1984 (11) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Nature of the receipt from the sale of import entitlements: capital or revenue.
2. Taxability of the receipt under section 28(i) of the Income-tax Act, 1961.
3. Applicability of section 28(iv) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Nature of the Receipt from the Sale of Import Entitlements: Capital or Revenue
The primary issue was whether the sum of Rs. 1,35,020 received from the sale of import entitlements was a capital receipt or a revenue receipt. The assessee claimed it was a capital receipt, while the IAC held it to be a revenue receipt. The Commissioner (Appeals) sided with the assessee, considering the receipt as a transfer of capital assets, which were self-generated and hence not subject to capital gains tax. However, the learned Accountant Member disagreed, stating that the import entitlements arose in the course of the assessee's business, making the sale proceeds taxable as business receipts. The learned Judicial Member upheld the Commissioner (Appeals)'s view, emphasizing that the entitlements were capital assets and the transfer represented a capital transaction. The Third Member Bench ultimately agreed with the learned Accountant Member, concluding that the sale proceeds were taxable as business income under section 28(i).

2. Taxability of the Receipt under Section 28(i) of the Income-tax Act, 1961
The learned Accountant Member argued that the sale proceeds of Rs. 1,35,020 were taxable as business income under section 28(i), as the entitlements were received in the course of business and had a market value. The learned Judicial Member, however, maintained that the entitlements were capital assets and their transfer resulted in capital gains. The Third Member Bench reviewed various judicial authorities and concluded that the import entitlements did not represent a capital asset. The Bench held that the sale consideration was taxable as business income under section 28(i), agreeing with the learned Accountant Member's conclusion that the amount was rightly brought to tax as business income.

3. Applicability of Section 28(iv) of the Income-tax Act, 1961
The learned Accountant Member referred to the Allahabad High Court decision in Agra Chain Mfg. Co. v. CIT, which held that such receipts could be taxed under section 28(iv). The learned Judicial Member did not consider section 28(iv) applicable. The Third Member Bench acknowledged the arguments from both sides but ultimately decided that it was not necessary to express an opinion on the applicability of section 28(iv). The Bench concluded that the primary issue was whether the sum was to be included as business income, which it affirmed under section 28(i).

Conclusion:
The Third Member Bench agreed with the learned Accountant Member's conclusion that the sum of Rs. 1,35,020 received from the sale of import entitlements was taxable as business income under section 28(i). The issue of applicability of section 28(iv) was not explicitly decided upon, as the primary question was the inclusion of the amount as business income. The matter was referred back to the original Bench for disposal in accordance with section 255(4) of the Income-tax Act, 1961.