project. He further held that in order to determine the character of receipt what is material is the purpose for which such receipt is granted and not the source of grant. If the purpose is to help the assessee to set up a business or complete a project, the receipt of money for the purpose would constitute a capital receipt as held by the Hon'ble Supreme Court in the case of Sahaney Steels & Press Works (supra). He also referred to the utilisation certificate issued by statutory auditors asserting that such receipts were fully utilised for repayment of term loans and in the process of recoupment of capital employed by the assessee for expanding sugar mill. While holding the view in favour of the assessee the learned CIT{A) had considered the following decisions relied on by the assessee.
(i) Tamilnadu Sugar Corporation Ltd v. CIT (1994) 48 ITD 345 (Mad);
(ii) Kishan Sahakari Chinni Mills Ltd v. CIT [ITA No. 531/A/1994 of Tribunal Allahabad Bench, dt. 23rd Sept., 1994];
(iii) Balarampur Chinni Mills v. ITO [2032/2033 of 1998, dt. 15th April, 1992 of Tribunal, Calcutta];
(iv) Balarampur Chinni Mills Ltd v. CIT (1999) 238 ITR 445 (Cal);
(v) Pune Electrical Supply Co. Ltd. v. CIT (1965) 57 ITR 521 (SC);
(vi) Meenakshi Achi v. CIT (supra);
(vii) CIT v. Bijli Cotton Mills (P) Ltd. (1979) 116 ITR 60 (SC);
(viii) Sahaney Steel & Press Works Ltd v. CIT (supra); and
(ix) CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC).
10. While completing the assessment for the asst. yr. 1997-98 the AO followed his own order in the preceding assessment year and treated the entire incentive amount as revenue receipt. Against this the assessee went on appeal before the CIT(A). During this year, the successor CIT(A) took a different stand and decided the issue in favour of the Revenue. He held that the assessee had not availed the incentive scheme immediately on expansion. On the other hand, it had already discharged most of the loans of Central financial institutions before availing the scheme. In view of this he held that the belated availing of the subsidy was only due to financial constraints and the amount of subsidy was mostly used for repayment of cash credit loans. Admittedly, the loans are repaid from the accruals in the course of day-to-day business much before availing the incentive scheme. Referring to certain correspondences with the directorate of sugar, the learned CIT(A) held that assessee wanted the incentive scheme in order to tide over its financial difficulties and, therefore, it can be concluded that the incentive was given for running the day-to-day business and hence, it is to be treated as revenue receipt. The CIT(A) further held agreeing with the AO that the receipt is in the nature of tradable receipt as there is no obligation to repay any loan, the same having been discharged from internal sources, the funds were transferred to reserve account and were available with the appellant at the end of the financial year.
10.1. While deciding the issue in favour of the Revenue, the CIT(A) also held that the case laws relied upon by his predecessor were distinguishable on facts. He held that the order of the Tribunal, Madras (48 TTD 345) now stands not applicable in view of the judgment of the Hon'ble Madras High Court in the case of Tamilnadu Sugar Corpn. Ltd. v. CTT (2001) 251 ITR 843 (Mad). He also held that the judgment of the Hon'ble Calcutta High Court in the case of CIT v. Bakampur Chinni Mills (supra) was not applicable inasmuch as in that case, incentive was availed immediately for repayment of loans whereas in the case of the assessee the incentive was availed much after the discharge of most of the loans. He held that the orders of Tribunal Allahabad (ITA No.531/94) and order of Tribunal Calcutta Bench in the case of Bakampur Chinni Mills were not applicable as they were rendered prior to the judgment of the Hon'ble Supreme Court in the case of Sahaney Steels (supra). He further held that the judgment of Supreme Court in the case of Sahaney Steels could not help the case of the assessee for the reason that the receipt is in the nature of tradable receipt as there is no obligation to repay any loan the same having been discharged from internal sources. The learned CIT(A) while giving his decision against the assessee relied upon the decision of the Hon'ble Calcutta High Court in the case of Keshoram Industries & Cotton Mills Ltd. v. CIT (1991) 191 ITR 518 (Cal) according to which the incentive received to carry on its business was held to be revenue receipt. He also relied on the judgment of the Hon'ble Madras High Court in the case of Tamilnadu Sugars Ltd. v. CIT (supra) in which following the decision of the Supreme Court in the case of Sahaney Steels, it was held that the subsidy given by way of reimbursement of purchase-tax constituted revenue receipts. Accordingly, he upheld the action of the AO treating the incentive received to be in the nature of revenue receipt.
