George Maijo and Co. (Vizag) vs Commissioner of Income Tax

Ramanujam, J.—The assessee in this application u/s 256(2) of the Income Tax Act, 1961, seeks a direction from this court to the Tribunal

to refer the following three questions for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the premium received on the sale of import

entitlements is taxable u/s 28(iv) of the Income Tax Act ?

Whether the Tribunal was right in distinguishing the decision of the Supreme Court in Commissioner of Income Tax, Uttar Pradesh Vs. Madan

Gopal Radhey Lal, ?

Whether the Tribunal was right in holding that the premium received on the sale of import entitlements cannot be considered as a capital gain and

consequently not liable to tax in view of the decision of the Madras High Court in The Additional Commissioner of Income Tax, Madras Vs. K.S.

Sheik Mohideen, ?

The assessee is an exporter of fish and fish products. Based on the quantum of its exports, the assessee was given an import entitlement.

However, after the receipt of import entitlement, the assessee without actually importing the goods covered by the import entitlement, sold the

import licences and the sale proceeds came to Rs. 5,80,436.89. The Income Tax Officer included the said amount as part of the assessee''s

income treating it as a revenue or business receipt. This was challenged by the assessee before the Commissioner of Income Tax (Appeals)

contending that the sale proceeds of the import entitlement should be taken to be a capital receipt and not as a revenue receipt. This contention

was rejected by the Commissioner of Income Tax (Appeals) on the ground that the assessee got the import entitlement because of its exports

which is its regular business and in view of the close nexus between the exports and the import entitlement, the assessee should be taken to have

derived the said sum of Rs. 5,80,436.89 from out of its business. The matter was further taken to the Tribunal and the Tribunal, following the

decision of the Bombay High Court in Metal Rolling Works Pvt. Ltd. Vs. Commissioner of Income Tax, , held that the sale proceeds of the import

entitlement should be taken to be a revenue receipt and not as a capital receipt.

The contention put forward by the learned counsel for the assessee before us is that there is no decision of this court on the point in question

and, therefore, the question may be referred for having an authoritative ruling of this court. However, in view of the decision of the Bombay High

Court with which we respectfully agree, we are not in a position to say that the question sought to be referred is a referable one in the

circumstances of this case. It is not in dispute that the assessee in view of its export performance has got import entitlement. If the assessee had

exploited the import entitlement by actually importing the goods referred to in the import licences and sold the same, the sale proceeds cannot, in

any sense, be said to be a capital receipt. The fact that the assessee has chosen to exploit the import entitlement in a different manner other than

actual import will not make any change in the character of the receipt. The sale of import entitlement is one of the modes of exploiting the import

entitlement and, therefore, the exploitation of the import entitlement by sale of the import licence will, in our view, clearly be a revenue receipt and it

cannot be said to be a capital receipt as contended by the learned counsel for the assessee. This view of ours is quite in accord with the view taken

by the Bombay High Court in Metal Rolling Works Pvt. Ltd. Vs. Commissioner of Income Tax, . It is unnecessary to refer to the said decision in

detail and it is sufficient to refer to the following observations in that case which contains the reason for holding that the sale of import entitlement

must be regarded as the profits of the assessee in its business :

Now, in the present case, the facts found by the Tribunal clearly show and this is not disputed by either side that the import entitlements were

obtained by the assessee in the course of its business, so that the value of the same constituted profits and gains of the business of the assessee

within the meaning of the said term in clause (iv) of section 28 of the said Act. In these circumstances, it is impossible to regard these import

entitlements as capital asset of the assessee. It is equally clear that, in these circumstances, the amount realised by the assessee on the sale of these

import entitlements must also be regarded as profits of the assessee in its business.

In this view of the matter, we do not think we will be justified in directing a reference in this case. This petition is, therefore, rejected.