1984 (4) TMI 5 - HC - Income Tax

Summary

Issues:
1. Whether the sale proceeds of import entitlement constitute income chargeable to income-tax under section 28 of the Income-tax Act, 1961?

Analysis:
The petitioner, an exporter of sea foods, sold the import entitlement granted by the Government instead of importing goods. The contention was that the sale proceeds of the import entitlement, being a right conferred by the Government, constituted a capital asset and not a trade or income receipt. The petitioner argued that the amount represented the value of an asset and should not be taxed under section 28 of the Act. The Revenue's case was that the sale proceeds were a benefit arising from business under section 28.

The definition of income under section 2(24) includes profits and gains, and the value of any benefit taxable under section 28. Section 28 specifies that profits and gains of business or profession shall be chargeable to income-tax. The question was whether the sale proceeds of import entitlement fell under section 28 or constituted capital.

The petitioner's counsel argued that the import entitlement was not stock-in-trade or any excluded item under section 2(14)'s definition of capital asset. The counsel contended that the sale proceeds of the import entitlement represented a capital asset and should not be taxed under section 28.

The court considered previous decisions and the nature of the entitlement. It was noted that the entitlement was a right to import goods, capable of being valued in money, and directly arising in the course of business. The court held that the sale of this right constituted profits or gains taxable under section 28. The Commissioner of Income-tax was upheld in adding the amount as part of the total income of the assessee. The original petition was dismissed.

The judgment highlighted that income, profits, and gains could be realized in various forms, including assets with monetary value. The court emphasized that the determining factor for taxation is the nature of the trade in which the asset is employed. In this case, the import entitlement was deemed to give rise to taxable profits or gains under section 28, as it was a right directly related to the business activities of the assessee.