Reliance International … vs Income-Tax Officer on 31 October, 1985

ORDER

Anand Prakash, Accountant Member

1. The only ground, pressed by the assessee in the present appeal, is, whether the cash compensatory support of R.s. 2,20,375. received by the assessee, during the previous year, corresponding to the assessment year 1979-80, from the Government of India, for exporting the specified engineering goods, is taxable or not.

2. Before we note the rival submissions on this subject in detail, let us ascertain as to what the cash compensatory support is and why and how it is given.

3.1 As the process of planning proceeded apace in our country, the need for augmenting our foreign exchange sources, to finance the plans, was felt more and more. One of the ways to achieve this objective was to increase the exports from the country. A Special Export Promotion Scheme regarding engineering goods was devised by the Government in 1963, under which supply of raw materials of iron and steel at concessional rates was, inter alia, provided to the manufacturers to enable them to produce the exportable engineering goods at cheaper rates, which would make them competitive in the international market. As these efforts were proving inadequate, the Indian rupee was devalued on 6-6-1966. This had the effect of making Indian goods cheaper in the international market, thereby making them more competitive. As a supplementary measure and, with a view to make the export o f goods, particularly engineering goods more viable, the Government announced a scheme of giving cash assistance to the exporters of the specified engineering goods. The details of the scheme were communicated by the Ministry of Commerce in a letter dated 17-8-1966, addressed to the Engineering Export Promotion Council, the contents of which, inter alia, were as follows :

1. (i) The Government of India have decided to grant cash assistance against exports, effected from 6-6-1966 of specified engineering products. A list of products eligible for such assistance with the percentage of assistance is annexed. There will be no concessional supply of iron and steel in addition…

Sub-para (ii) of para 1 of the above letter excluded certain items from cash assistance. Sub-para (jit) provided that ‘…non-ferrous manufacturers other than those listed in para 1(ii)) above, and not covered by any item in the list annexed, will qualify for 10 per cent cash assistance’. On other items also, the cash assistance was worked out as a percentage of f.o.b. value.

3.2 To put the export effort on a more sustained, integrated and durable basis, the Government of India brought forward in 1970 Export Policy Resolution, which stressed, inter alia, that-

… expansion of export earnings is as crucial for financing the plan as the mobilisation of domestic resources. To achieve national self reliance and to reduce dependence on external assistance, export earnings need to be expanded at a higher rate.

It pointed out that-

A steady increase in export earnings is dependent on the continuous development and expansion of export-oriented production…

and noted that-

Indian industries have begun to compete in international market on the strength of their own inherent efficiency. The main responsibility for the task of further improving their competitive ability naturally rests with producing units. Government will, however, provide the necessary assistance to build up efficient production and, in the meanwhile, endeavour to compensate exports for the temporary handicaps that stem from transitional difficulties inherent in a developing economy and to alleviate the disadvantages arising from our domestic fiscal or tariff barriers in importing countries….

3.3 In pursuance of the above Export Policy Resolution, steps were taken to improve Export Promotion Schemes and to devise new ones. The Estimates Committee of the Parliament (1981-82) in their 23rd Report to the Parliament, listed the following schemes, which were in vogue to augment the export efforts : (see para 1.3)

(i) Cash Compensatory Support Scheme.

(ii) Import Replenishment Scheme.

(iii) Duty Drawback Scheme

(iv) Tax Concession Scheme for selected type of expenditure for market development abroad.

(v) Exemption from sales tax for sales abroad.

(vi) Provision of finance for exports for short, medium and long terms from banks at better terms than for domestic activities.

(vii) Provision for raw material, including indigenously available raw materials at international prices and the provision for export credit insurance at relatively cheaper rates.

3.4 The operation of the above schemes has been reviewed from time to time to bring them in tune with the developing trading conditions in the country and abroad. The last such review was done by Dr. Alexander Committee in 1977-78, when it examined, inter alia, the role of instruments such as Cash Compensatory Support (CCS), duty drawbacks, etc., in the promotion of India’s export effort. The object of the review was that “the existing pattern of CCS on exports should be restructured keeping in view the changes that have been brought about in the Import Export Policy and Procedures, the present level of competitiveness attained by export products and the long term potential of products in such a manner that they can sustain themselves in the export market on their own after some initial period of assistance”. Dr. Alexander Committee indentified the following three basic principles for determining CCS :

(a) The level of CCS should fully compensate for the various types of indirect taxes, sales tax, etc., which the exporter has to pay on his inputs imported or domestically purchased and which are not refunded. This will enable him to be on par with foreign competitors.

(b) CCS should be such as to encourage him in adopting adequate marketing strategies and to neutralise the disadvantages of freight, etc., so as to be competitive in the export market.

(c) In the case of new products in new markets, the magnitude of CCS should be adequate to take care of the initial promotional costs.

3.5 The above criteria were brought to the attention of all Export Promotion Councils by the Ministry of Commerce, Government of India, vide its Letter No. 12(32) of 1978-EAC dated 23-10-1978 (see page 8 of the paper book), and on the basis of the above principles, the Ministry called for the relevant data from the Export Promotion Councils and, for this purpose, devised a proforma, which has been placed on record at pages 1 to 7 of the assessee’s paper book.

3.6 The CCS is of the same genre as the original scheme of cash assistance stipulated in the letter dated 17-8-1966 of the Ministry of Commerce, supra. It was so clarified by the Ministry of Commerce, Government of India vide its letter dated 23-1-1976 (seepage 11 of the paper book), wherein the following was, inter alia, stated :

It is clarified that the phrase ‘cash compensatory support’, used in the instructions, referred to above, is in no way different from cash assistance scheme.

3.7 The scheme of cash assistance in course of time, no doubt, came to be based on more elaborate and scientific principles than when it was devised soon after the devaluation of Indian rupee in June, 1966, but its objective and its nature continued to remain unchanged all along, namely, to assist Indian exports to become competitive in the international markets so that they will, ultimately, hold on their own in the said field.

3.8 Estimates Committee of the Parliament, in its 23rd Report to the Parliament, described the rationale behind the CCS in the following terms:

The rationale behind giving cash compensatory support on exports is to compensate the exporters for various non-refundable taxes and to neutralise the disabilities, which are inherent in our present state of economic development.

While explaining the criteria for fixation of the rates of CCS, as recom-mended by Dr. Alexander Committee and, as accepted by the Government, the Committee observed at page 23 of the Report, inter alia, as follows :

… Indian exporters, particularly those of manufactured products, suffer from a variety of inherent handicaps, which adversely affect their competitiveness. Apart from the cumulative burden of various indirect taxes and levies, which are not refunded through the mechanism of duty drawbacks, there are also serious handicaps on account of factors like higher rates of interest payable in India on working capital employed in export production and the duty burden on capital goods used for export production. Also, it has been observed that the freight rates from Indian ports to destinations in Europe and other places are higher than those from Hong Kong, Taiwan, etc., to the same destinations. Thus, there is inherent freight disadvantage which makes our exports relatively uncompetitive It is with a view to neutralising at least in part the effect of these various handicaps and consistent with the competitive and developmental needs of our exports that the scheme of Cash Compensatory Support to exports has been devised.

4.1 The CCS is only one of the export promotion measures adopted by the Government of India and to have a comprehensive view of the problems it would be appropriate to note the multipronged approach of the Government in this regard for all these measures combined together that constitute the integrated whole. Such measures have been divided into three categories as below (see Chapter II of the Report of the Estimates Committee referred to above) :

A. Material Input Facilities,

B. Fiscal Incentives, and

C. Export Credit.

4.2 Fiscal incentives are provided in the following forms :

(i) Market Development Assistance – This scheme was introduced in 1963 and is rendered for meeting the expenditure on compensatory support for certain exportable commodities and grants-in-aid for schemes and projects for the development of markets abroad and covers market research, commodity research, export publicity, participation in trade fairs and exhibitions, grants-in-aid, to export promotion councils, etc.

(ii) CCS (discussed earlier).

(iii) Duty Drawback and Duty Exemption Scheme – It is the internationally accepted principle that goods exported out of the country are relieved of the duties borne by them at various stages of their manufacture so that they become competitive in the world market. The most widely adopted method of relieving export goods of such burden is the scheme of drawback. The Duty Exemption Scheme introduced in 1976 provides for duty free imports of certain specified raw materials and components against advance licences for execution of specific export orders. The exporters availing of this facility have to enter into a bond with the customs department.

(iv) Free Trade Zones – The units working in these zones have to export their entire production. From the point of view of duty and other taxes a free trade zone is an extended version of the idea of manufacture in a bond, viz., Duty Exemption Scheme.

(v) Concessions in direct taxes, e.g., Section 35B, etc.

4.3 Material input incentives

The objective of the measures in this category is to provide support so as to enable the exporters and those engaged in the export promotion to obtain imported and other inputs on a somewhat preferential basis. These are :

(i) Import Replenishment Licensing Scheme – These licences are issued only to replenish the import content in the products exported in respect of banned and canalised items,

(ii) supply of certain domestic materials at international prices, (iii) preferential allotment of certain key materials.

