1978 (4) TMI 93 - HC - Income Tax

Capital Or Revenue Receipt, Capital Receipt, Export Promotion, Import Entitlements, Income Tax Act, Sale Proceeds

Summary

Issues Involved:

1. Whether the sale proceeds of the import entitlements were capital receipts.
2. If not capital receipts, whether the sale proceeds were taxable as profits and gains of business or as benefits under section 28(iv) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Whether the sale proceeds of the import entitlements were capital receipts.

The court examined whether the amounts received by the assessee from the sale of import entitlements during the assessment years 1966-67 to 1969-70 could be treated as capital receipts. The assessee argued that these receipts were capital in nature, claiming they were akin to a gift or bounty from the government. However, the court found that the import entitlements were not granted as a bounty. Rather, the assessee became entitled to these entitlements as a right due to the exports made under the Special Export Promotion Scheme. The court emphasized that the assessee's trading activities included both manufacturing and exporting aluminium chains, and the entitlements were directly related to these activities. Therefore, the sale proceeds of the import entitlements were considered trading receipts, not capital receipts. The court also rejected the argument that the non-recurring nature of these receipts made them capital receipts, citing precedents that an income receipt is not necessarily recurring, nor is a capital receipt necessarily single.

Issue 2: If not capital receipts, whether the sale proceeds were taxable as profits and gains of business or as benefits under section 28(iv) of the Income-tax Act, 1961.

The court first addressed this issue by examining section 28(iv) of the Income-tax Act, which states that the value of any benefit or perquisite arising from business is chargeable to income-tax under the head "Profits and gains of business or profession." The court noted that the term "benefit" includes monetary advantages or profits. The assessee exported aluminium chains and received import entitlements as a result, which could either be used by the assessee or sold for monetary gain. The court found that these entitlements were a benefit arising from the assessee's business activities. The court rejected the argument that the entitlements were a bounty or gift, stating that they were given to enable the exporter to earn profits and were not dependent on the government's benevolence. The entitlement was a right, not a gift, and was intimately connected with the business activities of the assessee. Consequently, the court concluded that the sums received by the assessee were taxable as profits and gains of business under section 28(iv) of the Income-tax Act.

Conclusion:

The court answered question No. 1 in the negative, stating that the sale proceeds of the import entitlements were not capital receipts. Question No. 2 was answered in the affirmative, indicating that the sale proceeds were taxable as profits and gains of business under section 28(iv) of the Income-tax Act. The court ruled in favor of the department and against the assessee, awarding costs of Rs. 200 to the department.