1999 (3) TMI 4 - SC - Income Tax

Whether the Tribunal was right in holding that, having regard to the notification u/s 104(3), the assessee was not liable to pay additional tax u/s 104 and the amounts realised by the assessee from the transfer of its import licences constituted sale proceeds derived by it from its export within the meaning of the Notification S.O. No. 3210, dated August 8, 1969, and, therefore, the assessee would be entitled to enjoy the exemption from the operation of the provisions of section 104 - Held, no

Summary

Issues:
1. Interpretation of section 104 of the Income-tax Act, 1961 regarding additional tax liability.
2. Determining whether the sale proceeds from the transfer of import licenses constitute sale proceeds derived from exports for tax exemption.

Issue 1: Interpretation of section 104 of the Income-tax Act, 1961
The case involved an appeal against a Division Bench decision of the High Court at Madras regarding the liability to pay additional tax under section 104 of the Income-tax Act, 1961. The section deals with income tax on undistributed income of certain companies. The Central Government can exempt companies from this tax under specific conditions. A notification issued under section 104(3) provided exemptions for Indian companies engaged in export activities. The key issue was whether the income derived from the transfer of import licenses could be considered as sale proceeds derived from exports for tax exemption under this section.

Issue 2: Determining tax exemption eligibility based on sale proceeds from import licenses
The appellant claimed tax exemption under section 104(1) by relying on income from exports and proceeds from the assignment of import licenses. The Income-tax Officer initially rejected the claim, but the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal accepted it. The Tribunal considered the import license realizations as sale proceeds derived from exports, constituting over 50% of gross receipts. However, the Revenue contended that import license realizations could not be treated as sale proceeds. The High Court analyzed the notification and ruled that proceeds from import licenses did not qualify as sale proceeds under the exemption criteria. The Court emphasized that the sale proceeds must be from actual exports and received in India. The consideration from the assignment of import licenses did not meet these criteria and could not be included in determining the 50% threshold for tax exemption.

In conclusion, the Supreme Court affirmed the High Court's judgment, dismissing the appeal with costs. The Court held that the consideration received from the assignment of import licenses did not meet the requirements for tax exemption under section 104 of the Income-tax Act, 1961.