4.4 Export credi With a view to making available adequate credits at cheaper rate of interest to exporters, the Government announced in June 1968 a scheme called Export Credit (Interest Subsidy) Scheme, 1968 for grant of subsidy towards interest charges on export finance provided by banks. For this purpose the Reserve Bank prescribes a ceiling on interest charges qualifying under the scheme. The ceiling rate of interest is fixed by the Reserve Bank of India, from time to time. The existing rate is 11½ per cent on pre-shipment credit and post-shipment credit and 8 per cent on exports on deferred payment terms. The Government pays a subsidy of 1.5 per cent on such export credits to the financing banks. The types of credits available under the scheme to the exporters are : (i) Packing credit or pre-shipment credit. (ii) Post-shipment credit.

5. In addition to the above, the Ministry of Commerce, Government of India, devised a special Export Promotion Scheme for engineering goods. Clause (5) of the said scheme provided, inter alia, as below ;

The benefits which may be granted to a registered exporter under the scheme will consist of :

(a) Import entitlements – Against exports of the products, mentioned in Annexure V, a registered exporter will be entitled to import entitlements as indicated in the same annexure.

(b) Allocation and supply of indigenous raw materials, etc., in accordance with Annexure VI.

6. The above is, thus, the conspectus of various export schemes aimed at augmenting the exports in the context of which the nature of CCS, its rationale and its purpose have to be evaluated.

7.1 (a) Now let us note the rival submissions. The contention of the learned counsel for the assessee was that the CCS was a bounty or a subsidy, a kind of gift from the Government and was not, therefore, a supplementary trading receipt and that it has been given by the Government to the assessee voluntarily and not in terms of a contract, or statute and, that, it does not represent reimbursement of any specified expenditure, incurred by the assessee. If it were so, it might be trading receipt as held by their Lordships of the Supreme Court in the case of Bengal Textiles Association v. CIT [1960] 39 ITR 723, 728. According to the learned counsel, the question to be asked in the present case is, as was in that case, whether the payment received is for services rendered or it was payment of a bounty ? Admittedly, the payment in question by the Government is not for services rendered and there was no obligation on the Government to pay the said amount to an exporter. It was its sweet will and pleasure that the Government was giving CCS and so it clearly partook of the nature of gift or bounty. It could decide not to pay it any time. There was no quid pro quo involved, and no contractual liability on the part of the Government to pay it. It was, therefore, pure and simple bounty or subsidy and so not assessee’s income.

7.1 (b) According to the assessee, there is no statutory provision under which the CCS was paid. It was paid solely in the exercise of executive discretion of the Government and the source of the CCA was the letter of the Ministry of Commerce, Government of India, dated 17-8-1966 referred to in para 3.2, supra. The said circular has been issued by the Government of India, not in the exercise of any legislative or statutory powers, but purely in exercise of its executive powers and can be revoked by it at will, or its terms could be varied at will. There was no privity of contract between the assessee and the Government of India in terms of which the CCS is received and, therefore, it could not be regarded as a supplementary trading receipt.

7.2 The next point made out by the assessee’s learned counsel was that every receipt was not income, more particularly when it partook of the nature of bounty or gift. It was for the revenue to show that a receipt, which was prima facie a bounty, was nevertheless taxable being a supplementary trading receipt. Such a burden has not been discharged in the present case. Reference was made in this regard to the decision of the Hon’ble Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532.

7.3 (a) The purpose of the CCS, according to the learned counsel, was to encourage exports. It was a general purpose and payment made for a general purpose will not be supplementary trading receipt. It will be a non-trading receipt. To buttress this argument, reference was made by the learned counsel to the Export Policy Resolution of 1970 and the letter of the Government of India dated 23-10-1978 (referred to above) wherein the purpose of CCS is spelled out, inter alia, to be to sustain in the export market on their own. The CCS is paid out of the Consolidated Fund of India for the above general purpose. It has nothing to do with the various trading activities or expenses incurred by the assessee. The test laid down by the Hon’ble Supreme Court in the case of V.S.S.V. Meenakshi Achi v. CIT[1966] 60 ITR 253, will, therefore, govern the present case and the amount, not being the reimbursement of specific trading expenses, will not be a trading receipt.

7.3 (b) Reference was also made in this connection to the decision of the House of Lords in the case of Seaham Harbour Dock Co. v. Crook (H.M. Inspector of Taxes) [1931] 16 TC 333. As the learned counsel for the assessee dwelt on this case at length and has mainly relied upon its ratio, it will be pertinent to note the facts of the case and the decision of the Court of Appeals and the House of Lords thereon a little in detail and we do so as below :

(a) The Seaham Harbour Dock Co. was carrying on business of managing Seaham Harbour Docks. On 31-7-1923, it obtained an Act of Parliament to enable it to extend its docks at Seaham Harbour, and the work thereon was commenced shortly after that date, the cost being estimated at £ 152,000. Under the aforesaid Act, the company was allowed to raise by the issue of debenture stock £75,000 only. The said sum of £75,000 was obtained from the Treasury of the balance amount required for the dock extension, £50,000 was obtained by a loan from the Marquin of London Derry and £25,000 by a loan from London Derry Colliers Ltd. These amounts were in the nature of unsecured loans. On 10-9-1923, Mr. Dillon, one of the directors of the company, wrote to the Unemployment Grants Committee on behalf of the company, asking for the assistance in carrying through the work of extending the docks, and on 6-11-1923, the committee replied to the effect that they were, inter alia, prepared to sanction a grant equivalent to half the interest at a rate not exceeding an average of 5½ per cent per annum on approved expenditure met out of loans (not exceeding £1,52,000) for a period of two years from the date or dates on which the payments were made. Provision was also made for the payment of grants by periodical remittances. Applications for payments of the grant in respect of the work done were made periodically and the instalments of grants were received by the company from the Unemployment Grants Committee also periodically. The said instalments of grants were always credited to revenue in the accounts of the company. During the period when construction was going on and instalments were received, there was no trading done by the company.

(b) On the above facts, the question for determination was whether the grants received as above were revenue receipts. The General Commissioners were of the opinion that the grant was revenue. Rowlatt, J. of the Kings Bench Division affirmed the above opinion. On appeal, the Court of Appeals reversed the above finding and held, as per Lord Hanworth, M.R., that ‘the grant was made by a Government body and was capital’, that this sum was a sum paid out and out by the Unemployment Grants Committee for the purpose of adding to and completing the capital sum of which there was an insufficient subscription before it was received, and that ‘they were paid in order to advance a capital expenditure to be made by the Seaham Harbour Dock Company, and they cannot be brought within Case I of Schedule D, they cannot be said to be sums which were received in respect of trade and so taxable under Schedule A or Schedule D’. Sleasser, LJ. also expressed similar opinion and said that ‘it is clear that the grant in question was a grant of the capital expenditure and was not taxable…’. Romer, LJ. also expressed his agreement with the above viewpoint.

(c) The Crown appealed against the above decision of the Court of Appeals to the House of Lords, who confirmed the decision of Court of Appeals, though their reasoning was different. Lord Buckmaster, who gave the leading judgment, first noted the facts of the case and the controversy arising therefrom and then proceeded to express his opinion as follows :

Now I do not myself think, that the matter can be put more succinctly than it was put by Mr. Hills when he said ‘was this trade receipt ?’, and my answer is most unhesitatingly, No. It appears to be that it was nothing whatever of the kind. It was a grant which was made by a Government Department with the idea that by its use men might be kept in employment, and it was paid to and received by the dock company without any special allocation to any particular part of their property, either capital or revenue, and was simply to enable them to carry out the work upon which they were engaged with the idea that by so doing people might be employed. I find myself quite enable to see that it was a trade receipt, or that it bore any resemblance to a trade receipt. It appears to me to have been simply a grant made by the Government for the purposes which I have mentioned, and in those circumstances, cannot be included in revenue for the purposes of tax.

(d) Lord Atkin endorsed the above view and further added, inter alia, the following :

It appears to me that when these sums were granted and when they were received, they were received by the appropriate body, not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. It is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the sense in which you are considering the profits or gains of the trade. It appears to me, with respect, to be quite irrelevant whether the money, when received is applied for capital purposes or is applied for revenue purposes ; in neither case is the money properly said to be brought into a computation of the profits or gains of the trade.

7.4 According to the assessee’s learned counsel, the ratio of the above decision was that, if a grant is made by a Government department for a specified purpose, it will not be a trading receipt even if the receipt was utilised in the business of the assessee and resulted in the acquisition of a trading asset. What governed the nature of the receipt was the purpose of the grant and not the mode of the utilization of the grant by the recipient. The above ratio clearly applied, according to the learned counsel, to the facts of the present case, for here the purpose of CCS was not to reimburse the expenses incurred by the assessee, or to reduce its losses, or to augment its profits, but ‘to sustain exporters in the export market on their own’, and ‘expansion of export earnings’ of the country as a whole. This was a specified purpose of a general nature and a grant given for this purpose will not become a trading receipt, even if it was used in the assessee’s business and, ultimately, became part of the assessee’s capital.

