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I-T - Whether when assessee exporter is given incentive for exploring global market for expansion, such incentive is to be treated as revenue receipt - NO: ITAT

By TIOL News Service

CHENNAI, JULY 20, 2016: THE issue is - Whether when assessee exporter is given incentive for exploring global market for expansion, such incentive is to be treated as revenue receipt. NO is the answer.

Facts of the case

The assessee is engaged in the manufacturing of hosiery garments and exported hosiery garments to South American countries. Assessee received MLFPS scrips on export of knitted garments. MLFPS is a scheme promoted by the DGFT wherein incentive @ 2% on the FOB value of the total export was allowed. As per the Scheme, the incentive was given to export products in a specified market. The export of products which are covered under FPS list would be given incentive of 2% on FOB value of the export. In other words, it is an incentive given by the Government for exploring the new markets across the globe. Assessee contends that premium on transfer of MLFPS scrips is not included in any of the provision of the Income-tax Act, 1961 including sec. 28, therefore, the money received on transfer of MLFPS scrips is a capital receipt. However, AO held that the export incentive needs to be included as income u/s 2(24) of the Act as per a CBDT circular.

After hearing the parties, the Tribunal held that,

++ the Apex Court in the case of Ponni Sugars & Chemicals Ltd 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 object of assistance was to enable the assessee to set up a new unit or expand the existing unit, then the receipt is on the capital account. In the case before us, the Government of India provided the incentive for exploring the new markets across the globe. Exploring a new market for a specified area would naturally expand the market area of the assessee. The incentive given to the assessee is not for running the business profitably but for expanding the market area. Therefore, this Tribunal is 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.

(See 2016-TIOL-1293-ITAT-MAD)


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