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TMI Blog1985 (8) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... lex Woollen Mills and besides manufacturing woollen cloth, were engaged in export of shoddy woollen blankets, blanketing cloth, blaxer, etc. Under the export promotion scheme of the Government of India, the assessee-company, in view of its exports, became eligible for import entitlements. These import entitlements were received during the previous years relevant to the assessment years 1980-81 and 1981-82 and were transferred to others for a price. The price, thus, received by the assessee-company amounted to Rs. 7,53,455 for the assessment year 1980-81 and Rs. 5,20,202 for the assessment year 1981-82. It was claimed before the ITO in the course of the assessment proceedings that these receipts were not liable to tax. The ITO, however, did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's own manufacturing operations or the import entitlements itself could be transferred to others for a price without importing the raw materials and there was still another possibility that the import entitlements received may not be used at all and may lapse. Shri Dastur submitted that the profit in the first three instances will not be the same, while in the fourth instance there will be no profit at all if the import entitlement was not utilised at all and was allowed to lapse. In these circumstances, according to Shri Dastur, if the profit on import entitlements was to be considered at the time of the receipt, it is not possible to work out under which category the profit should be worked out and whether any profit at all shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting from the sale price their market value on the date they became the assets of the business. For this proposition reliance was placed on two decisions of the Hon'ble Supreme Court in the cases of CIT v. Hantapara Tea Co. Ltd. [1973] 89 ITR 258 and CIT v. Groz-Beckert Saboo Ltd. [1979] 116 ITR 125. On this basis Shri Dastur claimed before us that the market value of the import entitlements on the date they were received by the assessee was the same for which they were transferred subsequently and, therefore, on the sale or transfer of these import entitlements there was no question of any surplus, which may be liable to tax. 5. Shri Dastur, therefore, vehemently argued before us that whichever way the matter was looked into the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of the receipt, and the value at the time of their transfer, etc., was merely academic. He then referred to the ruling of the Hon'ble Allahabad High Court in the case of Agra Chain Mfg. Co. v. CIT [1978] 114 ITR 840 wherein their Lordships laid down that the import entitlements were directly relatable to the assessee's trading activities and, hence, the receipts from the sale of the import entitlements were in the nature of supplementary trading receipts, which were taxable, and besides the import entitlements were a 'benefit' within the meaning of section 28(iv) of the Income-tax Act, 1961 ('the Act') which had been converted into money, and, therefore, the amount received by the assessee on transfer of the import entitlements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which was a capital transaction and it was in this context that the Hon'ble Supreme Court laid down that the profit on sale of these assets will be only after deducting from the sale price the market value of the assets at the time they became the stock-in-trade of the assessee and not the original cost to the assessee. However, in the present case the import entitlements were received by the assessee not in the course of a capital transaction but in the course of carrying on the business of exports, i.e., in the course of trading activities and, therefore, what was received was by itself on revenue account and not on capital account. The ruling of the Hon'ble Supreme Court in the case of Groz-Beckert Saboo Ltd. is, therefore, distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the right to part with the same and since the import entitlements had been acquired in the course of carrying on the business and in dealing with the import entitlements the assessee made profits, the profits were revenue profits, which were liable to tax. These views also find support from the ruling of the Hon'ble Bombay High Court in the case of Metal Rolling Works (P.) Ltd. wherein their Lordships laid down that the import entitlements were obtained by the assessee directly in the course of business and the value of the same constituted 'profits and gains of business' within the meaning of section 28(iv) and consequently the amounts realised on sale or transfer of import entitlements were business income liable to tax. No ruling of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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