Nonsuch Tea Estates Ltd. vs Commissioner of Income Tax, Madras

Ramaswami, J.—The assessee is a public limited company and the assessment year involved is 1967-68, for which the previous year ended

on June 30, 1966. In completing the assessment the ITO brought to tax a sum of Rs. 2,65,520 as capital gains. The company held some foreign

securities whose cost was Rs. 3,84,147. The company sold them for a sum of Rs. 3,27,417. It appears that the funds were remitted to India

according to the scheme under the ""National Defence Remittance Scheme"" of the Govt. of india. By virtue of such remittances the assessee

became entitled to an import entitlement of Rs. 1,96,656. The company sold this import entitlement for a sum of Rs. 3,26, 132. The company had

incurred brokerage expenses of RS. 3,953. The net sale price, therefore, amounted to Rs. 3,22,179. From this, the ITO purported to deduct the

capital loss arising out of the sale of foreign securities to the extent of Rs. 56,659 and determine the capital gains of Rs. 2,65,520 and brought it to

tax. The AAC rejected the appeal confirming the order of the ITO. On a further appeal before the Tribunal, the assessee, relying on

COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., , contended that since there was no cost of acquisition in

respect of import entitlement, the realisation on the sale of import entitlement could not be brought to tax as capital gains under s. 45. On behalf of

the department it was contended that COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., related to a case of

goodwill and the principle laid down therein is not applicable to the case of a sale of import entitlement and that, even otherwise, there would have

been some cost of acquisition in getting the import entitlement. The Tribunal accepted the contention of the department and held that the import

entitlement is a tangible asset and the gains arising from the transfer thereof can be brought to tax under s. 45 of the ACt. But since there was no

finding as to the cost of acquisition the matter was remanded to the ITO to make a fresh assessment after giving a finding on the cost of acquisition

and in the light of the order of the Tribunal. At the instance of the revenue, the following question has been referred :

Whether, on the facts and in the circumstances of the case, the surplus on the sale of import entitlements are liable to be assessed as capital gains

for the assessment year 1967-6 ?

It has now been held by a Full Bench of this court in The Additional Commissioner of Income Tax, Madras Vs. K.S. Sheik Mohideen, that the

principle of COMMISSIONER OF Income Tax, MADRAS Vs. K. RATHNAM NADAR., is applicable to all cases where the cost of

acquisition in terms of money is nil and that, therefore, even in the case of import entitlement the sale proceeds could not be brought to capital

gains. This decision is, therefore, conclusive on the question whether the import entitlement is liable to capital gains. But what was contended by the

learned counsel for the revenue is that in that case it was not disputed that there was no cost of acquisition in getting the import entitlement, but in

the present case there is a contention by the revenue that the assessee had no incur certain cost for getting import entitlement and that, therefore,

the order of remand will have to be sustained. While holding that the Tribunal was not right in its view that the decision in COMMISSIONER OF

Income Tax, MADRAS Vs. K. RATHNAM NADAR., is to be restricted in its application only to goodwill and the ratio cannot be extended to

the case of import entitlement, we have to sustain the order of remand to the ITO in order to find out the value or cost of acquisition in terms of

money. The ITO, of course, will have to decide the question in the light of the decision in COMMISSIONER OF Income Tax, MADRAS Vs. K.

RATHNAM NADAR., and the subsequent decisions following the same, including the Full Bench decision of this court in The Additional

Commissioner of Income Tax, Madras Vs. K.S. Sheik Mohideen, . There will be an answer accordingly. The assessee will be entitled to his costs.

Counsel fee Rs. 500.