MEIS Incentive Is a Revenue Receipt — Mumbai ITAT Upholds Taxability Under Normal Provisions and Section 115JB
Overview of the Dispute
The Income Tax Appellate Tribunal (ITAT), Mumbai, in ACIT Vs Sangam (India) Ltd. (ITA No. 4283/MUM/2025), delivered its ruling on 24/09/2026 for Assessment Year 2020-21, settling the question of whether benefits received under the Merchandise Exports from India Scheme (MEIS) constitute a capital receipt or a revenue receipt for income tax purposes.
The Tribunal reversed the relief granted by the Commissioner (Appeals) and held, following the Mumbai Special Bench decision in DCIT v. Aarti Drugs Ltd. (ITA No. 2873/Mum/2023 for AY 2017-18 and ITA Nos. 3069 & 3183/Mum/2023 for AYs 2016-17 and 2017-18), that MEIS incentives are revenue receipts chargeable to tax both under the normal provisions of the Income Tax Act, 1961 and under Section 115JB. The fact that the scheme referred to the benefit as a "reward" was held to be of no legal consequence in determining its character.
Background: Sangam (India) Ltd. and the MEIS Claim
Sangam (India) Ltd. is engaged in manufacturing textile and handloom & power-loom products, and also carries on power generation activities. For AY 2020-21, the assessee filed its return of income on 13/02/2021 declaring:
- Total income of ₹16,73,69,620 under the normal provisions of the Income Tax Act, 1961
- Book profit of ₹20,30,46,844 under
Section 115JB
The MEIS incentive of ₹5,95,46,449 was included in the returned income at the time of original filing.
Processing and Rectification
The return was initially processed under Section 143(1). Subsequently, an order under Section 154 dated 24th January 2023 was passed, determining total income at ₹23,40,71,700. Through this rectification order, the Assessing Officer:
- Added deferred tax of ₹4,30,00,000 to total income
- Denied credit for advance tax, tax deducted at source (TDS), and tax collected at source (TCS)
- Rejected the assessee's request to exclude the MEIS incentive of ₹5,95,46,449 from both total income and book profit, as the assessee contended the amount had been included inadvertently
Commissioner (Appeals) Ruling
Before the Commissioner (Appeals), the assessee argued that MEIS was structured under the Foreign Trade Policy 2015-20 with the objective of promoting manufacture and export of notified goods. It emphasized that the scheme explicitly described the benefit as a "reward" to eligible exporters, and that this terminology distinguished MEIS from ordinary business assistance. On this basis, the assessee sought exclusion of ₹5,95,46,449 from both taxable income and book profit under Section 115JB.
The Commissioner (Appeals) accepted the assessee's position, treating the MEIS incentive as a capital receipt and directing its exclusion from both computations. Relief on issues concerning deferred tax and denial of credit for advance tax, TDS, and TCS was also allowed, subject to verification.
Revenue's Appeal Before the Tribunal
Aggrieved by the Commissioner (Appeals)'s finding on the MEIS issue, the Revenue filed an appeal before the ITAT Mumbai.
Regular Ground
The Revenue's primary ground challenged whether the Commissioner (Appeals) was correct in treating MEIS incentives as capital receipts not liable to tax under the normal provisions of the Act and excludible while computing book profit under Section 115JB, given the binding precedent of the Supreme Court in Liberty India v. CIT, 317 ITR 218.
Additional Grounds Raised During Hearing
The Departmental Representative also raised the following additional grounds during the course of hearing:
- Whether the Commissioner (Appeals) erred in adjudicating the MEIS issue when the assessee had itself offered the incentive to tax in its original return of income filed on 13/02/2021
- Whether the Commissioner (Appeals) exceeded jurisdiction in deciding the capital/revenue character of MEIS, when this issue was not adjudicated in the order under
Section 143(1)dated 31.03.2021 and the order underSection 154dated 24.01.2023 - Whether the MEIS issue fell outside the scope and purview of
Section 154, not being a mistake apparent from record - Whether the Commissioner (Appeals) erred in admitting and relying upon additional evidence on the MEIS issue in contravention of Rule 46A of the Income-tax Rules, 1962, without affording the Assessing Officer an opportunity to examine or rebut such evidence as mandated under Rule 46A(3)
The Tribunal admitted the additional grounds as purely legal questions not requiring investigation of fresh facts, applying the settled principle laid down by the Supreme Court in NTPC Ltd., 226 ITR 383 (SC).