11. During the course of hearing the learned authorised representative of the assessee strongly relied on the order of CIT(A) in asst. yr. 1996-97 in which the incentive was held to be capital receipt. At the same time he vehemently argued against the order of CIT(A) in asst. yr. 1997-98 in which the incentive was held to be revenue receipt. It was submitted that in the asst. yr. 1996-97 the CIT(A) has passed a very well reasoned order after appreciating the scheme as a whole whereas in the subsequent assessment year the successor CIT(A) has taken a very narrow view of the matter and has decided the issue against the assessee by wrongly interpreting case laws and relying on certain case laws which are not at all applicable to the facts of the assessee's case.
11.1. It was submitted by the learned authorised representative that the incentive allowed through the scheme was not to meet any recurring cost or to meet revenue expenses or to meet losses of sugar mills caused due to lower realisation of price or higher cost of production of sugar but to extend capital assistance. It was pointed out that this principle has been recognised in the IT Act inasmuch as such receipts are recognised as capital receipts as in the case of subsidy received on account of replantation, replacement, rejuvenation and area consolidation subsidy received from Tea Board by the tea planter is exempt under s. 10(30) of the IT Act. Similar subsidy received by planters engaged in rubber, coffee, cardamom, etc., is expressly exempted under s, 10(31) of the IT Act. The learned authorised representative also drew our attention to the Board's Circular No. 142, dt. 5th Aug., 1974, in which it has been clarified that the subsidy received under 10 per cent central outright grant of subsidy claim for industrial units to be set up in certain selected backwards districts is to be treated as capital receipt. In the said circular it has been clarified that the subsidy was primarily given for helping the growth of industries and not for their profits and since the subsidy is intended to be contribution towards capital outlay, such subsidy can be considered as capital receipt in the hands of the recipient. It was argued that in the case of the assessee also the subsidy was received not to supplement the profits but for set up industry/expanding industry. It was argued that the lower authorities should have honoured the Board circular, which is binding in nature on them.
11.2. It was submitted by the learned authorised representative that certain subsidies and 'incentives received for meeting revenue loss or for carrying business has specifically been treated as revenue receipt like the receipts mentioned under Sections 28(iiia), (iiib) and (iiic) It was pointed out that the incentive received under consideration is not expressly included under Section 28 of the IT Act.
11.3. The assessee-company has received the incentive towards fixed assets and therefore, any amount received thereto would constitute capital receipt. In this connection it was submitted that the contributions received by electrical supply company from its consumers for installing service lines and subsidy received from State Government for producing films, have been held to be capital receipt respectively by the Hon'ble Supreme Court in the case of Hosiarpur Electric Supply Company v. CTT (1961) 41 ITR 608 (SC) and by the Hon'ble Andhra Pradesh High Court in the case of Ramakrishna Studio v. CTT (1998) 233 ITR 277 (AP). Similarly, subsidy received for recoupment of revenue expenditure has been held to be revenue receipt, like expenses incurred on maintenance of rubber plants 60 ITR 253 (supra) and transportation subsidy received to meet a part of cost of transport of raw material and finished goods 209 ITR 508. In view of these facts it was argued that the benchmark to decide a receipt "whether it is capital or revenue would squarely depend on the character of receipt. In other words, if the incentive or grant is received to recoup the revenue expenditure or revenue loss it will be revenue receipt and the other category of receipt other than this would fall in the nature of capital receipt.
