DCIT Vs Loocust Incorp (ITAT Chennai)
Duty Scrip Rewards Not ‘Income’ u/s 2(24)(xviii): Export Incentive Not Taxable- MEIS/MLFPS Sale Proceeds Are Capital Receipts—Chennai ITAT Dismisses Revenue’s Appeal
Revenue filed appeal against order of Ld. CIT(A) deleting addition of Rs.3,66,94,795/- made by AO on account of sale of Market Linked Focus Product Scheme (MLFPS) licence. Assessee, engaged in export of hosiery garments, had treated the MLFPS licence proceeds as capital receipt. AO viewed the same as revenue receipt taxable u/s 28.
CIT(A), relying on Chennai ITAT’s decision in ACIT Vs Eastman Exports Global Clothing (P) Ltd (ITA 3326/Chny/2019, order dated 20.09.2024), held that MEIS/MLFPS scrips are rewards under the Foreign Trade Policy 2015–20 intended to offset infrastructural inefficiencies & promote market expansion,& are therefore capital receipts, not chargeable to tax. CIT(A) also relied on Supreme Court in Ponni Sugars & Chemicals Ltd (306 ITR 392) for the principle that incentives linked to capital expansion are capital in nature.
Tribunal examined Eastman Exports in detail, noting that MEIS/MLFPS rewards do not fall within “subsidy, grant, cash assistance, duty drawback, waiver, concession or reimbursement” contemplated in s.2(24)(xviii), nor within s.28(iiib). It held that reward-based FTP incentives are not business income & ICDS-VII does not apply. Tribunal found no infirmity in CIT(A)’s decision & confirmed that sale proceeds of MLFPS scrips constitute capital receipts, not taxable. Revenue’s appeal was dismissed.
