K. C. Agrawal, J. - (1.) THE assessee is a registered firm carrying on business of manufacture of iron bars, aluminium chains and wires. It also exported aluminium chains to foreign countries. During the assessment years 1966-67, 1967-68, 1968-69 and 1969-70, of which the relevant previous years are the respective calendar years ending December 31, 1965, December 31, 1966, December 31, 1967, and December 31, 1968, the assessee exported aluminium chains under the Special Export Promotion Scheme for engineering goods formulated by the Government of India. One of the major benefits available under the scheme consisted of import entitlements against exports as specified in annexure "V" to the scheme. Under the scheme, an exporter was entitled cither to use the import entitlement himself in his own factory or to sell it to any other manufacturer who manufactured products covered by the scheme. Under the said scheme the assessee-firm exported aluminium chains, in lieu of which it was granted certain import entitlements. Those import entitlements were sold by the assessee to other manufacturers during the relevant years for the followingamounts: JUDGEMENT_840_ITR114_1978Html1.htm
(2.) THIS gave rise to the question before the Income-tax Officer as to whether the above receipts were taxable in the hands of the assessee. The Income-tax Officer held that these receipts accrued to the assessee as a result of business activities carried on by it. He observed that had the assessee not sold the import entitlements, it would have availed the same. He rejected the claim of the assessee that the receipts received were capital in nature and that the same were not liable to tax on the basis of trading receipts. In this view of the matter, the Income-tax Officer held that the amounts received in the aforesaid four years were liable to tax. The assessee preferred four appeals to the Appellate Assistant Commissioner. The appeal for the assessment year 1966-67 was allowed on May 11, 1971, and the claim of the assessee that the amount of Rs. 64,743 received as the sale consideration of the import entitlements did not constitute a revenue receipt being of the nature of gift, was accepted. The other three appeals for the remaining assessment years, i.e., 1967-68, 1968-69 and 1969-70, came up for hearing before another Appellate Assistant Commissioner. He took a contrary view and held that the receipts relating to these three years were taxable. The revenue preferred an appeal against the judgment of the Appellate Assistant Commissioner in respect of the assessment year 1966-67, while the assessee went in appeal for the remaining three years, viz., 1967-68, 1968-69 and 1969-70. All the four appeals were decided by a common judgment by the Income-tax Appellate Tribunal on August 23, 1973, and the appeal filed by the revenue was allowed whereas those preferred by the assessee were dismissed. While deciding these appeals, the Tribunal gave two findings against the assessee. The first was that these import entitlements were directly relatable to the assessee's trading activities ; hence the sale receipts of the import entitlements were in the nature of supplementary trading receipts and thus were taxable. The second finding given was that the import entitlement was a benefit within the meaning of Section 28(iv), which had been converted into money and, therefore, the amounts received by the assessee were chargeable to income-tax under the head " Profits and gains of business".
(3.) CONSEQUENT upon the decision of the Income-tax Appellate Tribunal, the assessee filed four applications under Section 256(1) of the Income-tax Act requiring the Tribunal to draw up a statement of the case and to refer the questions of law to the High Court for its opinion. As the questions involved in the four cases were identical in nature, having arisen out of the consolidated order of the Tribunal dated August 23, 1973, the Tribunal drew up a consolidated statement of the case and referred the following two questions for the opinion of this court : " 1. Whether, on the facts and in the circumstances of the case, the sums of Rs. 64,743, Rs. 61,162, Rs. 60,036 and Rs. 15,826, being the sale proceeds of the import entitlements granted by the Government of India to the assessee against exports and sold by the assessee to other persons during the accounting years relevant to the assessment years 1966-67, 1967-68, 1968-69 and 1969-70, respectively, were capital receipts? 2. If the answer to question No. 1 is in the negative, whether the said sums were taxable in the hands of the assessee either as profits and gains of business or as benefit under Section 28(iv) of the Income-tax Act, 1961 ?" For the sake of convenience, we propose to take up question No. 2 first. As indicated above, the assessee exported aluminium chains under the Special Export Promotion Scheme for Engineering Goods in the assessment years in question. The scheme was formulated by the Government of India under Section 3 of the Imports and Exports (Control) Act, 1947. Under Section 3 of the aforesaid Act, the Central Government is entitled to make an order controlling import and export. It appears that in exercise of the powers under Section 3, the Special Export Promotion. Scheme for Engineering Goods had been formulated by the Government of India. Under paragraph. 5 of this scheme the benefits which may be granted to a registered exporter have been enumerated. The benefits consist of (a) Import entitlements : Against exports of the products mentioned in annexure V, a registered exporter will be entitled to import entitlements as indicated in the same annexure......... Under paragraph 7, import entitlement may be used for the import of the materials or sold to any manufacturer who manufactures products covered by the scheme and who directly exports a part of his product or sells a part of his product for export. ;