1967 (8) TMI 18 - HC - Income Tax

Whether the assessee was an exporter entitled to the rebate contemplated in s. 2(5)(i) of the Finance Act, 1963 - Held, no

Summary

Issues:
- Determination of whether the assessee was entitled to a rebate under section 2(5)(i) of the Finance Act, 1963 for being an exporter.

Analysis:
The case involved a reference made by the Income-tax Appellate Tribunal, Madras Bench, regarding the entitlement of the assessee to a rebate under section 2(5)(i) of the Finance Act, 1963. The specific question referred was whether the assessee, a non-company individual, could be considered an exporter entitled to the rebate. The relevant provision allowed for a deduction from income tax for an assessee whose total income included profits and gains from the export of goods out of India. The assessee had received a commission during the relevant period, part of which was earned for services rendered in pursuance of an agency agreement for the purchase of tea for buyers. The key issue was whether this commission could be classified as profits and gains derived from the export of goods.

The High Court analyzed the terms of the agency agreement, particularly focusing on the nature of the commission earned by the assessee. The Court observed that the commission was not directly derived from the export of tea but rather from the services provided under the agreement. It emphasized that profits and gains from the export of goods typically referred to the surplus generated from the export price over the exporter's costs, including service-related expenses. The Court highlighted that the commission earned by the assessee did not fit this definition as it stemmed from service provision rather than export profits.

Additionally, the Court referenced the Tea (Distribution and Export) Control Order, 1957, which required exporters to hold a license. While the assessee possessed the necessary license, the overseas principals did not need a license under the Order. The Court clarified that this distinction did not alter the nature of the commission earned by the assessee under the agency agreement.

Drawing on the precedent set by the Privy Council in a similar case, the Court emphasized the importance of determining the true source of income. It cited that income must be derived from a specific source, and in this case, the Court could not establish a direct link between the commission earned and the export of tea. Consequently, the Court concluded that the commission earned by the assessee could not be considered profits and gains derived from the export of goods, leading to a negative answer to the question referred. The judgment was delivered in favor of the department, with no costs awarded. The Court directed the transmission of the judgment to the Appellate Tribunal as per statutory requirements.

In conclusion, the High Court's decision hinged on the interpretation of the agency agreement and the nature of the commission earned by the assessee. The Court's analysis focused on the distinction between income derived from services and income derived from the export of goods, ultimately leading to a determination that the assessee was not entitled to the rebate as an exporter under the relevant provision of the Finance Act, 1963.