7.5 (a) The above case, pointed out the learned counsel, came to be considered by their Lordships of the Hon’ble Delhi High Court in the case of Siddhartha Publications (P.) Ltd. v. CIT [1981] 129 1TR 603, and its ratio was applied by their Lordships to the facts of the said case, which, according to the learned counsel, has striking similarity to the facts of the present case. The assessee, in that case, was publishing an English magazine, ‘Thought’. The assessee approached an organisation, known as ‘Worldwide Partnership’, with its headquarters at Bonn for some financial assistance, so that the magazine could pay to its writers adequately so that the quality of its articles could improve and it could give brighter look to the magazine by improving its format and layout. It also requested that the said organisation should create bulk subscriptions for the magazine run by the assessee. The aforesaid organisation, in response to the assessee’s letter, gave to the assessee a sum of Rs. 28,342 by way of donation and expressed the hope that ‘this contribution may also help you to increase your circulation and to put your paper on a more economical footing’.

(b) On the above facts, t he question for determination before their Lordships was, whether the aforesaid sum was of revenue nature. Their Lordships held :

(i) that the aforesaid payment was a voluntary payment and depended entirely on the whim of the donor and could not, therefore, be income,.

(ii) that it was a casual receipt and depended on the sweet will of the donor, and, if not paid, could not be forced,

(iii) that the payment was non-recurring in nature because the payee had no right of expectation,

(iv) that no services were rendered by the assessee to the foreign organization. The payment was purely by way of a donation or a gift or a bounty, and, therefore, was not income.

(c) Their Lordships referred to the decision in Seaham Harbour Dock Co.’s case (supra) and observed, inter alia, as follows :

In the House of Lords, Lord Buckmaster pointed out that the question, whether it was a trade receipt, had to be unhesitatingly answered by saying that it was nothing whatever of that kind. The same answer, it appears to us, should come out more unhesitatingly, in the present case. (p. 608)

(d) The ratio of the above case, according to the learned counsel of the assessee, squarely applied to the facts of the present case. Even though the amount of Rs. 28,312 in the above case was paid specifically to improve the business of the assessee, it was not held to be revenue receipt, because it was a voluntary payment depending on the sweet will of the donor. Similarly, in the present case, the payment of CCS was entirely voluntary on the part of the Government, which could scrap the scheme of CCS on any day it liked. No services were rendered by the assessee to the Government to get the CCS. It was purely an act of grace on the part of the Government to pay it, it was a gift or donation, and, hence, not taxable.

7.6 Reference was also made by the learned counsel to the decision of the Hon’ble Delhi High Court in the case of Addl. C1T v. Handicrafts & Handloom Export Corpn. [1982] 133 ITR 590 in support of the proposition that every receipt, even if it be in respect of business, say to wipe out losses or to meet certain expenses would not suo motu be of revenue nature. In that case, the assessee-company was a subsidiary company of the State Trading Corporation (STC) for the assessment years 1964-65 and 1965-66, the assessee incurred losses, which were reimbursed by the STC. The question was, whether the reimbursement of losses could be treated as revenue receipts, having the effect of wiping out the losses incurred by the assessee. Their Lordships held that :

… This was clearly a case in which the assessee had incurred a trading loss and all that had happened was that the STC, having regard to its relation with the assessee, had agreed to discharge the liabilities of the assessee and reimburse it to the extent of such loss. This was analogous to the case of a person agreeing to meet the losses incurred by another person in carrying on a business and to discharge the debts incurred by him out of affection or regard. The loss incurred by the assessee could not be ignored merely because it had been made by the STC, the holding company, and it could not be said that the loss had ceased to exist. (p. 590)

The above view has been reiterated by the Hon’ble Delhi High Court in Handicrafts & Handloom Export Corpn. of India v. CIT [1983] 140 ITR 532. The assessee’s contention, based on the above observations, was that the receipts of CCS fell in the above category and could not, therefore, be treated as revenue receipts.

7.7 The learned counsel for the assessee conceded that the decision of the Hon’ble Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448, was direct authority with regard to CCS and it has been held therein that the CCS was revenue receipt, but, according to the learned counsel, the said decision was wrong and ought not to be followed.

(a) The first mistake that was committed by their Lordships, according to the learned counsel, was that they did not perceive the distinction between the natures of import entitlements, duty drawbacks and CCS and proceeded on the footing as if they were of the same genre, whereas, in fact, it was not so. According to him, import entitlements and duty drawbacks were given by the Government in terms of Section 3 of the Imports and Exports (Control) Act, 1947, but granting of CCS could not be related to any such statutory provision. It was purely an administrative act, and its authority lay in the circular of the Ministry of Commerce dated 17-8-1966, referred to above. Therefore, CCS could not be construed to giving rise to a right in favour of the assessee which bore the character of a statutory right, which would, in turn, give rise to a legally enforceable debt against the Government in favour of the assessee. The letter of the Government dated 17-8-1966 made no reference to the exercise of any statutory powers by the Government and was purely an administrative act of the Government creating non-enforceable right for the exporters to claim such assistance. The Hon’ble Calcutta High Court, according to the learned counsel, failed to perceive this fundamental difference in the character of CCS compared to that of import entitlements and duty drawbacks, which, according to the learned counsel, were backed up by statutory provisions contained in Section 3.

(b) Secondly, the Calcutta High Court was misled to believe that the language of the circular letter of the Government dated 17-8-1966 was the same as that of the letter dated 24-8-1966, written by the Engineering Export Promotion Council to its members. In fact, there was glaring difference in the two. Whereas the Ministry’s letter dated 17-8-1966 made no reference, whatsoever, to the purpose of the cash assistance being to meet any losses, suffered by the specified exporters on account of devaluation of the rupee, that gloss was put upon it by the Engineering Export Promotion Council in its letter dated 24-8-1966. The Hon’ble Calcutta High Court erred in proceeding on the footing of this gloss. If such gloss is removed, the cash assistance would be nothing but an outright grant or subsidy directed towards the national policy objectives of generating more foreign exchange resources and development of export markets and, hence, directly covered by the ratio of the decision in the case of Seaham Harbour Dock Co. (supra).

(c) Their Lordships of the Hon’ble Calcutta High Court further erred in not taking their cue from the decision of their Lordships of the Hon’ble Supreme Court in the case of Shri Ambica Mills Ltd. (No. 1) v. Textile Labour Association AIR 1973 SC 1081, wherein their Lordships defined ‘subsidy’ and explained that various export subsidies were given by the Government not by way of payment for services rendered by the exporters to the Government but they were pure subsidies and any exporter could take advantage of the Government schemes and ‘would be entitled to subsidy or assistance promised by the Government’. In Bengal Textile Association’s case (supra), this distinction between payments made by the Government for services rendered and the awarding of subsidy had been taken note of by their Lordships of the Hon’ble Supreme Court, and it had been impliedly held by them therein that subsidy will not be assessable. The Hon’ble Calcutta High Court, according to the learned counsel, failed to draw proper inferences from the above cases, even though it noted them, and so it could not provide proper guidance to decide the present controversy.

(d) The next mistake committed by their Lordships, according to the learned counsel, was in evolving the following test :

… It appears to us that what is decisive in these matters is the nature of the business, the nature of the income and the nature of the right to receive and also the relation inter se, that is the key to resolve the issue in the light of the general principles which are to be followed in such cases… (p. 458)

According to the learned counsel, the above tests were opposed to the real and correct test laid down by the House of Lords in the case of Seaham Harbour Dock Co. (supra), viz., ‘was this a trade receipt ?’ This, and not the tests evolved by the Hon’ble Calcutta High Court, was the true test and, if applied properly, it would yield an answer in favour of the assessee, as the CCS cannot be regarded as a trade receipt.

(e) It was brought to our attention by the learned counsel that because of the above errors in the judgment of the Hon’ble Calcutta High Court, Bench ‘D’ of the Tribunal, Delhi Benches had refused to follow the above decision of the Hon’ble Calcutta High Court in IT Appeal No. 1143 (Delhi) of 1979 vide their order dated 29-5-1985, wherein, in para 47 of their order, the Hon’ble members have observed, inter alia, as follows :

…we are inclined to hold with great respect, that the ruling of the Hon’ble Calcutta High Court, reported in Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448, cannot be taken as binding authority for treating CCS receipts in the assessee’s hands, as receipts of its export business liable to tax.

According to our brothers : “It was not possible to conceive of the CCS receipts of the assessee’s business or trade. There was no trading relationship as between the assessee and the Government who made the grant. There was no contract between the parties. There was not even a stipulation making it a condition of the grant that the assessee should carry on the business of export of its products. If, after having effected the export of its products, the assessee had decided to discontinue the business, the grant would still have been made on the exports already effected even though the business had come to an end….” It is urged by the learned counsel for the assessee that we should follow the above order of the ‘D’ Bench of Delhi Benches of the Tribunal and refuse to follow the Hon’ble Calcutta High Court. According to him, we were duty bound to follow the above order of ‘D’ Bench, and in case we were inclined to hold to the contrary, we should refrain from passing the order ourselves and should, instead, refer the matter to the Hon’ble President of the Tribunal to constitute a larger bench for determining the present controversy.

