1981 (3) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Whether the receipts from the transfer of import entitlements are capital receipts or revenue profits assessable to tax.
2. Whether the Tribunal's finding that the assessee entered the business with the intention of taking advantage of the Special Export Promotion Scheme is based on any material or evidence and is perverse.
3. Whether the Tribunal's finding that the profits from the sale of import entitlements were foreseen by the assessee and earned in the ordinary course of its business is based on any material or evidence and is perverse.

Detailed Analysis:

1. Capital Receipts vs. Revenue Profits:
The primary issue was whether the sums of Rs. 32,91,180 and Rs. 21,26,232 from the transfer of import entitlements during the assessment years 1965-66 and 1966-67, respectively, were capital receipts or revenue profits assessable to tax. The assessee argued that these were non-recurring casual receipts of a capital nature and thus not liable to tax. The Income Tax Officer (ITO) disagreed, viewing these entitlements as trading assets or circulating capital, asserting that the surplus from their sale was income of a revenue nature, liable to tax. The Tribunal upheld the ITO's view, noting that the import entitlements were acquired in the ordinary course of the assessee's business and were closely linked to its business operations. The court emphasized that the nature of the right and the manner of dealing with it were crucial. The court held that the sums received from the sale of import entitlements were revenue receipts, as they were derived directly from the business of exporting aluminium goods and were thus taxable.

2. Tribunal's Finding on Intention:
The second issue questioned whether the Tribunal's finding that the assessee entered the business of manufacturing and exporting aluminium goods with the intention of taking advantage of the Special Export Promotion Scheme was based on any material or evidence and was perverse. The Tribunal had concluded that the assessee was aware of the import entitlements and intended to profit from them either by selling them or by importing goods. The court found that the Tribunal's inference was not perverse, as it was based on the nature of the scheme and the business activities of the assessee. The court noted that the assessee's participation in the scheme and the subsequent sale of entitlements were integral to its business operations, thus supporting the Tribunal's conclusion.

3. Tribunal's Finding on Foreseen Profits:
The third issue was whether the Tribunal's finding that the profits from the sale of import entitlements were foreseen by the assessee at the time of making exports and were earned in the ordinary course of its business was based on any material or evidence and was perverse. The Tribunal had observed that the assessee knew about the potential profits from the import entitlements at the time of exporting goods. The court upheld this finding, stating that the acquisition and sale of import entitlements were part of the assessee's business strategy and were carried out in the ordinary course of its business. The court emphasized that the nature of the right and its connection to the business activities were crucial in determining the taxability of the receipts.

Conclusion:
The court answered the first question in the negative, affirming that the receipts from the transfer of import entitlements were revenue profits assessable to tax. Given this conclusion, the second and third questions were deemed unnecessary to answer. The court held that the sums received from the sale of import entitlements were taxable income derived from the assessee's business operations. The judgment emphasized the importance of the nature of the right and its connection to the business in determining the taxability of such receipts.