11.4. It was submitted by the learned authorised representative that while treating the receipt as revenue receipt both the AO and the CIT(A) in 1997-98 have relied heavily on Clause No. 12 of the notification. They are of the view that the repayment of loans to the financial institutions should have been done only out of the incentive received. In this regard it is stated that the words used therein i.e., "repayment of term loan, if any, outstanding" indicates that while recouping capital cost priority should be given for repayment of term loans. In other words, the incentive received cannot be utilised for any other purposes when the term loans from financial institutions are outstanding. Such view has been taken by the Tribunal, Madras Bench in the case of Tamilnadu Sugar Corpn. Ltd., which was upheld by the Hon'ble Madras High Court in their judgment dt. 11th Sept., 2001 in T.C. Nos. 777 and 778 of 1995. It was further submitted that the Government has accepted the repayment of term loans from out of borrowed funds/internal resources to be in line with the Notification of Government of India, as otherwise the incentive benefits would not have been released So much so, even the amount that has been released would have been called back if there was any violation or contravention of the notification. It was argued that the notification primarily imposes a condition for repayment of term loans and they cannot be utilised for any other purpose when the loan is outstanding. But the notification does not prohibit repayment of term loans from out of borrowed/other sources, which by itself is evident, as the Government of India has accepted the utilisation certificate. It was submitted by the learned authorised representative that in the case of the assessee the term loan of Rs.623 lakhs have been fully repaid which is evidenced by the certificate of statutory auditors and which has been accepted by Government of India. Therefore, it can be said that the incentive received was utilised for repayment of term loan as envisaged in the Government notification. It was argued that but for this scheme by which the assessee was allowed higher sale of levy sugar to recoup the capital cost for expanding the industry the appellant could not have opted for such expansion. Though the incentive is provided by Government in the form of additional sales realisation the same will be capital in nature if it is tied up with an object to spend the same for recoupment of capital expenditure or repayment of loans to finance capital investment. What is material to determine the character of receipt is the purpose for which the same was received. If the purpose is to help the assessee to set up a business or complete a project the money received would constitute a capital receipt as held by the Hon'ble Supreme Court in the case of CIT v. Bijli Cotton Mills (P) Ltd. (supra). In this case the Hon'ble apex Court has laid down that if the amounts are collected as part of trading receipt but with express legal obligation to utilize the amounts for a particular purpose or to be spent for a particular purpose, these amounts do not constitute part of the trading receipt not withstanding the fact that they are collected as part of trading receipt. What is relevant is not how the amount is collected and when it is collected but with what obligation it is collected.
11.5. Regarding the reasons for making the repayment of loans before the incentive was availed, it was submitted that as per the agreement with financial institutions the loan amount had to be paid in 20 quarterly instalments commencing from 10th April, 1991, whereas incentive was received in financial year 1995-96. It was also submitted that if the loans were not paid as stipulated in the loan agreements the assessee would have incurred heavy expenditure by way of payment of penal interest. By submitting an interest calculation sheet it was pointed out by the learned authorised representative that if the assessee was to pay the loan instalments only after receiving the incentive amount the total interest burden on account of this for asst. yrs. 1992-93, 1993-94, 1994-95 and 1995-96 would have been Rs. 1,30,91,632. Debiting this to P&L a/c would have reduced the taxable income in these years, which in turn would have resulted in reduction in payment of taxes. It was also submitted that the receipt of release order was not in the hands of the assesses but was entirely in the hands of the Government, who had to issue the same after being fully satisfied about fulfilment of conditions by the assessee.
11.6. As regards the reliance on the case laws it was submitted by the learned authorised representative that the CIT(A) while deciding the issue in asst. yr. 1997-98 has brushed aside the Tribunal orders on the flimsy grounds. He has also relied on certain case laws, which are not actually applicable to the facts of the case. He has relied on the judgment of the Hon'ble Supreme Court in the case of Sahaney Steels (supra) while deciding the issue against the assessee whereas it supports the case of the assessee. In addition to the case laws relied upon before the AO and successor CIT(A), the learned authorised representative also relied on the judgment of the Hon'ble Madras High Court in an unreported judgment in TC Nos. 777 and 778 of 1995, dt. 11th Sept., 2001 (upholding the order of Tribunal, Madras reported in (1994) 48 ITD 345 and the order of Tribunal, Hyderabad dt. 31st Oct., 1994 in ITA No. 1728/H/88 in the case of M/s Nizam Sugar Factory Ltd., in which order of Tribunal, Madras, reported in 48 ITD 345 was followed. Under the circumstances it was argued that the CIT(A) was not justified in the asst. yr. 1997-98 to hold the incentive as revenue receipt.