7.8 The learned counsel, in the alternative, relied on the decision of the Commissioner (Appeals) in the case of Gedore Tools (I.)(P.) Ltd. for the assessment year 1979-80 wherein the said Commissioner (Appeals) has held that 4½ per cent out of 10 per cent of CCS should be held as accruing to the assessee on capital account, and that remaining part of the CCS was revenue receipt. This allocation has been done by him on an ad hoc basis taking his cue from the various factors, that have been borne in mind by Dr. Alexander Committee to determine the quantum of CCS as explained by the learned Commissioner (Appeals) in para 10 of his order dated 28-5-1984, which has been placed on record.

8.1 On behalf of the revenue, each of the above submissions is contested and it is submitted that the CCS is nothing but a trading receipt, it reaches the assessee, not de hors his export business, but because of it. If he would not export goods, he would get no CCS. There was direct casual nexus between exports of engineering goods and the granting of CCS by the Government and so the CCS was being received by the assessee in the course of his trade and as a trader to enable it to run its export business, more competitively and, hence, more profitably. It was not a gift out of natural love or affection as was the position in the case of Handicrafts & Handloom Export Corpn. (supra) relied upon by the learned counsel for the assessee. In fact, in the very same judgment, their Lordships have explained the legal position at page 596. According to it, if the loss of the said assessee was met by the awarding of grants-in-aid by the Government of India, as it was done earlier, such grants-in-aid, according to their Lordships, would be trading receipts. The following observations of their Lordships are relevant in this connection :

An attempt has been made on behalf of the department to equate the reimbursement by the STC with the reimbursement said to have been made by the Government. In our opinion, this attempt ignores the fundamental difference in the nature of the payments made by the Government on the one hand and by the STC on the other. While it is true that the Government was reimbursing the asses see’s loss, when the assessee was a branch of the Government, i.e., till 1962, the nature of the grants given by the Government during the years in question are totally different. It has been found by all the authorities and in particular by the Tribunal in both the appellate orders and in the statement of case that the amounts given by the Government were in the nature of grants-in-aid. In other words, they were not of the same nature as reimbursement made by the STC. They were amounts paid by the Government to the assessee which was carrying on an export business to promote its activities and the subsidies given by the Government to enable the assessee to carry on its export business more efficiently and satisfactorily were part of the trading receipts of the STC. We are of the opinion that the Tribunal was right in refusing to equate the reimbursement given by the STC with the grants-in-aid given by the Government. (p. 596)

The CCS was also, according to the learned departmental representative, in the nature of grants-in-aid given by the Government to the assessee, and, for that matter, to every exporter who fell in the category of the assessee, to carry on its export business ‘more efficiently and more satisfactorily’ and more competitively, so that the country’s exports as a whole will be augmented leading to higher foreign exchange earnings by the country, and were, therefore, as per the observations of the Hon’ble Delhi High Court, as above, ‘part of the trading receipts’ of the assessee.

8.2 To explain as to what was subsidy, our attention was invited by the learned departmental representative to the judgment of their Lordships of the Hon’ble Supreme Court in the case of Shri Ambica Mills Ltd. No. 1 (supra). According to their Lordships, subsidy would mean direct cash payments. In this connection, their Lordships approvingly quoted some definitions of the said term, as appearing in various dictionaries. The following definitions were noted by their Lordships in this regard :

‘… a grant of public money in aid of some enterprise, industry, etc., or to keep down the price of a commodity….’

**

‘… money paid by Government to producers of a commodity so that it can be sold to consumers at a low price….

**

‘A subsidy is a grant of funds or property from a Government… to a private person or company to assist the establishment or support of an enterprise deemed advantageous to the public….’ (p. 1083)

In accordance with the above definition, the cash allowance and CCS were clearly a ‘subsidy’ granted by the Government to exporters of specified engineering goods, and was, as such, a supplementary trading receipt of the assessee, as per the decision of the Hon’ble Delhi High Court, referred to above. The above decision of the Hon’ble Delhi High Court, it was pointed out, was in tune with the decision of the House of Lords in the case of Pontypridd and Rhondda Joint Water Board v. Ostime (H.M. Inspector of Taxes) [1946] 14 ITR (Suppl.) 45. Therein, Viscount Simon stated the law on the point as follows :

The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker’s trade or business are trading receipts, that is, are to be brought into account in arriving at the balance of profits or gains under Case I of Schedule D….

The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising; … (p. 47)

According to the learned departmental representative, the case of the present assessee is squarely covered by the first proposition, referred to above, and the second proposition did not apply to it, as the assessee was not a rating authority. The subsidy received by it in the form of CCS was, therefore, a trading receipt. The observations of the Hon’ble High Court, extracted above in para 8.1 were, thus, based on high authority, and were, in any case, binding on us.

8.3 (a) Apart from the Hon’ble Delhi High Court, other High Courts have also taken similar view. Thus, in the case of Ratna Sugar Mills Co. Ltd. v. CIT [1958] 33 ITR 644, it was held by the Hon’ble Allahabad High Court, following the decision in Pontypridd and Rhondda Joint Water Board’s case (supra) that the payment made by the Central Government to the assessee in the form of subsidy with the object of compensating the assessee for the loss of profits arising to it from being compelled to pay additional wages to workmen by the order of the Uttar Pradesh Government was for the purpose of the business of the company and not for a separate or distinct purpose, and was, therefore, a taxable receipt.

(b) Similar view was taken by the said High Court in the case of H.R. Sugar Factory (P.) Ltd. v. CIT [1970] 77 ITR 614. In that case, the Uttar Pradesh Government had given Rs. 40,419 to the assessee with a view to enable it to start early crushing with effect from 4-11-1956 at the rate of 4 annas per md. of cane crushed up to 12-11-1956. The assessee claimed it as a non-trading receipt. This claim was not accepted by their Lordships, who held that the above sum was taxable, as the same arose from the assessee’s business.

(c) In the case of Ahmedabad Mfg. & Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616 (Guj.), one of the questions for determination of their Lordships was as to whether cash subsidy and profits arising as a result of utilizing import entitlements by way of saving in cost of the inputs were includible in the profits and gains derived from export of goods. It was urged before their Lordships that, as a result of the export sales made by the assessee-company, it became entitled to the following benefits :

(i) cash subsidy, (ii) import entitlements, which were transferable, and

(iii) import entitlements which were not transferable but which could be utilized by the company to import scarce raw materials at prices which were less than ruling in the home market.

It was urged that the above benefits, which the assessce acquired as a direct result of the exports made by it, must go into the computation of profits and gains derived by it from the export of goods. The above plea was opposed by the revenue, as, according to it, the said sums were not derived from the export business. Adjudicating on this controversy, their Lordships of the Hon’ble Gujarat High Court observed as follows :

So far as cash subsidy or allowance by Government is concerned, it poses no difficulty. In our opinion, such subsidy or allowance should be held to be directly connected with export of goods. It was on account of export of goods made by the assessee-company that a cash subsidy or allowance was given. There is, therefore, a direct nexus between the export of goods and earning of income in the shape of cash subsidy or allowance. The proximate source of cash subsidy or allowance is export of goods. In our opinion, therefore, cash subsidy or allowance has to be taken into consideration in ascertaining profits from exports made by the assessee-company….

[Emphasis supplied]

The learned departmental representative relied on the above observations in support of his case, stressing in particular the italicised portions.

(d) The Hon’ble Bombay High Court also expressed similar opinion regarding cash subsidy in the case of Hindustan Lever Ltd. v. C1T[ 1980] 121 ITR 951, where they observed as follows :

…For such subsidy or allowance it should be held that there was a direct connection with the exports effected and perhaps the case of the assessee that the amount of the subsidy or allowance be taken into consideration in ascertaining profits from the exports may be required to be accepted…. (p. 962)

(e) The Hon’ble Madras High Court came to consider similar question in CIT v. Wheel & Rim Co. of India Ltd. [1977] 107 ITR 168, namely, that cash subsidy received by the assessee was part of the profits and gains derived by the assessee by export of goods. Their Lordships held, inter alia, that the cash subsidy would necessarily constitute business receipts referable to or derived from the export of cycle rims.

(f) Reference was also made by the learned departmental representative to the decision of the Hon’ble Allahabad High Court in the case of CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747. In that case, the assessee had received certain cash subsidy from the Textile Export Incentive Scheme referable to the quantum of its exports. The assessee claimed that the amount could not be taxed as its income, as it was its miscellaneous receipt. The claim was negatived by their Lordships, who pointed out that:

… The export subsidy would not have been paid to the assessee had he not manufactured cloth and yarn and exported it. The labelling of the payment as an export subsidy did not alter its character, for the amount was paid by reference to the amount of goods exported. The payment being directly proportionate to the quantity of goods exported, was a revenue receipt, for it was an additional payment received for the goods sold by way of export…. (p. 748)

According to the learned departmental representative, the CCS, in the case of an exporter of engineering goods, had similar character and was, therefore, directly covered by the ratio of the above decision and was as such taxable as trading receipt.

