1983 (2) TMI 96 - AT - Income Tax

Summary

Issues:
1. Taxability of profit from the sale of Import Entitlements as business income under section 28(iv).

Analysis:
The judgment by the Appellate Tribunal ITAT Cochin dealt with the issue of whether the profit earned by the assessee from the sale of Import Entitlements, obtained on account of exporting goods, is taxable as business income under section 28(iv) of the Income Tax Act. The assessee, engaged in the business of exporting sea-food, sold Import Entitlements and realized a profit of Rs. 39,368. The Income Tax Officer (ITO) held that these entitlements are directly related to the assessee's export business and should be included in the assessable income. The Commissioner (A) upheld the assessment order, leading to the assessee appealing against it.

The assessee argued that the amount from the sale of Import Entitlements should not be considered as profit from the export business. The counsel contended that it was a capital receipt and not taxable, citing a decision of the Kerala High Court. However, the departmental representative argued that the Import Entitlements were obtained due to the export transactions and thus should be treated as business receipts. The Tribunal analyzed the facts and held that the profit from the sale of Import Entitlements is indeed taxable as business income under section 28(iv). The Tribunal emphasized that the Import Entitlements were obtained solely due to the export business, making the profit directly linked to the export transactions and constituting a trading receipt.

The Tribunal referred to various decisions by different High Courts, such as the Allahabad High Court and Calcutta High Court, which supported the taxability of receipts from the sale of Import Entitlements as business income. These decisions highlighted that such receipts are related to the trading activities of the assessee and should be taxed as profits and gains of business. The Tribunal concluded that the sum received by the assessee on the sale of Import Entitlements is taxable as business income under section 28(iv) of the Income Tax Act.

The Tribunal distinguished a previous decision by the Kerala High Court, which dealt with a different context of claiming rebate under the Finance Act. The Tribunal clarified that the issue in the current appeal was specifically related to the taxability of income derived from the sale of Import Entitlements under section 28, which was not considered in the previously cited cases. Consequently, the Tribunal upheld the taxability of the profit from the sale of Import Entitlements as business income under section 28(iv) and dismissed the appeal.

In conclusion, the Tribunal rejected the arguments against the taxability of the profit from the sale of Import Entitlements, emphasizing its direct connection to the assessee's export business and its classification as business income under section 28(iv) of the Income Tax Act. The Tribunal also dismissed other contentions raised by the assessee, ultimately upholding the taxability of the said profit and dismissing the appeal.