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Facts
The assessee, a firm dealing in hosiery garments, declared income for AY 2016-17. The AO made an addition of Rs.3,66,94,795/- on account of the sale of Market Linked Focus Product Scheme (MLFPS) scripts, treating it as revenue. The assessee claimed it as a capital receipt.
Held
The Tribunal held that the receipts from the sale of MLFPS scripts are a capital receipt, not a revenue receipt, and therefore, not taxable. This decision followed previous rulings by the Tribunal and considered amendments to the Income Tax Act.
Key Issues
Whether the sale proceeds of Market Linked Focus Product Scheme (MLFPS) scripts constitute a capital receipt or a revenue receipt.
Sections Cited
143(2), 143(3), 250, 2(24)(xviii)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI JAGADISH
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi dated 18.03.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
:- 2 -: 2. The solitary issue that is raised is whether the First Appellate Authority (FAA) is justified in deleting the addition made by the AO amounting to Rs.3,66,94,795/- on account of sale of Market Linked Focus Product Scheme [MLFPS].
Brief facts of the case are as follows: The assessee is a firm engaged in the business of manufacturing and export of hosiery garments. For the assessment year 2016-17, the return of income was filed declaring total income of Rs.5,89,89,110/-. The assessment was selected for scrutiny by issuance of notice u/s.143(2) of the Act on 18.09.2017. The assessment was completed u/s.143(3) of the Act vide order dated 27.12.2018 by making an addition of Rs.3,66,94,795/- on account of sale of MLFPS license. The assessee had claimed the said receipt as capital receipt not liable to tax, whereas the AO treating the same as a revenue receipt and brought the same to tax.
Aggrieved by the order of the AO, the assessee filed appeal before the FAA. The FAA by following the order of the Chennai Bench of the Tribunal in the case of ACIT vs. Eastman Exports Global Clothing (P.) Ltd., in (order dated 20.09.2024) decided the issue on merits in favour of the assessee. The relevant finding of the FAA reads as follows:-
:- 3 -: “After going thru AO's order and appellant's submission I am of the considered opinion that income from the sale of Merchandise Exports from India Scheme (MEIS) scrips is a non-taxable capital receipt and not revenue receipt. MEIS scrips were rewards granted under the Foreign Trade Policy (FTP) 2015-20 to help exporters offset infrastructural inefficiencies and expand markets and not to generate immediate profits. I rely upon decision of jurisdictional ITAT in the case of & 326/Chny/2024 ACIT Vs Eastman exports AY 17- 18/18-19 order date 20/9/2024 wherein at para 17 onwards Hon'ble tribunal has taken above view with above mentioned logic and following Hon'ble Supreme Court decision in the case CIT v. Ponni Sugars & Chemicals Limited [2008] 306 ITR 392.”
Aggrieved by the order of the FAA, the Revenue has filed the present appeal before the Tribunal. The Ld.DR relied on the grounds.
The Ld.AR on the other hand submitted that the issue in question is squarely covered in favour of the assessee by the order of the Chennai Bench of the Tribunal in the case of Eastman Exports Global Clothing (P.) Ltd., (supra). It was submitted that the said order of the Chennai Bench was followed by the order of Delhi Bench of the Tribunal in the case of Dhanuka Laboratories Ltd., vs. ACIT in (order dated 05.03.2025).
We have heard rival submissions and perused the material on record. The Revenue has raised solitary issue on merits namely whether the sale of MLFPS receipts is revenue or capital in nature. The Co-ordinate Bench of the Tribunal in the case of ACIT :- 4 -: vs. Eastman Exports Global Clothing (P.) Ltd., (supra) after considering the judicial pronouncements and scheme under which the amounts were received by assessee, had held the amount received is a capital receipt. The Tribunal has also considered the amendment brought about by the Finance Act, 2015 to section 2(24)(xviii) of the Act while coming to the aforesaid conclusion. The relevant finding of the Tribunal in the case of Eastman Exports Global Clothing (P.) Ltd., (supra) reads as follows:- 42. On perusal of the above, we note that the question arose for consideration is when the assessee was given incentive for exploring the new markets across the globe, whether such incentive be a capital receipt or revenue receipt. The Tribunal, considering decision of Hon’ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd.(supra) held the incentive given by the Government of India for exploring new market across the globe, is not for running the business but for the expanding the market area, is a capital receipt and cannot be treated as income either under section 2(24) or 28 of the Act. As discussed above, the same finding has been followed by this Tribunal in assessee’s own case for AY 2014-15 & 15-16, thereby, we summarise our finding in answering the grounds of appeal with reference to the arguments of the ld. DR and ld. AR, that we hold that the decision of Hon’ble High Court of Bombay in the case of Serum Institute of India (P.) Ltd. v. Union of India (supra) is not applicable to the facts on hand as Hon’ble High Court was pleased to decide the question the constitutional validity of insertion of sub-clause (xviii) to sub-section (24) of section 2 of the Act only, but not its Applicability.
43. We hold that as per the Foreign Trade Policy-2015, the benefit given by way of MEIS scrips are rewards, the meaning of which is completely different from the meaning of the term “assistance” under the provisions of section 2(24)(xviii) of the Act. We hold that the benefit by way of MEIS scrips could not fall within the meaning of the terms “subsidy or grant or cash incentive or duty draw back or waiver or concession or reimbursement provided under section 2(24)(xviii) of the Act. We hold the ICDS-VII is not applicable as it deals with Government grants only, but :- 5 -: not inclusive of the duty credit scrips under MEIS, which are rewards. We hold that the benefit under Foreign Trade Policy-2015 received being MEIS scrips cannot fall within the meaning of cash assistance under section 28(iiib) of the Act. We hold the sums received as a sale of MEIS scrips credited to the profit and loss account, the said treatment in the books of accounts by itself cannot be determinative of taxability of said receipt. Thus, the benefit derived by way of sale MEIS scrips in the open market is not an income with the meaning of provisions under section 21(24)(xviii) of the Act. Therefore, we find no infirmity in the order of the ld. CIT(A) for the reasons recorded therein and also for discussion made by us in the aforementioned paragraphs, the grounds raised by the Revenue fails and are dismissed.
In light of the aforesaid order of the Chennai Bench of the Tribunal which has considered various judicial pronouncements on the subject and also the amendment brought about to definition of income u/s.2(24) of the Act and have come to a categorical conclusion that amount received on sale of MLFPS scrips is a capital receipt, we hold that the FAA’s order is correct and in accordance to law. It is ordered accordingly.
In the result, the appeal filed by the Revenue is dismissed.