1986 (8) TMI 103 - AT - Income Tax

Business Income, High Court, Identical Question, Import Entitlements, Profits And Gains, Question Of Law

Summary

Issues:
1. Whether the amount received on the sale of import entitlements is a capital receipt or a revenue receipt.
2. Whether import entitlements constitute capital assets as per section 2(14) of the Income-tax Act, 1961.
3. Applicability of section 28(iv) of the Act on the sale proceeds of import entitlements.
4. Whether the provisions of section 158A regarding identical questions of law pending before the High Court are applicable in the present case.

Detailed Analysis:
1. The main issue in the appeals was whether the amount received on the sale of import entitlements by the assessee should be treated as a capital receipt or a revenue receipt. The Income Tax Officer (ITO) considered the import entitlements earned by the assessee as part of revenue receipts, as they were obtained through exports made by the assessee. The Commissioner (Appeals) upheld the ITO's decision based on a previous Tribunal ruling. The Tribunal agreed with the lower authorities, stating that import entitlements obtained in the course of business constituted profits and gains under section 28(iv) of the Income-tax Act, 1961. The Tribunal cited a Bombay High Court case to support its decision, concluding that the sale proceeds of import entitlements were rightly assessed as the assessee's income from business.

2. The assessee argued that import entitlements should be considered capital assets under section 2(14) of the Income-tax Act, 1961, and that the transfer of import entitlements did not result in revenue profits. However, the Tribunal rejected this argument, emphasizing that import entitlements obtained directly in the business were deemed business profits under section 28(iv). The Tribunal's decision aligned with the interpretation provided by the Bombay High Court in a relevant case, further solidifying the classification of import entitlements as business income rather than capital receipts.

3. The Tribunal also addressed the applicability of section 28(iv) of the Act on the sale proceeds of import entitlements. It reiterated that the amounts realized from the sale of import entitlements were considered profits of the assessee's business, emphasizing that such receipts were neither capital nor casual/non-recurring in nature. By referencing the Bombay High Court decision, the Tribunal affirmed that the sale proceeds were rightly assessed as business income and not as capital receipts, thereby dismissing the assessee's claim.

4. The final issue involved the assessee's attempt to invoke section 158A, which pertains to identical questions of law pending before the High Court. The Tribunal clarified that for section 158A to apply, the identical question of law must be pending on a reference under section 256 of the Act. In this case, as the High Court had not yet passed an order on the application under section 256(2), the Tribunal concluded that section 158A was not applicable. The Tribunal rejected the assessee's claim under section 158A, emphasizing that the provision could only be availed when the question of law was pending on a reference under section 256, which was not the situation in this instance.

In conclusion, the Tribunal dismissed the appeals, affirming the assessment of the sale proceeds of import entitlements as business income and rejecting the applicability of section 158A in the present case.