12. On the other hand, the learned Departmental Representative strongly relied on the order of the AO and the order of the CIT(A) in asst. yr. 1997-98 and submitted that the incentive should be held as capital receipt. It was argued that the surplus realisation had accrued to the assessee on account of sale of higher free sale sugar which itself underlines the nature of such realisation as revenue receipt and the manner of its application would by no means detract from the nature of such realisation of revenue receipts. It was also argued that the assessee has already repaid substantial parts of the term loans from out of its internal resources before the incentive was received and, therefore, the stipulation as regards the repayment of loans could not be held as applicable to it. It was further submitted that in view of the elaborate discussion made by the CIT(A) in his order for the asst. yr. 1997-98 the incentive should be treated as revenue receipt.
13. We have carefully considered the submissions made by the rival parties, the documents produced before us, the case laws relied upon by both the parties and the facts and circumstances of the case. We have also perused the Government Notification, dt. 10th March, 1993, regarding the incentive scheme for new sugar factories and expansion projects licensed/to be licensed during the period from 7th Sept., 1990, to 31st March, 1994, under which the assessee has received the incentive in question. The object of the scheme has been given in Clause I of the notification under the head "Introduction" which is reproduced as under :
"With the object of augmenting indigenous sugar production and with a view to mitigating hardship of the entrepreneurs involved in the execution of high cost sugar projects as well, as to enable them to become viable by utilising surplus funds generated through higher free sale quota for repayment of term loans advanced by the Central Financial Institutions and the Sugar Development Fund, an incentive scheme viz., the "Sugar Incentive Scheme, 1993" has been formulated by the Government of India to provide incentives to projects licensed/to be licensed during the period 7th Sept., 1990, to 31st March, 1994."
From the above it is seen that the incentive is meant for meeting prohibitive capital cost of the projects, to encourage entrepreneurs to set up sugar mills and to achieve, indigenous sugar production and not to meet any recurring cost or revenue expenses. In order to verify whether the incentive has been utilised for the purpose for which it was meant, the beneficiaries have to furnish utilisation certificate from time to time from statutory auditors as envisaged in Clause 12 of the notification which is reproduced as under :
"12. The beneficiaries of the incentive scheme shall ensure that the surplus funds generated through sale of the incentive sugar are utilized for the repayment of term loans, if any, outstanding from the Central Financial Institutions/Sugar Development Fund. The sugar factories shall submit utilisation certificate annually from a chartered/cost accountant holding certificate of practice. Utilisation certificate in respect of each sugar season during the incentive period shall be furnished as per proforma prescribed on or before the 31st December of the succeeding year. Failure to submit utilisation certificate within the stipulated time may result not only in the termination of release of incentive free sale quota but also in the recovery of the incentive free sale already made by resorting to adjustment from the free sale releases of future years."
In the case of the assessee it had filed such utilisation certificate, which was accepted by the Government and release orders of sugar were issued. This shows that the directorate of sugar, which administers the scheme has accepted that the assessee had complied with the terms and conditions of the scheme.
The AO and the CIT(A) in asst. yr. 1997-98 have relied heavily on the expression "if any" appearing in Clause 12 of the scheme. The Tribunal, Madras Bench in their order in the case of Tamilnadu Sugar Corporation Ltd. (supra) have interpreted that the expression could at best mean that in repayment of capital the payment of outstanding term loan will get priority. We respectfully agree with the order of Madras Tribunal in this regard.
