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TMI Blog2004 (11) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dhansiram Agarwalla v. CIT [1993] 201 ITR 192 (Gauhati) and the dismissal of SLP against this judgment vide [1993] 204 ITR 45 (St.), came to hold that these amounts should have been offered for taxation. Accordingly, a sum of Rs. 1.25 crores and odd was added to the income of the assessee. In the first appeal, the ld. CIT(A), for the reasons stated in his order, overturned the action of the Assessing Officer in this regard. 2.2 Before us, the ld. D.R. strongly relied on the assessment order to contend that once a particular sum was credited by the assessee to its profit and loss account, it was not open to it to come back from that stand and claim that income as non-taxable. 2.3 In the opposition, the ld. Counsel of the assessee reiterated the submissions advanced before the first appellate authority and on the basis of his reasoning urged that his order be maintained on this score. 2.4 We have considered the rival submissions in the light of material placed before us and the precedents relied upon. It is an admitted position that the assessee was maintaining its accounts on mercantile basis and it was opined by the Assessing Officer that a sum of Rs. 125.08 lakhs, repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. The ld. D.R. has urged with great vehemence that the aforesaid decisions rendered by the Summit Court are no longer valid in view of its subsequent decision in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC). In that case, the question for consideration was the taxability of interest on sticky advances accruing under the mercantile system of accounting where the assessee had debited the respective parties with the interest. It was noted that after the close of the accounting year, the appellant, without giving up the interest, which it could have, as a bad debt, did not offer it for taxation but carried to it to the "Interest Suspense Account". While upholding the taxability of such interest on sticky advances, it was held that the concept of real income could not be so read as to defeat the object and the provision of the statutory enactment. From the narration of facts of this case, we arc really at loss to appreciate as to how the aforenoted two judgments of the Apex Court could be said to have been overruled by this lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitlements licenses etc. The taxation of the abovesaid items was a subject-matter of severe litigation. Whereas the assessees were claiming these items to be in the nature of capital receipts and hence immune upon taxation, the departmental authorities were holding it to be revenue. A similar controversy also came up in the case of O.K. Industries v. CIT [1987] 163 ITR 51 (Ker.) where the assessee carrying on business of export of commodities obtained Import Entitlements as a result of export, which was sold and the receipt was claimed as capital. The department held it to be revenue receipt assessable as income from business. When the matter travelled to the Hon'ble High Court, the view of the department was upheld and the amount realised on the sale of import entitlement was held to be taxable as business income. A contrary view was expressed by certain authorities holding such amount to be a capital receipt and hence not chargeable to tax. Thereafter, the Legislature inserted clauses (iiia), (iiib) and (iiic) to section 28 by the Finance Act, 1990 with retrospective effect. Consequently the definition of income, as enshrined under section 2(24) was also enlarged by including s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of making the requisite exports, he becomes liable to reimburse the Government with the concession in duty availed by it through such advance licence. By virtue of holding the Import Entitlement (Special Import Licence or Advance Licence), an exporter becomes entitled to make imports itself. Alternatively, he can also sell Import Entitlement in the market and earn a profit therefrom. In the instant case, the assessee valued the profit from advance licence at Rs. 45.08 lakhs and the profit from sale of Special Import Licence at Rs. 80 lakhs and did not offer it for taxation. Besides these two figures, the actual amount realised by way of sale of import entitlements at Rs. 62.85 lakhs was duly credited to the profit and loss account and shown as taxable. The question for our consideration is to decide as to whether the sum of Rs. 125.08 lakhs is taxable or not which represents the notional value of the estimated benefit that the assessee may get in future. As noted above, there can be two ways of exploiting Import entitlements. The first, being the case where the exporter actually imports the goods at concessional rate of duty. In such circumstances, the imported goods becomes purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " as contained in section 28(iiic). The intention is very clear that insofar as the import entitlements are concerned, the profit has to be recognised only when such licences are sold and the profit is, in fact, realised. Mere holding of licence as at the year end does not result into accrual of income. If the view of the department is accepted, it would amount to double taxation because not only the profit on acquisition of such import licences as is the case in hand, would be taxable but the actual profit realized on the sale of such licences would again become subject-matter of taxation in view of the specific provision contained in section 28(iiia). It is a matter of record that a sum of Rs. 62.85 lakhs, being the profit realized on sales of import entitlements in this year was voluntarily offered for taxation and as against the estimated income of Rs. 45.08 lakhs against Advance Licence recognized in accounts, only a sum of Rs. 6.64 lakhs was realized after the close of the year which was also declared for taxation in the succeeding years. In view of these facts, we hold that the income accrues at the time when the assessee transfers/surrenders import entitlements in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty drawback, does not entitle it to income to that extent. This right is translated into the accrual of income only when a claim is lodged with the competent authority, as without making such claim, there can't be any question of conferring benefit on the assessee. 3.3 The Hon'ble jurisdictional High Court in the case of Punjab Bone Milk held that the right to receive cash incentive against the exports accrues only when the assessee files its claim for it. This decision was affirmed by the Hon'ble Summit Court in CIT v. Punjab Bone Milk [2001] 251 ITR 780 (SC). The effect of this precedent is that the cash assistance accrues when the exporter files its claim with the Government. The provisions of cash assistance as contained in section 28(iiib) and duty drawback as contained in section 28(iiic) on one hand, are materially different from import entitlements as per section 28(iiic). Both the former sections deal with the export benefits that have been made taxable on receipt or accrual basis. The decision rendered by the Hon'ble Apex Court, in the case of Punjab Bone Milk, will apply with full force on the duty drawback as well and consequently the amount of duty drawback will accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specific query from the Bench, it was stated by the learned A.R. that the loss was actually accounted for in the accounts of the year by way of reduction in stocks. It is here that the "Matching concept" in the mercantile system of accounting would come into picture, as per which revenues and other incomes are matched with the cost of resources consumed. Since the loss was incurred and claimed in this year, the assessee became entitled to the compensation from Insurance Company on incurring of the loss, which incident took place in this year. Under such circumstances, we are of the opinion that the claim for Rs. 5 lakhs relatable to loss incurred in the year is rightly taxable. The subsequent event of the non-acceptance of the claim by the Insurance Company has no bearing insofar as the accrual of right to claim compensation in this year is concerned. It has been shown to us that on the rejection of such claim by the Insurance Company, the assessee reversed the entries in the succeeding year. We, therefore, hold that the ld. CIT(A) was not justified in deleting the addition of Rs. 5 lakhs. The other amount of Rs. 1,67,180 was rightly deleted. This ground is, therefore, partly al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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