TMI Blog1993 (10) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... new sugar factories under the Chairmanship of Shri S.V. Sampath, Joint Secretary (Sugar), Department of Sugar on 5-4-1974. The terms of reference included the requirement to suggest various incentives and other measures for bringing the new sugar factories as economically viable units. In the report of the Sampath Committee, the following possible incentives were examined : (a) Capital subsidy. (b) Allowing larger percentage of free sale sugar. (c) Higher levy sugar exemption in the case of new sugar factories. (d) Allowing rebate on excise duty. (e) Remission of purchase tax imposed by the State Government. After examining the suitability of these incentives, the Committee recommended a rebate on excise duty and exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (excise duty rebate). The assessee claimed that these amounts should be treated as capital receipts being tied down by the incentive scheme for recovery of the capital invested in the establishment of the factory and, therefore, should not be included in the total income liable to income-tax. The Assessing Officer was of the view that these receipts being trading receipts and brought into the P LA/c by the assessee cannot be treated as capital receipts. He was also of the view that in the Government Order dated 15-11-1980 the utilisation of the incentive "for payment of term loans, if any outstanding", indicated no compulsion, and could, at best be limited to the repayment of the loan. He was of the view that such utilisation was also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, it was contended on behalf of the Revenue that indirect assistance, such as customs drawback, would not fall within the meaning of subsidy as held by the Supreme Court in the case of Shri Ambica Mills Ltd. [1973] 3 SC 787, and, therefore, the amounts received by the assessee could not be regarded as subsidy not intended to be taxed. It was also argued that these receipts came to the assessee in the course of business as revenue receipts and could not be treated as capital merely because it was applied for repayment of term loans. Again, it was submitted that such an application could not also be regarded as diversion by overriding title so as to exclude the amount from the total income. 6. We have considered the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat time, provided that subsidy may be deducted in arriving at the distributable surplus. The company claimed that duty drawback and excise rebate should also be deducted. The Supreme Court held that the word "subsidy", not being defined, could not take in such excise duty rebate. However, we find that the Payment of Bonus Act has since been amended allowing deduction in the First Schedule : "(g) Cash subsidy, if any, given by the Government or by any body corporate established by any law for the time being in force or by any other agency through budgetary grants, whether given directly or through any agency for specified purpose and the proceeds of which are reserved for such purposes." It will be seen that Parliament was aware of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was received in the course of business and observed that the fact that the amount might be used as capital in the hands of the assessee was irrelevant. That case is distinguishable because there was no compulsion for using the premium to recoup the capital. The next case referred to is that of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448 (Cal.) where cash incentive received by an exporter from Government was held to be a revenue receipt. The assessee pointed out Parliament's intention in amending the Act was to provide that such cash incentives will be deemed to be income, thus accepting the view of the I.T.A.T. in Gedore Tools (India) (P.) Ltd. v. IAC [1988] 25 ITD 193 (Delhi)(SB) that cash assistance were in the nature of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it exceeded the prescribed limit one-half share will go to the State Government. The present case, is however, quite different because the very right to receive the excess price and the excess excise duty was based on the obligation to recoup the capital employed. Since the amount could not have been received without that obligation, there is a clear nexus and consequently a diversion of income. As pointed out by the assessee, such diversion has been accepted by the Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521. Similarly. Supreme Court has held in CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 that if the amounts are collected with express legal obligation to utilise the same for a particular p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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