DCIT Vs Aarti Drugs Ltd. (ITAT Mumbai)
Summary: The ITAT Mumbai Special Bench was constituted to decide whether the amount received by the assessee under the Merchandise Exports from India Scheme (MEIS) of the Foreign Trade Policy, 2015 is taxable as a revenue receipt in view of the amendment to Section 2(24) of the Income-tax Act by insertion of clause (xviii) with effect from Assessment Year 2016-17. The assessee, engaged in manufacturing specialty chemicals and bulk drugs, had initially claimed the MEIS assistance as a revenue receipt, but subsequently contended before the CIT(A) that it was a capital receipt. The CIT(A) accepted the assessee’s contention for AYs 2016-17 and 2017-18, leading to the Revenue’s appeals.
The Revenue argued that MEIS constitutes government assistance and falls within the amended definition of income under Section 2(24)(xviii), irrespective of the nomenclature of the benefit as a “reward”. It relied upon the objective of the Foreign Trade Policy, the expression “by whatever name called”, the Supreme Court’s decisions in Sahney Steel Press Works Ltd. and Ponni Sugars & Chemicals Ltd., and various Tribunal decisions. The assessee, on the other hand, contended that MEIS was a reward intended to improve the export competitiveness of the country and did not constitute the forms of assistance contemplated by Section 2(24)(xviii). It relied, among others, upon Ponni Sugars, CIT v. Chaphalkar Brothers, DCIT v. Munjal Auto Industries and Shree Balaji Alloys.
