1976 (9) TMI 35 - HC - Income Tax

Summary

Issues Involved:
The judgment involves determining whether the assessee is entitled to rebate under clause 2(5)(a) of the Finance Act, 1966, on the cash subsidy received from the Engineering and Export Promotion Council and on the income derived from the sale of import entitlements.

Cash Subsidy from Engineering Export Promotion Council:
The assessee, a company engaged in the manufacture and sale of cycle rims, received a cash subsidy of &8377; 1,60,717 from the Engineering Export Promotion Council as compensation for losses incurred by exporting goods abroad. The Income-tax Officer initially held that this subsidy did not constitute profits derived from export of goods. However, the Tribunal allowed the appeal, stating that the subsidy was a business receipt from export and eligible for rebate under the Finance Act, 1966. The Tribunal's decision was based on the provisions of section 2(5)(a) of the Finance Act, 1966, which allows for deductions on profits and gains derived from exports. The Tribunal's conclusion was upheld by the High Court, emphasizing that the subsidy was directly related to the export activity and should be considered as profits derived from export.

Sale Proceeds of Import Entitlements:
In addition to the cash subsidy, the assessee also made a profit of &8377; 4,83,856 from selling import entitlements obtained based on export performance. The Income-tax Officer initially disallowed this profit as part of export-derived income, claiming the assessee had incurred an overall loss from export trade. However, the Tribunal ruled in favor of the assessee, stating that the sale proceeds of import entitlements were profits from export business eligible for rebate under the Finance Act, 1966. The High Court concurred with the Tribunal's decision, highlighting that these proceeds were directly linked to the export activity and should be considered as profits derived from export.

Statutory Provisions and Interpretation:
The judgment delves into the statutory provisions of the Finance Act, 1966, particularly section 2(5)(a)(i) and 2(5)(d), which provide for deductions on profits and gains derived from exports. The Central Board of Direct Taxes also issued rules regarding the determination of export profits. The High Court emphasized that the profits and gains derived from export must be computed in accordance with the Income-tax Act, 1961. The Court rejected the argument that profits must be directly caused by the export activity, stating that the subsidy and sale proceeds were directly related to the export of cycle rims and therefore qualified as profits derived from export. The judgment affirms that these receipts should be considered as business receipts referable to the export activity, making them eligible for rebate under the Finance Act, 1966.