The Commissioner of Income Tax vs Thiru Arooran Sugars Ltd.

K. Raviraja Pandian, J.—The appeals are filed by the Revenue against the order of the Income Tax Appellate Tribunal Madras ''C'' Bench

dated 23.11.2006. The relevant assessment years are 1996-97 to 1999-2000. The substantial question of law formulated for entertainment of the

appeals is as follows:

Whether in the facts and circumstances of the Tribunal was right in holding that the receipts on sale of levy sugar permitted to be sold in the open

market; is to be treated as capital receipt

The assessee is engaged in the business of manufacture and sale of sugar. The Government had permitted to sell certain percentage of the levy

sugar in open market. For the above said assessment years, the assessee claimed deduction being the surplus realisation on the sale of the levy

sugar in the open market as capital receipt on the ground that this was an incentive to pay off their loans. The assessing officer did not accept the

same and treated the amount as a revenue receipt and brought it to tax. Aggrieved by the order of the assessing officer, the assessee filed an

appeal to the Commissioner of Income Tax (Appeals), who following the order of this Court in the case of Commissioner of Income Tax v.

Tamilnadu Sugar Corporation Ltd., in T.C. Nos. 777 and 778 of 1995 allowed the appeal by directing the assessing officer to exclude the amount

claimed from the total income of the assessee. The Revenue carried the matter on appeal before the Income Tax Appellate Tribunal. The Tribunal

dismissed the appeal by following the judgment of this Court in the case of Commissioner of Income Tax Vs. Ponni Sugars and Chemicals Ltd., .

The correctness of the same is now put in issue before this Court by filing this appeal.

Heard the learned Counsel for the revenue and perused the materials on record.

Identical question of law came up for consideration before this Court in the case of Commissioner of Income Tax Vs. Ponni Sugars and

Chemicals Ltd., . In that case, the Division Bench of this Court in which one of was also a party (K.Raviraja Pandian,J.) after considering the

scheme which provided incentives to new sugar factories and other incentives given by the Government by way of permitting the sugar mills to sell

certain percentage of sugar in the open market has held as follows:

The line of separating ""capital from revenue"" is a line which is not fixed and unalterable, but one which shifts from time to time depending upon the

peculiar facts of a given case. It is the sum total of all the relevant facts of a given case, which will determine the ultimate decision as to whether a

particular item of receipt or expenditure is to be regarded as being in the capital field or in the revenue field. The nature of the receipt of the

incentive has to be examined in the light of that object. The purpose and object of the scheme is of vital significance. If the Government found it

convenient to adopt a policy of enabling the entrepreneurs to initially fund the capital cost of the project by obtaining loans from the public financial

institutions by inducing the entrepreneur and the lender institution to rely upon the incentives provided under the scheme for discharging such loans,

it cannot be said that the incentive given being post production, though meant exclusively for meeting the capital cost, the amount of the incentive

would be a trading receipt in the hands of the recipient. The fact that the receipt was subsequent to the commencement of production cannot be

allowed to stand in the way of its proper treatment as a receipt in the capital field meant to meet a capital cost.

The above judgment has taken into consideration all the earlier judgments, which considered the various other incentive schemes and held as

above. Following the above said judgment, as the issue is covered by the said decision, these tax case appeals are dismissed. Consequently, the

connected M.Ps are closed.