BHARAT CARPETS LTD Vs. INSPECTING ASSISTANT COMMISSIONER
INCOME TAX APPELLATE TRIBUNAL
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K.L. Segel, Judicial Member -
(1.) THE assessee in appeal is Bharat Carpets Ltd., a company incorporated under the Companies Act. THE year of assessment involved is 1978-79 for which the previous year ended on 31-1-1978. As in the past, during the year under consideration the assessee carried on the business of manufacture of tufted woollen carpets and cotton tufted bed covers, etc., and also their sales in India and abroad.
(2.) The I AC on going through the profit and loss account of the assessee found that a sum of 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, therefore, it does not fall within the definition of 'capital asset' under Section 2(14) of the Income-tax Act, 1961 ('the Act'). The main objective for the grant of import entitlement is to provide the exporters to replenish the material which is used by the assessee in the manufacture of its trade or other certain permitted material in which the company deals. The assessee gets the benefit of 10 per cent of the Free On Board (FOB) value of the total export, as per the import policy announced by the Government from time to time, on the exported products. Thus, it is an income directly arising from export of the product of the company ... It is, therefore, a trading receipt and the profit earned on it is a revenue profit.'
Aggrieved by the aforesaid assessment order of the IAC, the assessee brought the matter by way of appeal before the Commissioner (Appeals), who after going through the Import Trade Control Policy and facts of the case and in the light of the ratio of the following decisions, agreed with the IAC that the receipt on the sale of import entitlements constitutes business income assessable under Section 28(iv) of the Act-Agra Chain Manufacturing Co. v. CIT  114 ITR 840 (All.), Kesoram Industries & Cotton Mills Ltd. v. CIT[ 1978] 115 ITR 143 (Cal.) and Addl. CIT v. Abbas Wazir (P.) Lid.  116 ITR 811 (All.).
(3.) THE Commissioner (Appeals) further held that the import entitlements constitute stock-in-trade and did not have the colour of a 'capital asset' and basing himself on the ratio of the decision of the Delhi High Court in Dalmia Dadri Cement Ltd. v. CIT  126 ITR 851, held that the sale proceeds of import entitlements constitute the assessee's trading receipt and is business income under Section 28(0 of the Act.;
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