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Issues involved:
The judgment deals with the issue of whether the Tribunal was correct in law in deleting the addition of Rs. 3,05,343, being the amount realized by the assessee by sale of import entitlements to M/s. Martin & Harris Pvt. Ltd. Comprehensive Details: Assessment Year 1966-67: The case pertains to the assessment year 1966-67, where the assessee obtained a sum of Rs. 2,44,737 through remittance under the "National Defence Remittance Scheme" and secured an entitlement to import goods of the value of 60% of the remittance. Subsequently, without utilizing the entitlement, the assessee sold it to M/s. Martin & Harris Pvt. Ltd. for Rs. 3,05,343. The Income Tax Officer (ITO) held that the cost of acquisition was nil and taxed the entire amount realized from the sale. Appeals and Tribunal Decision: The assessee's appeal before the Appellate Assistant Commissioner (AAC) was rejected, affirming the ITO's decision. However, the Tribunal allowed an additional ground of appeal raised by the assessee, contending that the provisions of section 45 of the Income Tax Act would not apply as the import license did not cost anything to the assessee. The Tribunal held that the right obtained by the assessee under the import license had no cost of acquisition attributable to it. High Court's Analysis: The High Court agreed with the Tribunal's view that the entitlement obtained by the assessee did not cost anything and was obtained as an inducement under the Government's scheme to bring foreign exchange to the country. Citing the principle laid down by the Supreme Court, the High Court held that an asset which did not cost the assessee anything could not be subjected to taxation under the capital gains tax scheme. The Court referred to various decisions, including those of the Madras High Court and the Supreme Court, to support its conclusion. Conclusion: The High Court answered the question in favor of the assessee, emphasizing that the right of import entitlement obtained by the assessee was not a taxable capital gain as it did not cost the assessee anything. The parties were directed to pay their own costs in the case. Separate Judgment: Justice Suhas Chandra Sen concurred with the decision of the High Court.
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