(g) Similar view has been taken by the Hon’ble Bombay High Court in the case of Dhrangadhra Chemical Works Ltd. v. CIT [1977J 106 ITR 473, and the learned departmental representative placed considerable reliance on it more particularly, because their Lordships have considered in it both the decisions of the House of Lords in Pontypridd and Rhondda Joint Water Board’s case (supra) and Seaham Harbour Dock Co.’s case (supra). The facts in the above case were as below :

The assessee was one of the manufacturers of soda ash in the country. During the years 1950-51 and 1951-52, there was a glut in the market of soda ash because of large imports thereof. The assessee-company and Tata Chemicals Ltd., the two companies which were manufacturing soda ash in the country, found it difficult to carry on the business profitably and the production of soda ash had been stopped in April 1949. Representations were made to the Government of India for imposing restrictions on the imports and for granting protection to the soda ash industry. The Government referred the matter to the Tariff Board and, on the basis of its recommendations, the Government by a resolution dated 22-2-1950 directed that the manufacturers of soda ash should be allowed a subsidy of Re. 1 per cwt. on soda ash produced by the companies mentioned above and sold from the date of the resolution provided the Government was satisfied that the companies actually sold the soda ash at the fair selling price recommended by Tariff Board. Rs. 2,03,902 were given to the assessee-company as subsidy as a result of the above resolution. The company claimed it as a non-trading receipt of casual nature. The above claim was not accepted by the Hon’ble High Court, who pointed out that the sole object underlying the grant of the subsidy was to enable the assessee-company and the Tata Chemicals Ltd. to carry on their business in a commercial manner so that it would yield profit. It was well settled, their Lordships pointed out, that where subsidies or grants are given by the Government to assist a trader in his business, they are, generally speaking, payments of revenue nature. They are supplementary trade receipts and not capital payments. Such receipt, under the tests laid down by Viscount Simon in the case of Pontypridd and Rhondda Joint Water Board (supra) was clearly a revenue receipt, and had to be taken into account in arriving at the income, profits and gains of the business. Reference to the case of Seaham Harbour Dock Co. (supra) was made by their Lordships and the following observations were made with regard thereto :

Reliance was placed by Mr. Kolah upon the decision of the House of Lords in the case of the Seaham Harbour Dock Co. v. Crook (H.M. Inspector of Taxes) [1931] 16 TC 338 (HL). In this case a dock company contemplating an extension of its dock applied to the Unemployment Grants Committee for financial assistance. The Committee consented to sanction grants from time to time, as the work progressed and was paid for equivalent to half the interest for two years … Payments were made on this basis several times a year for some years. Assessments to income-tax were made upon the company upon the footing that these payments were part of its annual profits or gains. The House of Lords said that the payments were not annual profits or gains liable to income-tax. Lord Buckmaster said at page 353 :

‘It was a grant which was made by a Government department with the idea that by its use men might be kept in employment… I find myself quite unable to see that it was a trade receipt….’

Lord Atkin said at page 353 :

‘… when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade.’

So far as the subsidy received by the assessee from the Government was concerned, it could not be regarded as falling into the same category as unemployment grant in the Seaham Harbour Dock Company’s case [1931] 16 TC 333 (HL). On the contrary, it was received as a sum which enabled the assessee-company to carry on its business of manufacture of soda ash profitably. (p.481)

It is the submission of the learned departmental representative that the above observations will fully apply mutatis mutandis to the facts of the present case, because the CCS was paid to the assessee specifically with the purpose of enabling the assessee-company, as also other similarly situated exporters, to sell their goods in the international market competitively and to enable them to become self-reliant in course of time so as to hold on in the international market on their own. Prima facie, shorn of verbose, it meant that the CCS was paid to enable the assessee-company to carry on its export business more efficiently and profitably.

(h) The ratio of all these decisions, according to the learned departmental representative, was that a subsidy given by the Government to an industrialist or a trader, in whatever form, would be a revenue receipt, if it was given to him for carrying on his business. It would be a non-trading receipt in case it was given for non-trading purpose, e.g., relief of unemployment as in the case of Seaham Harbour Dock Co, (supra), The Hon’ble Calcutta High Court has taken this view in an unequivocal manner in respect of CCS itself in the case of Jeewanlal (1929) Ltd. (supra). In that case, the facts were absolutely identical to those in the present case. The reasoning of the assessee claiming exemption from tax for CCS was also the same as in the present case. Protection of Seaham Harbour Dock Co.’s case (supra) was solicited there also and it was submitted on behalf of the assessee that the dominant purpose of the Government for grant of the amounts was promotion of exports. It was irrespective of the profit or loss and it was not given by the Government in order to meet any trading obligation, but, in the larger interest of the country to boost exports and to earn more foreign exchange wholly unconnected with the business of the assessee-company. When cash subsidy was given in such circumstances with the object wholly unconnected with the business of the trader, it was argued that such assistance could not be regarded as trading receipt. The above reasoning was negatived by their Lordships, who observed, inter alia, as below :

… If on an examination of the nature of the receipts of the amounts it is found that these amounts were supplemental trading receipts or were connected with the business, even though they did not arise actually from any positive operation of the traders, then, in our opinion, it should legitimately be considered to be business receipts. In this case the Government announced cash assistance for encouraging exports ; but it was only the exporters, who did, in fact, export, got the assistance. It was by the exportation or making favourable exports that the assessee received these amounts. This, in our opinion, is the true nature of the assistance. If that is the position then it is incidental to and smpplemental to the trading receipts and should, therefore, be considered to be revenue receipts….

[Emphasis supplied].

Their Lordships noted that similar view had been taken in other cases also, e.g. : Dhrangadhra Chemical Works Ltd.’s case (supra), Wheel & Rim Co. of India’s case (supra), H.R. Sugar Factory (P.) Ltd.’s case (supra), Kesoram Industries & Cotton Mills Ltd. v. CIT[1978] 115 ITR 143 (Cal.), Bengal Textiles Association’s case (supra) and V.S.S.V. Meenakshi Achi’s case (supra).

After adverting to the above authorities, their Lordships observed :

… In the view we have taken about the nature of the receipts in the instant case, that is to say, by exportation, the assessee got the assistance from the Government for the purpose of encouraging export market that may be the motive of the Government, it is connected inextricably with the act of exportation and, therefore, supplemental to the earnings by exportation… (p. 459)

The above ratio, according to the learned departmental representative fully covered the facts of the present case.

9.1 The learned departmental representative vehemently disputed the submissions of the learned counse 1 for the assessee that the Hon’ble Supreme Court had held in the cases of: Shrt Ambica Mills Ltd. No. 1 case (supra) and Bengal Textiles Association (supra), that the subsidy given by the Government was not taxable. The former was the case under the Payment of Bonus Act, 1965 and the question there was whether a subsidy shall be taken into consideration for determining the profits of the company out of which bonus was liable to be paid to the workers. In view of the specific provision of the items which would go to the computation of payment of bonus, the Supreme Court held that subsidy was not to be included in the computation of profit for the purposes of the said Act. Their Lordships were not considering in the said case the nature of the subsidy from the point of view of its inclusion in the total income. They were considering it from the point of view of its inclusion in the allocable surplus for the purpose of distribution of bonus. The Payment of Bonus Act specifically provided that subsidy received from the Government will be excluded from the income of the concern for the purpose of determining allocable surplus. It was, therefore, totally erroneous to presume that the case of Shri Ambica Mills Ltd. No. 1 (supra) was an authority for the proposition that subsidy was not a trading receipt and would not, therefore, be includible in the profits or gains of business in terms of Section 28(i) of the Income-tax Act, 1961 (‘the Act’). Similarly, Bengal Textile Association’s case (supra) dealt with the provisions of Business Profits Tax Act, where, again by specific provision of the Act, the subsidy was excluded from the purview of Business Profits Tax Act, 1947 and so this case could also not be cited as an authority in support of the assessee’s plea that the CCS was not a trading receipt being subsidy. In view of it, there was no merit in the submission of the learned counsel that the Hon’ble Calcutta High Court had erred in not drawing proper inference from these cases, as mentioned in para 7.7(c) (supra).

9.2 The learned departmental representative further disputed the validity of the proposition, canvassed by the learned counsel for the assessee vide para 7.7(a) (supra) that the CCS was of a different nature from import entitlements and duty drawbacks, because, unlike the latter two, it was not backed by any statutory provision, and that it was the result of purely an administrative act and so no enforceable legal right was created in favour of the assessee against the Government in terms of which it could be claimed and that it was purely a gratuitous act on the part of the Government to give the CCS to the assessee. According to the learned departmental representative, the CCS was part of the same policy decision, as brought about the scheme of the import entitlements and the duty drawbacks and the statutory basis for all these schemes, which were intended to regulate, promote and channelise the country’s exports lay in Section 3 of Imports and Exports (Control) Act. So the same statute as backed up by the schemes of import entitlements and duty drawbacks was behind the scheme of CCS and a legally enforceable right in respect of CCS was created in favour of the assessee against the Government. In this connection, our attention is invited to the following observations of their Lordships of the Hon’ble Supreme Court in the case of Shri Ambica Mills Ltd. No. 1 (supra) :

… These are schemes intended by the Government for the benefit of the country and, therefore, any person would be entitled to take advantage of that scheme and be entitled to subsidy or assistance promised by the Government….

