Income from advance licences and duty entitlement is not taxable until the benefits are realized through imports.

1. Leave granted in the Special Leave Petitions.

2. The question for consideration in all these appeals is whether the benefit of an entitlement to make duty free imports of raw materials obtained by the assessee through advance licences and duty entitlement pass book issued against export obligations is income in the year in which the exports are made or in the year in which the duty free imports are made.

3. In our opinion, the income does not accrue in the year of export but in the year in which the imports are made.

4. The facts pertaining to Civil Appeal No. 125 of 2013 (M/s Excel Industries Limited for the Assessment Year 2001-02) are referred to for convenience.

5. The assessee maintains its accounts on a mercantile basis. In its return (revised on 31st March 2003) the assessee claimed a deduction of Rs.12,57,525/- under the head advance licence benefit receivable. The assessee also claimed a deduction in respect of duty entitlement pass book benefit receivable amounting to Rs.4,46,46,976/-. These benefits related to entitlement to import duty free raw material under the relevant import and export policy by way of reduction from raw material consumption. According to the assessee, the amounts were excluded from its total income since they could not be said to have accrued until imports were made and the raw material consumed.

6. During the assessment proceedings, the assessee relied upon a decision of the Income Tax Appellate Tribunal in Jamshri Ranjitsinghji Spinning and Weaving Mills v. Inspecting Assistant Commissioner, 1992 (41) ITD 142 (Mum) and also the order of the Commissioner of Income Tax (Appeals) in its own case for the assessment years 1995-96 to 1997-98.

7. By his order dated 24th March 2004, the Assessing Officer did not accept the assessee's claim on the ground that the taxability of such benefits is covered by Section 28 (iv) of the Income Tax Act, 1961 (for short 'the Act') which provides that the value of any benefit or perquisite, whether convertible into money or not, arising from a business or a profession is income. According to the Assessing Officer, along with an obligation of export commitment, the assessee gets the benefit of importing raw material duty free. When exports are made, the obligation of the assessee is fulfilled and the right to receive the benefit becomes vested and absolute, at the end of the year. In the year under consideration, the export obligation had been made and the accounting entries were based on such fulfilment. The Assessing Officer distinguished Jamshri on the ground that it pertained to the assessment year 1985-86 when the export promotion scheme was totally different and the taxability of such a benefit was examined only with reference to (iv) of the Act but “in the present case the taxability of such benefit is to be examined from all possible angles as it forms part of the profits and gains of business according to the ordinary principles of commercial accounting.”

8. The assessee took up the matter in appeal and by an order dated 15th September 2008 the Commissioner of Income Tax (Appeals) referred to an earlier appellate order in the case of the assessee relevant to the assessment years 1999-2000 and 2000-01 and following the conclusion arrived at in those assessment years, the appeal was allowed and it was held that the advance licence benefit receivable amounting to Rs.12,57,525/- and duty entitlement pass book benefit of Rs.4,46,46,976/- ought not to be taxed in this year. Reliance was also placed on the order of the Income Tax Appellate Tribunal