Judgment :- M.Karpagavinayagam, J. Aggrieved by the order of the Tribunal dated 23.10.2000 in I.T.A.Nos.1787/Mds/91 and 1634/Mds/92, the Commissioner of Income Tax, Special Range, Coimbatore, has filed these two appeals in Tax Case (Appeal) Nos.638 and 639 of 2004. 2. The brief facts are these: "The assessee, the respondent herein, is a Cooperative Society engaged in the manufacture of sugar. The new sugar factories as well as the existing sugar factories in the light of the notifications relating to the availability of the excise duty concessions in terms of the new Scheme, were directed to furnish to the Directorate of Sugar, Krishin Bhavan, New Delhi, all the relevant information and documents in this regard for verification of their entitlement of the concession in the payment of tax. Accordingly, the respondent applied for the concession under the Incentive Scheme stating that the Central Excise Duty rebate to an extent of Rs.26,17,309/- is not taxable. This request was rejected by the assessment order. This was also confirmed by the Income-tax Appellate Authority in the appeal filed by the respondent by the order dated 26.2.1992. Similarly, the respondent claimed that the molasses storage fund cannot come under the capital expenditure. This was also rejected by the authorities. In the appeal before the Income-tax Appellate Tribunal, the Tribunal held against the Department in both the issues, besides several issues raised by the appellant as well as the respondent. Aggrieved by the finding on these two issues, the appellant is before this Court in these two appeals." 3. The substantial questions of law raised for the decision of this Court in these appeals are as follows: 1) Whether on the facts and circumstances of the case, the Tribunal was right in law in modifying the order of the CIT appeals on the ground that the Central Excise rebate received is not taxable? 2) Whether on the facts and circumstances of the case, the Income-tax Tribunal is right in law by modifying the order of the Commissioner of Income-tax Appeals that the amount set apart for construction of molasses storage tank is application of income or diversion of income over-riding title? 4. The first issue is on the point of taxability of the Central Excise Duty rebate to an extent of Rs.26,17,309/-. 4. The first issue is on the point of taxability of the Central Excise Duty rebate to an extent of Rs.26,17,309/-. The Tribunal held in favour of the respondent herein on the strength of the decision of Madras Branch of the ITAT reported in (1994) 48 ITD 345. The observation made in the said decision, as referred to in the order of the Tribunal, is as follows: "In the instant case, the very right to receive the excess price and the excess excise duty was based on the obligation to recoup the capital employed. Since the amount could not have been received without that obligation, there was a clear nexus and consequently, a diversion of income. Hence, from any point of view, the amount received took the nature of capital receipt by reason of the incentive scheme and could also be regarded as a diversion for the stated purpose, and thus, could not be treated as part of the assessee's income. There was also on record a certificate issued by the statutory auditors asserting that these receipts were wholly utilised for repayment of long-term loans due to the financial institutions. Thus, the condition prescribed in the Incentive Scheme had been demonstrated to be fully satisfied." 5. In the light of the above observation, the Tribunal is correct in holding that the amount received took the nature of capital receipt by reason of the Incentive Scheme and as such, the same shall be regarded as a diversion for the said purpose and therefore, it could not be treated as part of the assessee's income. There is no dispute in the fact that there are receipts which were wholly utilised for the repayment of long-term loans due to the financial institutions. Under those circumstances, the condition prescribed in the Incentive Scheme had been fully satisfied. Therefore, the conclusion arrived at by the Tribunal, while allowing the appeal filed by the respondent, is perfectly justified. 6. The next substantial question of law would relate to the finding that the amount set apart for construction of molasses storage tank is diversion of income by over-riding title. The Assessment Officer treated the figure under this head in the Balance Sheet of the assessee, as provision for capital expenditure. This point was held in favour of the respondent on the strength of the decision of this Court in CIT v. SALEM CO-OPERATIVE SUGAR MILLS LTD. The Assessment Officer treated the figure under this head in the Balance Sheet of the assessee, as provision for capital expenditure. This point was held in favour of the respondent on the strength of the decision of this Court in CIT v. SALEM CO-OPERATIVE SUGAR MILLS LTD. ((1998) 229 ITR 285). The observation made in this decision of the Madras High Court is as follows: "Even before collection of the amount as directed by the Central Government under the Molasses Control (Amendment) Order, the assessee was directed to keep this amount under a separate account under the head "Molasses storage fund". Though the assessee collects this amount under the statutory obligation, it does not belong to the assessee, but it belongs to the molasses storage fund. The assessee cannot utilise the amountin the said fund for any other purpose. The fund has got to be utilised for the purpose of constructing a storage tank as per the specifications give by the Central Government. If the assessee failed to collect such amount as directed by the Molasses Control (Amendment) Order, the Central Government will construct a molasses storage tank and recoup the construction charges from the assessee. Therefore, there is diversion of title even at the source of the income collected as per the directions given under the Molasses Control (Amendment) Order." 7. The facts of that case would disclose that the principles laid down by this Court would squarely apply to the facts of the present case. It is not disputed that the portion of the proceeds of sale of molasses was transferred to molasses storage fund. In such circumstances, the finding of the Tribunal that the disallowance is not proper, has to be held justified. 8. In view of the foregoing discussion, both the appeals are dismissed.