13.1. The AO and CIT(A) in asst. yr. 1997-98 have held that since the assessee had repaid the term loans before receipt of incentive it had not fulfilled the conditions. It was further been held that since most of the loans were already repaid through internal resources there was no longer any obligation to repay the term loans and hence the incentive received later on was only meant for running business and not for setting up of capital assets and, therefore, the incentive has to be treated as revenue receipt. We find no merit in such contention. The repayment of loans to financial institutions could not be held back as such repayments are guided by separate agreements as per which the repayments had to be made within stipulated dates which co-incidentally were prior to the receipt of incentive. Besides as pointed out earlier, if the assessee had delayed in repayment of loans it would have incurred a heavy internal burden. As argued by the learned authorised representative the receipt of incentive was not in the hands of the assessee and it did not purposely delay the same. On the other hand, it entirely depended on the Government, which issued the release orders of sugar after being fully satisfied about the fulfilment of conditions by the assesses. It is not the intention of the scheme that the loan amounts due to be paid to the financial institutions has to be held up till the realisation of the incentive is received. We also agree with the contention of the learned authorised representative that the repayment of loans to financial institutions out of the borrowed funds from banks on pledge of stock may be deemed to be in line with the incentive scheme introduced as such arrangement has not been objected by the Government.
13.2. The basic thrust of the Government order for incentive was that additional funds generated to sugar mills by additional free sale quota was intended only to recoup the capital employed in setting up projects. Since the amounts were collected with the express legal obligation to utilise the same for the particular purpose of recoupment of term loans, they do not constitute part of trading receipt notwithstanding the fact that they are collected in the case of business as held by the Hon'ble Supreme Court in the case of Bijli Cotton Mills (P) Ltd. (supra). As stated above the Directorate of Sugar have also accepted the utilisation certificate submitted by the assessee demonstrating that the conditions prescribed in the incentive scheme have been fully satisfied.
13.3. While deciding the issue against the assessee in the asst yr. 1997-98 the CIT(A) has held some of the case laws relied upon by the assessee to be inapplicable or distinguishable. He has held that order of Tribunal, Madras, in the case of Tamilnadu Sugar Corporation Ltd., to be no more applicable in view of the judgment of Hon'ble Madras High Court in the case of Tamilnadu Sugar Corporation Ltd.- (supra). But we find that this case dealt with purchase-tax subsidy given as assistance to tide over financial difficulties and not for setting up a sugar factory. Hence, the facts in this case are distinguishable and the judgment in this case does not render the order of Tribunal irrelevant. On the other hand, we find that the Hon'ble Madras High Court has upheld the same order of Tribunal in their judgment dt. 11th Sept., 2001, delivered in TC Nos. 777 and 778 of 1995 by answering the questions referred to them in favour of the assessee.
13.4. The learned CIT(A) has also held that the only judgment favourable to the assessee is the judgment of the Hon'ble Calcutta High Court in the case of Balaram Chinni Mills (supra) but this judgment is not helpful to the assessee as it revised (sic-received) the incentive subsidy much after the repayment of most of the loans to the financial institution. But we have already held the repayment of term loans to be in line with the terms and conditions of the scheme, which has also been accepted by the Government on the basis of utilisation certificate issued by the assessee. Hence, the judgment of the Hon'ble Calcutta High Court reported in 238 ITR 445 (supra) is of definite help to the assessee. The CIT(A) while holding the receipt to be revenue receipt has relied on the judgment of Hon'ble Calcutta High Court in the case of Kesoram Industries & Cotton Mills (supra). But in this case subsidy was for carrying on business and not for setting up a capital asset for which the Hon'ble High Court held the receipt to be revenue receipt. Hence, the facts are distinguishable and the ratio of this judgment is not applicable to the case of the assessee. The learned CIT(A) has also relied on the judgment of Hon'ble Supreme Court in the case of Sahaney Steels (supra). In this case subsidy granted in the form of sales-tax refund, exemption from payment of water charges, power consumption, etc., was held to be revenue receipt as the same was granted for carrying on business and assessee was not obliged to utilise the same for any particular purpose. At the same time the Hon'ble Supreme Court laid down a principle by stating that the character of subsidy is to be determined having regard to the purpose for the subsidy given. If the purpose is to help the assessee to set up its business or complete a project the subsidy is to be treated as capital receipt. The source, of the fund is immaterial. In the assessee's case the subsidy was given for the purpose of expansion of project and the assessee has also discharged its obligation in utilising the receipt for specific purpose, which has been accepted by the Government .Hence, the ratio of this judgment in facts supports the case of the assessee.
