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Issues Involved:
1. Whether the assessee was liable to pay additional tax under section 104 of the Income-tax Act, 1961, for the assessment years 1972-73 to 1974-75. 2. Whether the amounts realized by the assessee from the transfer of its import licenses constituted sale proceeds derived from its export within the meaning of Notification S. O. No. 3210, dated August 8, 1969, thereby entitling the assessee to exemption under section 104 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Liability to Pay Additional Tax under Section 104: The Income-tax Officer (ITO) initiated proceedings under section 104 of the Income-tax Act, 1961, as the assessee, a private limited company exporting minerals, had not distributed dividends despite having adequate profits for the assessment years 1972-73 and 1974-75. The ITO, with the previous approval of the Inspecting Assistant Commissioner, levied additional income-tax of Rs. 1,09,019 and Rs. 82,836 for these years. The ITO also passed a similar order for the assessment year 1973-74, demanding additional tax on distributable income of Rs. 59,667. The assessee contended that it was entitled to exemption under Notification S. O. No. 3210, dated August 8, 1969, as it was engaged in the export of goods. The ITO rejected this claim, stating that the assessee did not export goods during the relevant accounting years and that the profits were derived from the sale of import entitlement licenses, not from exports. 2. Classification of Amounts Realized from Import Licenses as Sale Proceeds from Export: The Appellate Assistant Commissioner (AAC) accepted the assessee's contention that the profits from the sale of import licenses were attributable to exports and thus classified them as earnings from exports. The AAC held that the notification did not require exports and receipts to be in the same year and that the second proviso to the notification, requiring that sale proceeds from exports exceed 50% of gross receipts, was satisfied. The Commissioner of Income-tax (Appeals) upheld this view for the assessment year 1973-74. The Revenue appealed, but the Tribunal confirmed the AAC's orders, holding that the realization from the sale of import licenses constituted sale proceeds derived from exports within the meaning of the notification. Court's Analysis and Judgment: The court examined whether the assessee satisfied the conditions prescribed by Notification S. O. No. 3210, dated August 8, 1969. The notification required: (i) Export of goods or merchandise out of India. (ii) Receipt of sale proceeds in India in accordance with the Foreign Exchange Regulation Act, 1947. (iii) Sale proceeds from exports to constitute 50% or more of the aggregate amount of sale proceeds and other gross receipts. For the assessment years 1972-73 and 1974-75, the assessee did not export goods, and for 1973-74, the exports were minimal. The court noted that the realization from the sale of import licenses did not represent sale proceeds of goods sold outside India and were not brought into India in accordance with the Foreign Exchange Regulation Act, 1947. The court distinguished the case from CIT v. Wheel and Rim Co. of India Ltd. [1977] 107 ITR 168 (Mad), where the issue was the interpretation of different provisions and not the notification in question. The court held that the sale of import licenses constituted trading in licenses, not sale proceeds from exports, and thus did not satisfy the notification's conditions. Conclusion: The court concluded that the Tribunal erred in holding that the amounts realized from the transfer of import licenses constituted sale proceeds derived from exports. Consequently, the assessee was not entitled to exemption under section 104(3) of the Act for the assessment years 1972-73 to 1974-75. The court answered both questions in the negative, in favor of the Revenue, and awarded costs to the Revenue.
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