[Emphasis supplied]

The words italicised above clearly indicate that a legal right, which could be enforced in a court of law, was created in favour of the assessee and that this right flowed from Section 3. In any case, a right of equity based on the principle of promissory estoppel was definitely created in favour of the assessee as soon as he exported engineering goods eligible for the grant of CCS and such a right was in no way inferior to the statutory right. Our attention was invited in this connection to the decision of the Hon’ble Supreme Court in the case of Union of India v. Anglo Afghan Agencies AIR 1968 SC 718, which is the leading authority for the above proposition. That case involved the consideration of an export scheme under which the respondents were entitled to get an import entitlement certificate equal to 100 per cent of the f.o.b. value of their exports. The Textile Commissioner refused to grant 100 per cent import entitlements without assigning any reason for his action. The Supreme Court, firstly, pointed out that the Export Promotion Scheme was made to further the purposes of the Act, and so was statutory in nature and the Textile Commissioner was bound to carry his obligations, under it. Presuming, however, that the scheme was executive in character, it was no reason, their Lordships pointed out, as to why the Courts should not compel the performance of the obligations imposed by the scheme upon the authorities, when the citizen, acting under the scheme had done what he should do. The Hon’ble Supreme Court, it was pointed out to us by the learned departmental representative, has repeated forcefully the above view in Motilal Padampat Sugar Mills Co. v. State of Uttar Pradesh AIR 1979 SC 621 and Jit Ram Shiv Kumar v. State of Haryana AIR 1980 SC 1285, 1292.

In view of these epoch making judgments, pointed out the learned departmental representative, it was futile to urge that the CCS was not backed by a legally enforceable right. It was not the sweet will, whim or caprice of the executive to give it to the assessee or not, but so long as the scheme subsisted, the assessee had the right to demand the CCS. The scheme, it was true, could be altered or varied by the Government but that was inherent in the legislative-cum-executive power of the Government. While the scheme subsisted, the right of the citizen to get CCS was guaranteed and it would be protected by the Courts and the vested rights of the citizen under the CCS scheme had to be honoured. The learned counsel of the assessee was, therefore, not justified in pleading that the CCS was of a different genre from that of the import entitlements and duty drawbacks and that the Hon’ble Calcutta High Court had erred in not perceiving this alleged distinction, which was, in fact, totally illusory.

9.3 It was also wrong to urge that the Hon’ble Calcutta High Court had been misdirected in presuming that the contents of the letter dated 17-8-1966, issued by the Ministry of Commerce, Government of India, were the same as those of the circular letter dated 24-8-1966 issued by the Export Promotion Council to its members. There was no misdirection in this regard as the contents of the two letters were indeed identical. The letter dated 24-8-1966 stated, inter alia, as follows :

The Government have since announced the new scheme under which exporters will get cash assistance against exports effected from 6th June 1966.

The letter dated 17-8-1966 also said the same thing, when it stated that the Government of India have decided to grant cash assistance against exports effected from 6-6-1966. The contents of the two letters, were, thus, in no way different and prima facie, the criticism of the judgment of the Calcutta High Court on this illusory presumption, was unfounded.

9.4 The said decision pointed out by the learned departmental representative was not only correct but was based on good authority and was, therefore, binding on the Tribunal, particularly when there was not one judgment of any High Court to the contrary. If, at all, every High Court, before which similar problem had come, had taken identical stand, as is manifest from the various decisions referred to above. Even the Three Member Bench of the Calcutta Benches of the Tribunal had taken the above view by two to one majority, and it was confirmed by the Hon’ble Calcutta High Court in Jeewanlal (1929) Ltd.’s case (supra). It was, therefore, urged that we should follow the aforementioned authorities. The order of Delhi Bench in the case of Gedore Tools (I.) (P.) Ltd. was opposed to all the above authorities and has been rendered under the impact of misrepresentations and need not, therefore, be followed, more particularly when it did not consider the numerous case laws, in particular Handicrafts & Handloom Export Corpn.’s case of the Delhi High Court, referred to above, and was deprived of their guidance.

9.5 As regards the request of the learned counsel for the assessee that the case be referred to the Special Bench of the Tribunal, the learned departmental representative submitted that the request was wholly misconceived and against law and, in fact, amounted to a call for abdication of duty on the part of this Bench, when all the High Courts were unanimous in their opinion and there was no dissenting judgment of any High Court, there was no occasion, whatsoever, to refer the matter to a Special Bench. There was no provision in law to do so. If at all, the law was that the Tribunal must follow the unanimous decisions of the various High Courts. Reference was made in this connection to the decision of the Hon’ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers’ Union v. Union of India [1984] 150 ITR 1, wherein their Lordships have held that the law laid down by a High Court, even of another State, should be respected.

10.1 We have given careful consideration to the facts of the case and the rival submissions. What is clear from the broad survey of the case law above, is that a receipt in question can be either trading or non-trading and if it is a non-trading receipt, it is not includible in the business income even though it might have been given (i) to meet the losses of the business, as in the cases of Handicrafts & Handloom Export Corpn. (supra) and Handicrafts & Handloom Export Corpn. of India (supra), (ii) or to enable the assessee to run its business more economically, as in the case of Siddhartha Publications (P.) Ltd. (supra) and (iii) towards meeting the cost of construction of one’s capital works, as in the case of Seaham Harbour Dock Co. (supra). In the case of a non-trading receipt, its mode of utilization by the assessee, whether on revenue account or capital account, is entirely immaterial. It never reaches him, as a trader and so cannot be his income, even when he utilizes it in his business. That is the principle of Seaham Harbour Dock Co.’s case (supra). The first question, therefore, to be asked in a case, is, as Lord Buckmaster pointed out, ‘was this a trade receipt ?’ If so, it will be includible in the assessee’s business income, otherwise, not. It will be a trade receipt if it is given to the assessee as a trader in the course of his trade, but if it is given to him for an ulterior purpose, as, for example, ‘with the idea that by its use, men might be kept in employment’, it will not be a trading receipt. Similarly, a pure bounty or gift, which is not correlated with the carrying on of his business and does not come to him as something related with his business transactions, or with the business, as a whole, would be a non-trading receipt, given may be, as a gift, because of love and affection [as in the case of Handicrafts & Handloom Export Corpn. (supra)] or as an act of philanthropy as in the case of Siddhartha Publications (P.) Ltd. (supra). But, when a payment is made by the Government as a subsidy to a business or industry qua his capacity as a businessman or industrialist, with a view to enable him to run his business, it would be a trade receipt, simpliciter. That is clearly the ratio of Pontypridd and Rhondda Joint Water Board’s case (supra) reiterated very pointedly in Handicrafts & Handloom Export Corpn.’s case (supra), by the Hon’ble Delhi High Court.

10.2 It was with a view to distinguish a trade receipt from a non-trade receipt that the Hon’ble Calcutta High Court had evolved the principle in Jeewanlal (1929) Ltd.’s case (supra) and noted earlier at para 7.7(a) (supra). It bears repetition in the interest of continuity and so we reproduce it here, once again, for ready reference, as below :

… It appears to us that what is decisive in these matters is the nature of the business, the nature of the income and the nature of the right to receive and also the relation inter se, that is the key to resolve the issue in the light of the general principles which are to be followed in such cases … (p. 458)

This test is not in replacement of the test laid down in the case of Seaham Harbour Dock Co, (supra) as presumed by the learned counsel for the asscssce, but in elaboration of it, and has been arrived at after noting the ratios of both the cases of the House of Lords, viz., Pontypridd & Rhondda Joint Water Board (supra) and Seaham Harbour Dock Co. (supra). If the income received is not related with the business done, as in Seaham Harbour Dock Co.’s case (supra), it will not be a trading receipt. Similarly, even if the income is related with the business but the recipient has no right to receive it, as in the case of Siddhartha Publications (P.) Ltd. (supra) or Handicrafts & Handloom Export Corpn. (supra) the receipt will again be a non-trading receipt. In order to be a trading receipt, it is necessary to establish that the income is related (i) with the business, and (ii) also with the right to receive it. If an income responds to the above description, it will be a trade receipt. To regard, therefore, the above test as in derogation of the test laid down in Seaham Harbour Dock Co.’s case (supra), is, in our opinion, entirely erroneous. It is in elaboration of it and has been evolved after considering the available case law on the subject, and does, therefore, provide a proper basis to evaluate the nature of a receipt, and we will respectfully adopt it.

10.3 Once a receipt is held to be a trade receipt, its further classification, viz., whether it is on revenue account or on capital account would become germane. If it is given on capital account, it will not form part of the business income. Such is the nature of subsidy, for example, given to a person to set up business in backward areas. Such subsidy is clearly of capital nature and has been consistently held so by all the Benches of the Tribunal. But if it is given to enable a person to run his business more profitably as in the case of Dhrangadhra Chemical Works Ltd. (supra) or to compensate him for the loss that he will incur on account of the Government directive to pay higher wages, as in the case of Ratna Sugar Mills Co. Ltd. (supra) or to induce him to start early crushing of sugarcane, as in the case of H.R. Sugar Factory (P.) Ltd. (supra), or to export his goods and to enable him to run his export business more competitively in the international market and to hold his own there as in the cases of Swadeshi Cotton Mills Co. Ltd. (supra), Ahmedabad Mfg. & Calico Printing Co. Ltd. (supra), Hindustan Lever Ltd. (supra) and Wheel & Rim Co. of India Ltd. (supra), the receipts will be on revenue account.

