1985 (8) TMI 102 - AT - Income Tax

Summary

Issues:
1. Taxability of receipts from the transfer of import entitlements.
2. Whether the profit on the sale or transfer of import entitlements is liable to tax.

Detailed Analysis:

Issue 1: The primary issue in this case was the taxability of receipts from the transfer of import entitlements received by the assessee-company. The assessee argued that the receipts were not liable to tax, while the revenue authorities contended that the receipts were business income. The Commissioner (Appeals) upheld the revenue's position, leading to the appeal before the ITAT Bombay-D.

Issue 2: The second issue revolved around whether the profit on the sale or transfer of import entitlements should be considered taxable income. The assessee's counsel argued that assessing the profit at the time of receipt and again at the time of transfer would lead to double taxation. They also contended that the market value of the entitlements at the time of receipt was the same as at the time of transfer, hence no surplus existed for taxation.

Analysis of Arguments:
The assessee's counsel relied on judgments of various High Courts and the Supreme Court to support their position that the profit on import entitlements should not be taxed. They argued that the character of the receipt at the time of acquisition should determine taxability, not its subsequent use or transfer. They also highlighted the potential for double assessment if profit was calculated at both receipt and transfer. Additionally, they contended that market value remained constant, negating any taxable surplus.

On the contrary, the departmental representative cited precedents where courts held that profits from activities related to trading were taxable. They argued that since the import entitlements were acquired in the course of business activities, any profit from their sale or transfer constituted taxable business income. The representative emphasized that the import entitlements were directly linked to the assessee's trading operations, making the profits taxable under the head 'Profits and gains of business or profession.'

Judgment:
After considering the arguments and legal precedents, the ITAT Bombay-D upheld the Commissioner (Appeals)'s decision. They noted that the import entitlements were acquired during the course of business and any profit from their sale or transfer constituted business income. The ITAT distinguished previous judgments cited by the assessee's counsel, emphasizing that the import entitlements were revenue assets, not capital assets. They aligned with the rulings of various High Courts and the Bombay High Court, concluding that the profit on the sale of import entitlements was taxable business income. As the assessee failed to demonstrate any errors in the calculation of the addition made by the revenue authorities, the ITAT dismissed the appeals filed by the assessee-company.