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2016 (7) TMI 951 - ITAT CHENNAI

2016 (7) TMI 951 - ITAT CHENNAI - TMI - Nature of receipt of Premium on transfer of Market Linked Focus Product Scheme scrips - revenue or capital receipt - Held that:- The Apex Court in the case of Ponni Sugars & Chemicals Ltd (2008 (9) TMI 14 - SUPREME COURT) had an occasion to examine an identical situation and observed that if the object of the subsidy was to enable the assessee to carry on the business more profitably, then the receipt is on the revenue account. On the other hand, if the ob .....

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of the considered opinion that the incentive given by the Government to the assessee for exploring the new market is a capital receipt, hence it cannot be treated as income either u/s 2(24) or 28 of the Act. In view of the above, we are unable to uphold the order of the lower authority. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer is deleted. - Decided in favour of assessee. - I.T.A. Nos. 47 & 48/Mds/2016 - Dated:- 17-5-2016 - Shri .....

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osing of the same by this common order. 2. Shri T. Banusekar, ld. Representative for the assessee submitted that the assessee received Market Linked Focus Product Scheme scrips on export of knitted garments. The Market Linked Focus Product Scheme was given @ 2% of the FOB value for export to potential new markets and not for all the markets. According to the ld. Representative, this is an incentive given for exploring new market on a long term perspective. The potential markets will be identifie .....

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, 215 ITR 64, the ld. Representative submitted that sale of replenishment licences is an act wholly unconnected with the business of the assessee. 3. The ld. Representative for the assessee further submitted that premium on sale of Market Linked Focus Product Scheme scrips is not covered either u/s 28 or 26 of the Act. According to the ld. Representative, Market Linked Focus Product Scheme scrips is not a cash assistance received by the assessee for export under the scheme of Government of India .....

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is a capital receipt. The ld. DR further submitted that an attempt was made to include the consideration received on transfer of a right by whatever name called under the scheme framed by Government of India or the local authority or Corporation, in the proposed Direct Tax Code, however, the Direct Tax Code could not see the light of the day so far. The Parliament did not amend the Income-tax Act, 1961 so far so as to include the transfer of right or benefit in sec. 28 of the Act. Therefore, the .....

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ths preceding the transfer, the fair market value of the assets in India, owned directly or indirectly, by the company, represents at least 50% of the fair market value of all the assets owned by the company. In the Direct Tax Code by virtue of deeming provision, there was a proposal to include any consideration on transfer of a right or benefit by whatever name called accrued or received under the scheme as income. However, such a proposal is not attempted in the present Income-tax Act, 1961 an .....

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ent manner in the 1961 Act and Direct Tax Code, 2010 indicates the important guide to determine the taxability of the said item. In the absence of a specific provision in sec. 28(iiia) to 28(iii2), according to the ld. Representative, the premium received on transfer of Market Linked Focus Product Scheme scrips cannot be considered as revenue receipt in the hands of the assessee. At the best, the premium received on transfer of Market Linked Focus Product Scheme scrips can be equated to TUF subs .....

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ni Sugars & Chemicals Ltd, 306 ITR 392, the ld. Representative submitted that character of a receipt in the hands of the assessee has to be determined with reference to the purpose for which the subsidy was given. If the object of the subsidy was to enable the assessee to run the business more profitably, then the receipt is on revenue account. If the object of the assistance was to enable the assessee to set up a new unit or to expand the existing units, then the receipt was on the capital .....

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refore, the premium received on transfer of Market Linked Focus Product Scheme scrips has to be treated as capital receipt, hence, it is not subjected to taxation under the scheme of the Income-tax Act, 1961. 7. On the contrary, Shri MSVM Prasad, ld. Departmental Representative submitted that the Government of India with an intention to promote exports to certain regions/countries provide incentive of 2% on FOB value. The Market Linked Focus Product Scheme is akin to sale of licence and entitlem .....

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in Circular No.564 dated 5.7.1990, the ld. DR submitted that the export incentive needs to be included as income u/s 2(24) of the Act. The export incentives are revenue receipts, therefore, liable for taxation. The incentive now given to the assessee @ 2% of the FOB value is in the nature of export incentive, therefore, it will form part of the revenue receipt u/s 28 of the Act. Since the incentive was given based on the export made by the assessee, according to the ld. DR, what was received by .....

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