10.4 Let us, therefore, examine the true nature of the CCS in the light of the above principles. The predecessor of CCS was, as noted earlier, cash subsidy, which was notified by the Central Government to the Export Promotion Council vide its letter dated 17-8-1966-see para 3.2 (supra). It was to be given as a certain percentage of f.o.b. value of the specified engineering goods exported from 6-6-1966 onwards, and there was to be ‘no concessional supply of iron and steel’ to those who got the cash subsidy as above. Such supply was being earlier given vide the Special Export Promotion Scheme, 1963. Cash subsidy was, thus, in lieu of the scheme of ‘concessional supply of iron and steel’. The purpose of this scheme was to reimburse part of the assessee’s cost of manufacturing the exported goods. Earlier, the assistance was in kind. But now it was in cash. But the purpose was the same. The subsidy was, thus, meant to reimburse part of the cost of manufacturing exported goods and had the additional merit of being linked directly with the export business of the assessee, as it was computed as a certain percentage of the f.o.b. value. The assessee had the right to receive the cash subsidy and this right was enforceable in law as has been explained by their Lordships of the Hon’ble Supreme Court in the case of Anglo Afghan Agencies (supra). It was entirely beside the point, in this connection, as their Lordships pointed out in that case, to debate as to whether the right to receive cash assistance was a statutory right, having its roots in Section 3 of the Imports and Exports Control Act or whether it was an equitable right arising from the doctrine of promissory estoppel. It was enforceable right under the law, either way. The following observation of their Lordships may gainfully be extracted at this stage to bring out the law on the point :

Granting that it (i.e., the Export Promotion Scheme for Woollen Textiles) was executive in character, the courts have the power in appropriate cases to compel performance of the obligation imposed by the schemes upon the departmental authorities. It could not be said that the executive necessity releases the Government from honouring its solemn promises relying on which citizens have acted to their detriment … Even assuming that the provisions relating to the issue of trade notices offering inducement to the prospective exporters were in character executive, the Union Government and its officers were not entitled at their mere whim to ignore the promises made by the Government. The authority vested in the Textile Commissioner by the rules even though executive in character, was from its very nature an authority to deal with the matter in a manner consonant with the basic concept of justice and fair-play, if he made an order which was not consonant with the basic concepts of justice and fair-play his proceeding was open to scrutiny and rectification by the courts.

Similar view has been expressed by the Hon’ble Supreme Court in the case of Shri Ambica Mills Ltd. No. 1 (supra). Referring to Cash Assistance Scheme, presently under consideration, their Lordships observed, inter alia, as follows :

… These are schemes intended by the Government for the benefit of the country and, therefore, any person would be entitled to take advantage of that scheme and be entitled to subsidy or assistance promised by the Government… (p. 1086)

[Emphasis supplied]

Thus, the right to receive cash assistance in terms of the scheme of the Government announced by the letter dated 17-8-1966, supra, was an enforceable legal right and could not be arbitrarily rejected by the Government. Its character is, therefore, far different from that of the sum given to Siddhartha Publications (P.) Ltd.’s case (supra) by worldwide partnership, for that was a payment not against an enforceable right but mere gratis and so could not be regarded as trade receipt. Similar was the position in the case of Seaham Harbour Dock Co. (supra). There too, the grant-in-aid was received by the company not by the exercise of a right to receive it, but because the unemployment grants committee pleased to give it. Both the above receipts were, therefore, non-trading receipts. But the same is not true of cash assistance, promised by the Government of India, in terms of its letter dated 17-8-1966 supra. One received cash assistance as a matter of right. Thus all the tests laid down in Jeewanlal (1929) Ltd. case (supra) get fulfilled in the case of cash assistance, and, there can be no doubt that it was a trade receipt.

10.5 Cash assistance, in course of time, came to be known as ‘Cash Compensatory Support’. As noted earlier, Export Policy Resolution was adopted by the Government of India in 1970. In this resolution, the Government indicated its objective of further improving the competitive ability ‘of the Indian industry’, ‘though’ it pointed out, ‘the main responsibility in this regard rested with the producing units, the Government will, however, provide the necessary assistance to build up efficient production, and, in the meanwhile, endeavour to compensate exports for the temporary handicaps that stem from transitional difficulties inherent in a developing economy…’ Out of the various schemes devised in pursuance of the above resolution, CCS, was one-see para 3.5 supra. Its object, as that of other schemes, was to increase the competitiveness of the Indian industry so that they may compete in international market ‘on the strength of their own inherent efficiency’. Now, what is the meaning of this objective ? To compete in international market, or for that matter in any market, one has to develop the capacity to supply quality goods at lower prices, and yet make reasonable profit. If one’s cost of production is above the international competitive prices, one will soon get out of business, if one sold goods at the said prices for which he would incur losses or one would not sell at all if the incurring of loss was to be avoided. Given the competitive prices in the international market, the only other variables that had to be adjusted were (i) the cost of production, and (ii) the quality of goods. Even the quality of goods was more or less fixed due to international competition. To sell Indian product in international market, one had to ensure that its quality was of international standard ‘export quality’ as they popularly say. Thus, in effect, the only variable which was amenable to internal manipulation was the cost of the Indian products. All the assistance schemes, whether long term or short term, were, therefore, targeted to this end. A look at the said schemes listed in paras 3.3, 4.1 to 4.4 and 5 will confirm this position. Whether it was Import Replenishment Scheme or Duty Drawback Scheme, exemption from sales tax on exports or provision of cheap credit and cheap insurance for exports, all aimed at reducing the costs. Competitiveness of Indian exports could be increased only in this manner. CCS also aimed at doing it. It was its professed purpose. For fixing its measure, whatever factors might be taken into account, they will not in law determine the nature of CCS. Its real nature is to be determined with reference to the purpose for which it is given, that the nature of cash assistance and CCS is the same was in unambiguous terms explained by the Government in its letter dated 23-1-1976 referred to in para 3.6 supra. The CCS, thus, clearly aimed at subsidizing the cost of production, and to wipe out or reduce the export losses or increase export profits by keeping cost of production low. In this regard, its nature was the same as that of the cash subsidy given by the Government to offset the increase in cost of production due to increase in wages in the case of Ratna Sugar Mills Co. Ltd. (supra) or to offset losses caused due to the Government directive to begin the sugarcane crushing season early in the case of H.R. Sugar Factory (P.) Ltd. (supra).

10.6 That this was the purpose of granting cash assistance was understood by the industry also. Thus, in its letter dated 11-5-1978, the Engineering Export Promotion Council wrote the authorised representative of the Income-tax Department at Calcutta, inter alia, as follows :

We would confirm that after devaluation of the rupee, … the Government announced cash assistance scheme for compensation loss to the exporters for exports of engineering goods from the country… (p. 454)

10.7 To sum up, therefore, we hold that the real purpose of granting CCS was to increase the competitive ability of the Indian exporters and to augment their competitive ability which, in effect, meant assistance in reducing costs and its payment was directly related to the export effort of the individual. One received it only if one was doing export business of specified engineering goods, no other factor made him eligible for it. It was, thus, purely a trade receipt, received by a trader in the course of his business for the purpose of making it more competitive in the international market. The receipt was not gratuitous but was governed by proper rules and regulations and every citizen had a right to enforce his claim under it. The receipt was, thus, entirely a trade receipt on revenue account and the following authorities clearly support the above proposition :

Pontypridd and Rhondda Joint Water Board’s case (supra), Handicrafts & Handloom Export Corpn.’s case (supra), Ahmedabad Mfg. & Calico Printing Co.’s case (supra), Wheel & Rim Co. of India Ltd.’s case (supra), Hindustan Lever Ltd.’s case (supra), Swadeshi Cotton Mills Co. Ltd.’s case (supra) and Jeewanlal (1929) Ltd.’s case (supra).

Similar principle has also been enunciated in the following cases :

Ratna Sugar Mills Co. Ltd.’s case (supra), H.R. Sugar Factory (P.) Ltd.’s case (supra) and Dhrangadhra Chemical Works Ltd.’s case (supra).

It will be appropriate at this stage to draw attention once again to the observations of the Hon’ble Delhi High Court in the case of Handicrafts and Handloom Export Corpn. (supra) which have been extracted by us in extenso in para 8.1 supra, particularly where they lay down the following test :

…The subsidies given by the Government to enable the assessee to carry on its export business more efficiently and satisfactorily were part of the trading receipts… (p. 596)

The observations and the principle contained in the above test fully cover the facts of the present case and the CCS received by the assessee. The ratio of Jeewanlal (1929) Ltd.’s case (supra), is also identical and there is, therefore, no reason for us not to follow the above decisions.

