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High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
JEEWANLAL (1929) LTD - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 4 Of 1977
Decided On : 03/02/1981
INCOME TAX - BUSINESS INCOME - SALE OF IMPORT ENTITLEMENTS - EXPORT PROMOTION SCHEME - WHETHER RECEIPTS FROM SALE OF IMPORT ENTITLEMENTS ARE CAPITAL RECEIPTS OR REVENUE PROFITS - WHETHER TRIBUNAL'S FINDING THAT ASSESSEE ENTERED BUSINESS WITH INTENTION TO TAKE ADVANTAGE OF SCHEME AND THAT PROFITS FROM ENTITLEMENTS WERE FORESEEN AT TIME OF EXPORT IS BASED ON MATERIAL AND IS PERVERSIVE - WHETHER INTENTION TO SELL ENTITLEMENTS IS NECESSARY FOR ADVENTURE IN THE NATURE OF TRADE.
Fact of the Case:
The assessee, a limited company engaged in the business of aluminium goods, exported goods under the Special Export Promotion Scheme for engineering goods. As per the scheme, the assessee was entitled to import entitlements against exports. The assessee sold these import entitlements to other members of the Export Promotion Council and realized sums of Rs. 32,91,180 and Rs. 21,26,232 in the respective two years. The ITO brought the sale proceeds to tax, holding that the sales were effected in the ordinary course of the assessee's business and that the surplus resulting from their sale was income of revenue nature. The AAC agreed with the ITO's order.
Finding of the Court:
The Tribunal held that the import entitlements were incidental to the assessee's business of manufacture and export of aluminium goods under the export promotion scheme and that the profits from the sale of the entitlements were closely connected with the assessee's business. It also held that the transaction of sale of import entitlements took place in connection with the business carried on by the assessee of manufacture and export of aluminium goods in the usual course and, therefore, it was assessable income, and not a capital receipt.
Issues: 1. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the relevant provisions of the Special Export Promotion Scheme, the receipts of Rs. 32,91,180 and Rs. 21,26,232 in the assessment years 1965-66 and 1966-67, respectively, arising out of the transfer of the import entitlements are capital receipts, and not revenue profits assessable to tax ? 2. Whether the finding of the Tribunal that the assessee entered the business of manufactures and exports of aluminium goods with the clear intention of taking advantage of such Special Export Promotion Scheme is based on any material or evidence and is perverse ? 3. Whether the finding of the Tribunal that the profits and gains from the sale proceeds of import entitlements were foreseen by the assessee at the time of making exports and, therefore, were earned by the assessee in the ordinary course of its business is based upon any material or evidence and is perverse ?
Ratio Decidendi: 1. The nature of the right acquired and the user of the same and the relation inter se should be examined to determine whether the receipts from the sale of import entitlements are capital receipts or revenue profits. 2. The fact that the assessee was not a dealer in import entitlements as such is not decisive in determining whether the receipts from the sale of import entitlements are revenue profits. 3. The Tribunal's finding that the assessee entered the business with the intention to take advantage of the scheme and that the profits from the entitlements were foreseen at the time of export is based on material and is not perverse.
Final Decision: The first question is answered in the negative, in favor of the Revenue. The second and third questions are not answered, as they are not necessary in light of the view taken on the first question. Parties will pay and bear their own costs.
( 1 ) IN this reference under Section 256 (2) of the I. T. Act, 1961, the following questions have been referred to this court," 1. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the relevant provisions of the Special Export Promotion Scheme, the receipts of Rs. 32,91,180 and Rs. 21,26,232 in the assessment years 1965-66 and 1966-67, respectively, arising out of the transfer of the import entitlements are capital receipts, and not revenue profits assessable to tax ?
( 2 ) WHETHER the finding of the Tribunal that the assessee entered the business of manufactures and exports of aluminium goods with the clear intention of taking advantage of such Special Export Promotion Scheme is based on any material or evidence and is perverse ?
( 3 ) WHETHER the finding of the Tribunal that the profits and gains from the sale proceeds of import entitlements were foreseen by the assessee at the time of making exports and, therefore, were earned by the assessee in the ordinary course of its business is based upon any material or evidence and is perverse ? "2. The assessment years involved are 1965-66 and 1966-67 for which the relevanx accounting years are the calendar years 1964 and 1965, respectively. The assessee is a limited company which is engaged in the business of aluminium goods which are exported by the assessee. 3. During the course of its business of export of aluminium goods and by virtue of the Special Export Promotion Scheme for engineering goods made out by the Govt. of India, Ministry of Commerce and Industry, Department of International Trade, the assessee was entitled to get import entitlements. In view of the fact that a good deal of arguments were advanced on the nature of the right under the import entitlements it would be necessary to refer to some of the provisions of the Scheme under which the assessee was so entitled. As we have mentioned before the said Scheme is an Export Promotion Scheme for engineering goods and it applied to the exports of Indian goods other than " rolled steel " which had not undergone any substantial processing effected by exporters registered with Engineering Export Promotion Council, Calcutta. The Scheme came into force from April 1, 1973, and would be applicable to export of goods covered by the Scheme with effect from or after Apri 1,1963. The Scheme was contemplated to continue and remain in force on a permanent basis until further orders. Exports effected before April 1,1963, will be governed by the provisions in force prior thereto. All the previous schemes in this regard were thereby superseded as regards exports of such goods effected from April 1, 1963, onwards. However, the concerns validly registered under the previous scheme as on March 31, 1963, might be deemed to have been registered under the revised scheme with effect from April 1, 1963.
( 4 ) THE Scheme provided for the registration of the exporters, re-registration and other ancillary matters. It is not necessary for us to refer the scheme in detail. Clause 5 thereof deals with the benefits available under the scheme. It would be necessary for us to refer to some of the provisions of the said clause which are as follows: " Benefits available under the Scheme.
( 5 ) 1. 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. 5. 2. In the case of any export product falling within the scope of the Scheme which is not specifically mentioned in annexure V the extent of import entitlement will be determined by the Department of International Trade. For this purpose, the Council should furnish information regarding the f. o. b. value of the export product, th
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