1991 (12) TMI 83 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 31,71,231 for material import entitlement and its exclusion from the computation of total income.

Summary:

Issue: Deduction of Rs. 31,71,231 for Material Import Entitlement

The appellant, a textile mill, claimed a deduction of Rs. 31,71,231 for material import entitlement, arguing that this amount should be excluded from the computation of total income as it was neither received nor accrued. The appellant participated in the duty exemption scheme, allowing duty-free import of raw materials against export commitments. Although the appellant exported goods and was entitled to import 36,674.705 kgs of fiber duty-free, no imports were made during the year. The appellant recorded the expected duty exemption as income in its accounts but claimed it should not be taxed as it was not realized.

The CIT(A) denied the claim, stating that the right to import goods duty-free is a benefit or perquisite u/s 28(iv) and must be accounted for on an accrual basis. The CIT(A) relied on the Bombay High Court decision in Metal Rolling Works (P.) Ltd. v. CIT, which held that such rights should be treated as business receipts in the year exports are made.

The appellant argued that the benefit of duty exemption would accrue only upon the actual import of goods, which did not occur during the relevant year. The appellant cited opinions from the Export Advisory Committee of the Institute of Chartered Accountants and various judicial precedents, including CIT v. Shoorji Vallabhdas & Co., to support that anticipated profits should not be taxed until realized.

The Tribunal considered the appellant's arguments and relevant case law, concluding that no real income had accrued during the year as no imports were made. The amount recorded in the accounts was an anticipated benefit, not actual income. Therefore, the Tribunal held that the amount of Rs. 31,75,231 did not constitute income for the year under appeal, as it neither accrued nor was received.

Conclusion:
The appeal was allowed in part, with the Tribunal deciding that the amount of Rs. 31,75,231 for material import entitlement should not be included in the appellant's income for the year under appeal.