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TMI Blog1982 (4) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 1,56,632 was credited by the assessee in that account under the head 'Sales of import entitlements' and that the assessee had returned the same as part of its total income in the original return filed by it. In the revised return, the assessee, however, claimed that the income from sale of import entitlements was of the nature of capital receipt and the same was not taxable. This plea of the assessee was not acceptable to the IAC who has observed that 'the import entitlement arises directly by carrying out the export business and the assessee has earned the right of import entitlement from the business and being incidental to business, is a revenue receipt. Moreover, it is not an asset; it cannot be termed as capital asset and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' and basing himself on the ratio of the decision of the Delhi High Court in Dalmia Dadri Cement Ltd. v. CIT [1980] 126 ITR 851, held that the sale proceeds of import entitlements constitute the assessee's trading receipt and is business income under section 28(i) of the Act. 5. In the appeal before the Tribunal, the departmental representative for the assessee, Mr. Pradeep Dinodia, urged that the assessee had imported machinery for manufacture of carpets. One of the conditions of the said import, as envisaged by the import licence, was that the assessee was to export carpets. That being the position, the assessee on the exports made in accordance with the terms and conditions of the aforesaid import license obtained the import entitlemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration to the above arguments. Initially, we would like to clarify that it was never the case of the assessee before the tax authorities that the exports of carpets in the year under consideration, resulting in the winning of import entitlements, was in pursuance of the terms and conditions of the import licence issued to the assessee in May 1962 for the import of machinery for the manufacture of carpets. Since this was never the case of the assessee before the tax authorities and the case now set up before us was never investigated by the tax authorities, we are slow to accept the case now set up in this behalf. The case has proceeded before the tax authorities on the admitted basis that the assessee was a manufacturer of carpets and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of import replenishment licences is highly structured. The products against the export of which replenishment will be allowed have been enumerated. The extent of replenishment that will be permissible against each type of product has also been specified in terms of a percentage of the FOB value of the export. The articles permitted to be imported against the various types of exports are also specified. (v) Where the licensing authority considers that the value of the goods exported is over-invoiced or there has been other misdeclarations, it shall be open to it either to refuse to issue any licences against such exports or to reduce the value of the licences as it deems fit. (vi) Import licences under the scheme will be issued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d High Court came to the conclusion that an exporter was entitled to get the import entitlements admissible under the said scheme as of right provided, of course, he satisfied its requirements. The nature of the entitlements was not a bounty or gift. As such, it was held that the sale proceeds of the import entitlements received by the assessee was taxable in its hands as profits and gains of business, or as benefits under section 28(iv) of the Act. 9. In Kesoram Industries Cotton Mills Ltd.'s case the assessee-company was engaged in the manufacture of cotton textiles, rayon, yarn, etc. In order to acquire foreign exchange, the Government of India started an export promotion scheme. Under the scheme, an exporter of cotton cloth or yarn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with that activity. But for the actual export of carpets the assessee would not have earned the import entitlements. The receipt from the sale of import licences was hence held as attributable to the activity of manufacturing carpets within the meaning of section 2(6)(c) of the Finance Act, 1974. 11. It cannot also be disputed that the import entitlement, in the light of the aforesaid import replenishment licence scheme, is a real commercial activity intimately and inextricably connected with the business of the assessee of manufacture and sale of carpets. The assessee manufactured carpets and exported them. For the exports made under the aforesaid scheme it regularly and systematically applied for import entitlements. The object of appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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