Export subsidy received by assessee is taxable as income under Section 28 of the Income Tax Act, 1961.

C.S.P. Singh, J.

1. THE Income-tax Appellate Tribunal, Allahabad Bench, has referred the following four questions for the opinion of this court:

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing deduction of the liability of Rs. 34,131 incurred by the assessee for the payment of damages under Section 14(b) of the Employees' Provident Funds Act, 1952 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 2,33,662, received by the assessee from the Textile Commissioner was liable to be assessed as assessee's income ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty of Rs. 7,667 levied on the assessee under the Central Sales Tax Act could not be allowed as a deduction while computing the income of the assessee ?

(iv) Whether the Tribunal was justified in holding that appeal against the levy of interest under Section 215 of the Income-tax Act was not competent ?"

2. WE are absolved from stating material facts in so far as questions Nos. 1, 3 and 4 are concerned as it has been fairly conceded by the counsel for the assessee that questions Nos. 1 and 3 are covered by a decision of this court in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All) [FB] and question No. 4 by a Full Bench decision in Income-tax Reference No. 41 of 1976 (CIT v. Geeta Ram Kali Ram [1980] 121 ITR 708 (All) [FB]) decided on 23rd August, 1979, and the answer to these questions must be in favour of the department.

The facts relevant for deciding question No. 2 are these : The assessee is a manufacturer of cloth and sells it in the home market and also exports it outside India. By a press note dated 22nd November, 1958, the Government of India announced a cotton textile export incentive scheme under which mills exporting cloth or yarn in excess of the standard prescribed therefor were entitled to import entitlement equal to sixty-six and two-thirds per cent. of the f.o.b. value on such excess exports. 35% of the import entitlement could be utilized by the mills for importing raw cotton for its own use and the balance had to be surrendered to the Textile Commissioner on such terms and conditions as were to be prescribed by him from time to time. The assessee received import entitlements during the relevant previous years, a part of which was utilized for importing raw cotton and the balance surrendered to the Textile Commissioner. In consideration of the import entitlement surrendered by the assessee an amount of Rs. 2,33,662 was received as subsidy from the export promotion fund. The amount was credited in the accounts of the assessee under the head of miscellaneous receipts and it was claimed that it could not be taxed as its income. The ITO did not accept this contention and treated it to be the income of the assessee. The AAC held likewise. The Tribunal, following its decision for the assessment year 1961-62, upheld the addition. The question as to whether the export subsidy received by an assessee is to be treated as income has received consideration of this court in Agra Chain Mfg. Co. v. CIT [1978] 114 ITR 840, which decision was, however, given in respect of a case relating to the assessment years 1966-67 and onwards and it was held that export subsidy received by an assessee was a benefit arising from business and as such it had to be treated as income in view of Section 28(iv) of the Act. In the present case we are, however, concerned with the assessment year 1963-64 when Clause (iv) was not there. This has given a handle to Sri Raja Ram Agarwal, appearing for the assessee, to urge that the export subsidy received by the assessee could not be treated as profits and gains of business so as to become chargeable under Section 28 of the Act. Mr. Ashok Gupta, appearing for the department, however, contends that the matter is settled by the decision of the Calc