13.5. Under the circumstances we are of considered view that the incentive raised by the assessee is in the nature of capital receipt and cannot be taken as part of assessee's income treating the same as revenue receipt. Hence, this issue is decided in favour of the assessee in both the years.
14. The only other point of dispute raised by the Revenue against the order of the CIT(A) in asst. yr. 1996-97 pertains to deletion of addition of Rs 3,49,429 made on account of disallowance of loss on export quota sugar. The facts in brief are that the assessee had paid on 21st June, 1991, an amount of Rs.3,63,300 to Government of India on account of estimated loss conveyed by Indian Sugar and General Industry Export Import Corporation Ltd.; vide their letter dt. 13th March, 1991. Pending final determination of the amount to be paid, the said amount was kept under suspense account. Subsequently, final figure of loss was determined by the Export Corporation at Rs.3,49,429 and the balance amount of Rs. 13,871 was refunded to 'the assessee vide their letter dt. 14th Sept., 1994. After receipt, of the said intimation the appellant at the instance of co-operative audit, the statutory auditors wrote to Andhra Pradesh State Federation of Co-operative Sugar Factories Ltd., to send the audited accounts of National Federation of Co-operative Sugar Factories Ltd. The said account was received during the asst. yr. 1996-97. On verification of audited accounts and low figure communicated by the Export Corporation, the amount kept under suspense was transferred to export quota loss account in the asst. yr. 1996-97. In view of the facts it was urged by the assessee before the AO that the loss crystallised in the asst. yr. 1996-97. The AO was not convinced with the reply. He held that the intimation regarding loss was received vide letter dt. 13th March, 1991, therefore, it should have been claimed during the previous year ending on 31st March, 1991, and not in the year under consideration as it did not crystallise during this year.
14.1. On appeal, the learned CIT(A) deleted the addition under the following observation contained in para 9 of his order.
"9. On going through the submissions raised on behalf of the appellant and the facts on record, I am of the opinion that the contention raised for the appellant as above must prevail. It is true that as per letter dt. 13th March, 1991, of Andhra Pradesh State Federation of Co-operative Sugar Factories Ltd., the appellant had to pay a sum on account of export loss, but such sum was estimated at 50 per cent of allotted quantity of export quota sugar. Only in September, 1994, when the Indian Sugar and General Industry Export and Import Corporation, finally intimated the appellant regarding the above loss at Rs. 3,49,429 and refunded the balance sum of Rs. 13,871, the appellant took necessary steps to obtain approval for such loss from the competent authority. Thus, at the instance of co-operative audit, it wrote to Andhra Pradesh State Federation of Co-operative Sugar Factories Ltd., and obtained the necessary documents like audited accounts of National Federation of Co-operative Sugar Factories Ltd., for adjustment of the subject loss. It is seen that such accounts were received by the appellant in the relevant assessment year, during which the export loss as intimated by the Andhra Pradesh State Federation of Sugar Factories Ltd., after due approval by the co-operative auditors was adjusted. Since such approval of the competent authority was obtained and consequent upon such approval, the loss was adjusted in the books of account during the financial year relevant to the asst. yr. 1995-96, such loss in my opinion, was rightly deductible in computing the income of the appellant for the relevant year. This was a peculiar case in which the loss of Rs. 3,49,429 as intimated by the Andhra Pradesh State Federation of Sugar Factories was subject to approval of the competent authority under the guide lines in force for co-operative societies and consequent upon such approval, the said loss could be said to have accrued to the appellant."
14.2. During the course of hearing the learned Departmental Representative relied on the order of the AO and submitted that the CIT(A) was not justified to delete the addition. On the other hand, the learned authorised representative of the assessee relied on the order of the CIT(A).
14.3. We have carefully considered the submissions made by the rival parties and facts of the case. In our considered opinion the learned CIT(A) has rightly held that the loss crystallised during this year and hence to be considered only in this year. Hence, his order in this regard is upheld.
14.4. In the result, the appeal of the Revenue for the asst. yr. 1996-97 is disallowed and the appeal of the assessee for the asst. yr. 1997-98 is allowed.