Case Law Details
Bharat Rasayan Ltd. Vs ACIT (ITAT Delhi)
We have also examined the para no. 3.15.3 of the scheme document of the Foreign Trade Policy of Government of India, Ministry of Commerce and Industry wherein it was specified that market linked focus products scripts (MLFPS) is meant for export of products of high export intensity employment potential would be incentivized at 2% of FOB value of exports in free Foreign Exchange under FPS when exported to the linked market countries.
Thus, there is no dispute that this incentive is an export incentive. The matter has been well considered by the order of the Co-ordinate of ITAT Chennai in the case of Eastman Exports Global Clothing Pvt. Ltd. in ITA No. 47/MDS./2016 dated 17.05.2016. The order dealt with the similar issue of market linked focus products scheme scripts has been deliberated and the same has been treated as a capital receipt in view of the decision of the Hon’ble Apex Court in the case of Ponni Sugars and Chemicals Ltd. 306 ITR 392. The relevant part of the order is as under: (Factual matrix)
9. We have considered the rival submissions on either side and also perused the material available on record. The Market Linked Focus Product Scheme is a scheme promoted by the Director General of Foreign Trade 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. The question arises for consideration is when the assessee was given incentive for exploring the new markets across the globe, whether such incentive would be a capital receipt or revenue receipt? The Apex Court in the case of Ponni Sugars & Chemicals Ltd (supra) 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. 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.”
We have gone through the entire facts and preposition of the law and find that the issue is squarely covered by the said order of the Tribunal which was based on the judgment of the Hon’ble Apex Court. The MLFPS received by the assessed is to be treated as capital receipt only.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