10.8 Not one judgment has been shown to us, which might have taken a contrary view. Referring to Ahmedabad Mfg. & Calico Printing Co. Ltd.’s case (supra) and Wheel & Rim Co. of India Ltd.’s case (supra), the learned counsel for the assessee had, however, urged that the above cases started with the concession that the cash compensatory support was income derived from export business and, therefore, their Lordships’ observations would not decide the controversy whether the CCS was or was not a trading receipt. The above submission, though plausible, does not appear to us to be entirely correct. The question for determination before their Lordships was, whether cash subsidy and profit made on account of import entitlement were ‘profits and gains derived from the export of goods’. While answering this question, their Lordships held that whereas profits attributable to import entitlements would not be profits and gains, derived from the foreign business, as the connection between such profits and foreign trade was only mediate and not immediate.

So far as cash subsidy or allowance by Government is concerned, it poses no difficulty. In our opinion, such subsidy or allowance should be held to be directly connected with export of goods. It was on account of export of goods made by the assessee-company that a cash subsidy or allowance was given… (p. 633)

These are relevant observations and have been made after duly considering the nature and character of cash subsidy and its relation with export business. We cannot, therefore, agree with the assessee that these authorities are not relevant.

10.9 (a) The main plank in the arguments of the learned counsel for the assessee, as noted earlier, was based on the ratio of the decision of the House of Lords in the case of Seaham Harbour Dock Co. (supra). The facts of this case have been brought out in detail in para 7.3(b). When we compare the facts of the said case with those of the present case, we, however, find that there is no similarity whatsoever between the two. In that case, the said company was constructing a new dock and while arranging for the finances to meet the cost of construction it found that there was some shortfall. The Unemployment Grants Committee was, therefore, approached in the matter to give some grant, with the help of which the company would complete its construction and also incidentally keep some labourers usefully employed in the construction work and the said committee will be spared the need to grant doles to the unemployed. The grant was, accordingly, given. The said company credited the said receipts in its revenue account and the Crown taxed it accordingly. The company’s plea before Rowalt, J., and, thereafter, before the Court of Appeal was that the receipt was on capital account and not on revenue account. This plea was accepted by the Court of Appeal. Against this judgment, the Crown went to the House of Lords and it was therefor, the first time, that the question was raised on which the whole case turned, namely, ‘was this a trade receipt ?’ The answer was in the negative by Lord Buckmaster, and, in the course of his judgment, it was pointed out by him that ‘… it (i.e., grant) was paid to and received by the Dock Co. without any special allocation to any particular part of their property, either capital or revenue…’ Lord Atkin elaborated this point further and observed, inter alia, as below :

It is a receipt which is given for the express purpose, which is named, and it has nothing to do with their trade… It appears to me, with respect, to be quite irrelevant whether the money when received, is applied for capital purposes or is applied for revenue purposes …

[Emphasis supplied]

10.9 (b) Thus, the finding of the House of Lords, was that the grant was not a trade receipt, and since it was not a trade receipt, it was irrelevant to enquire as to how it was utilized. If it were a trade receipt, the question, whether receipt is on capital account or revenue account would become relevant and it is here that the finding of the Court of Appeals becomes relevant, namely, that the grant was to meet the cost of construction and, hence, of capital nature. On either reasoning, the receipt was not taxable in that case. What is the position in the present case ? The receipt is, as noted earlier, in the course of business and for the purpose of business and backed by an enforceable right to receive it. It is, therefore, a trading receipt. Is it on capital account as would be the position on the facts of the case of Seaham Harbour Dock Co. (supra) ? Again, the answer is, no. The assessee exports specified engineering goods and with reference to the f.o.b. value of the exports, it gets CCS at the rate of 10 per cent. This payment is towards making the goods more competitive and increasing sales thereof in the international market. It is, thus, clearly on revenue account, linked directly with sales, though not part of sale proceeds as such, but in pari materia with the same and accruing and arising at the moment of sales themselves subject, of course to the putting in of the claim and its verification by the concerned authorities.

11.1 In view of what we have said above, it is not necessary, in our opinion, to examine the alternative contention of the assessee, based on the order of the Commissioner (Appeals) referred to in para 7.8 supra. Besides, the said order is sub judice and it will not be proper for us to comment upon it, particularly when we have given detailed reasons for our opinion. The entire CCS and not part of it is taxable, for it is not an aggregation of various computations, but an integrated, indivisible whole, whose assessability will depend on its nature and character and not how its measure was determined.

11.2 The discussion, on this subject, may not be complete, unless we express our opinion regarding the criticism of the decision of the Hon’ble Calcutta High Court by the learned counsel for the assessee, as noted by us above in para 7.7. We have already expressed our opinion regarding the criticism mentioned in para 7.7(a) and 7.7(d) in para 10.4 and 10.2, respectively. We are in entire agreement with the submissions made by the learned departmental representative in respect of the assessee’s criticism referred to in para 7.7(b) The letter dated 17-8-1966 has been written by the Ministry of Commerce, Government of India to the Engineering Exports Promotion Council, intimating to the council, the Government’s decision regarding granting of cash assistance. Circular letter dated 24-8-1966 is a communication from the council to its members and other manufacturers informing them the Government decision as above. There is no variation in the communication dated 24-8-1966 compared to the contents of the letter dated 17-8-1966. Apparently, the learned counsel had misread the letter dated 24-8-1966. May be he confused it with the letter dated 11-5-1978 referred to in para 10.6 supra. Similarly, the decisions of the Hon’ble Supreme Court in Shri Ambica Mills Ltd. (No.1)’s case (supra) and in Bengal Textiles Association’s case (supra) cannot be read as laying down the proposition that subsidies received from the Government by way of CCS were not trading receipts. The criticism of the learned counsel [noted in para 7.7(c) supra] was based entirely on illusory grounds and erroneous perceptions and has to be categorically rejected. We entirely endorse in this respect the reasoning of the revenue as recorded in para 9.1 supra. We, accordingly, reject it. The decision of their Lordships, as we have noted above, was based on ample authority and sound logic and we are duty bound to follow it.

12.1 Before we close, we may refer to the request of the learned counsel for the assessee to refer the present appeal for the adjudication of a Special Bench of the Tribunal, in case we were not inclined to follow the order of the Division Bench, Tribunal, Delhi, relied upon by the assessee and referred to in para 7.7(e) supra. We do not find it possible to accept the above request for two reasons as below :

(i) As noted earlier, not one judgment of any High Court has been brought to our attention, which might have taken a view contrary to that taken by us above. On the contrary, the learned departmental representative, has brought to our attention a catena of case law, which directly support the principles applied by us. In this regard, particular mention has been made by us of the observations of the Hon’ble Delhi High Court, in the case of Handicrafts & Handloom Export Corpn. (supra), at page 596, quoted in extenso at para 8.1, supra on which we have, inter alia, placed reliance in formulating our view as above, vide para 10.7 supra. We cannot ignore the law as laid down by the Hon’ble Delhi High Court. The above observations of the Hon’ble Delhi High Court, as also the case law in Dhrangadhra Chemical Works Ltd.’s case (supra), Wheel & Rim Co. of India Ltd.’s case (supra), H.R. Sugar Factory (P.) Ltd.’s case (supra), Ratna Sugar Mills Co. Ltd.’s case (supra), Ahmedabad Mfg. & Calico Printing Co. Ltd.’s case (supra), Swadeshi Cotton Mills Co. Ltd.’s case (supra) and Anglo Afghan Agencies’ case (supra) were not brought to the attention of our learned brothers in the abovementioned case. They could not, therefore, have the benefit of guidance from the above case law. But, we having noted the same, cannot but act in conformity with them. There can be no occasion in such a situation, to refer the matter to a Special Bench, there being no doubt on the subject.

(ii) There is, then, the decision of the Hon’ble Calcutta High Court in Jeewanlal (1929) Ltd.’s case (supra) and the law laid down by the Hon’ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers’ Union (supra). Wherein their Lordships have clearly laid down as follows :

…the income-tax authorities acting anywhere in the country, however, have to respect the law laid down by the High Court, whether of the State in which they are functioning, or of a different State in the absence of any contrary decision of any other High Court… (p. 7)

In view of this dictum, we have no option but to follow the decision of the Hon’ble Calcutta High Court in Jeewanlal (1929) Ltd.’s case (supra) which is admittedly on all fours with the facts of the present case. The learned counsel for the assessec had tried to pursuade us that the above observations applied only to ‘income-tax authorities’ and not to the Tribunal. We, however, do not agree. The reference to the income-tax authorities in the above decision has been made because it were they, who had acted against the above principle. But the said principle is equally valid for the appellate authorities, including the Tribunal, for it is a wholesome principle of guidance while interpreting an All India Statute. We are, therefore, bound to follow the above decision of the Hon’ble Calcutta High Court. The position being, thus, self evident, there is no justification, in our opinion, to refer the matter to a Special Bench of the Tribunal as urged by the learned counsel for the assessee.

12.2 In view of what we have stated above, we refrain to go into the wider question raised by the learned departmental representative regarding the legal basis or lack of it, of such an action.

13. In the light of the discussion above, we confirm the order of the learned Commissioner (Appeals) and dismiss the present appeal.