V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following two questions of law arising out of its order dated December 19, 1988, in respect of the assessment year 1982-83 under Section 256(1) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in : (a) holding that cash compensatory support for export is not taxable as revenue receipt ? (b) holding that the amount of Central Government subsidy is not deductible from the money cost to the assessee of its plant, machinery and building while computing the original cost thereof under Section 43(1) of the Income-tax Act, 1961, for the purpose of allowing depreciation, etc. ?"
(2.) THE facts regarding cash compensatory support for export are that the assessee is a partnership-firm and during the previous year relevant to the assessment year received cash incentive of Rs. 50,150 on exports made by it which was included by the Income-tax Officer in the taxable income of the assessee. THE assessee challenged the assessment order before the Commissioner of Income-tax (Appeals). THE order of the assessing authority was confirmed on this point. Before the Income-tax Appellate Tribunal, in second appeal, it was contended that the cash compensatory support for export is not a revenue receipt and is accordingly not taxable. We have considered over the matter. The amount which has been received by the assessee is during the course of conducting his business and is directly proportionate to the actual exports made. The cash assistance sprang from the business carried on by the assessee and is an amount supplemental to the trading receipts having proximate connection with the export business. The amount may be for the purpose of encouraging export by providing cash assistance to exporters but is having a direct link and is proportionate to the value of the goods exported. Neither it can be considered to be a capital receipt or a casual receipt and is in the nature of a revenue receipt. In Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC), it was observed by the apex court (at page 270) : "whether a particular receipt is capital or income from business, has frequently engaged the attention of the courts. It may be broadly stated that what is received for loss of capital is a capital receipt : what is received as profit in a trading transaction is taxable income". Besides the definition of income under Section 2(24) was amended by the Finance Act, 1990, wherein profits on sale of import licences, cash assistance and draw back on customs or excise duty have been included within the definition of income. In respect of cash assistance,' Sub-clause (vb) was added from April 1, 1967, which provided "any sum chargeable to income-tax under Clause (iiib) of Section 28". Clause (iiib) was added by the Finance Act, 1990, retrospectively from April 1, 1967, and the income chargeable to income-tax under the head "Profits and gains of business or profession" included cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India. In view of the retrospective amendment of Section 28 and Section 2(24) the cash compensatory support for export received is business income. Accordingly, we are of the view that the cash compensatory support being in the nature of cash assistance is taxable as a revenue receipt. The reference is accordingly answered in favour of the Revenue and against the assessee on this point. So far as the second point is concerned, the matter is settled by the decision of the apex court in the case of CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830, wherein it was observed (at page 841) : "The expression/actual cost' needs to be interpreted liberally. The subsidy of the nature we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from 'actual cost'.
(3.) THE Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the 'actual cost'. We should prefer the reasoning of the majority of the High Courts to the one found acceptable by the High Court of Punjab and Haryana." In view of the above decision of the apex court, we are of the view that the Income-tax Appellate Tribunal was justified in holding that the amount of Central Government subsidy is not deductible from the money cost to the assessee of its plant, machinery and building while computing the original cost thereof under Section 43(1) of the Income-tax Act, 1961, for the purpose of allowing depreciation, etc. Accordingly, the reference is answered in favour of the assessee and against the Revenue. ;