2003 (4) TMI 78 - HC - Income Tax

(1) Whether Tribunal was right in law in holding that the sale proceeds of Rs. 7, 25, 854 received by the assessee on the sale of the export licence represented capital receipt and was exempt from income-tax? - (2) Whether Tribunal was right in law in holding that the provisions of section 28(iiia) were not applicable to the receipt of the aforesaid sum? - (3) If the answer to the above questions are in the affirmative whether the Tribunal was right in law in holding that the export licence had no cost of acquisition and the sale proceeds thereof were not liable to capital gains tax? - (4) Whether Tribunal was right in law in holding that the assessee was entitled to the deduction under section 80HHC in spite of the fact that the audit report in Form No. 10CC-AC required to be filed along with return of income under sub-section (4) of section 80HHC was filed only before the Tribunal?

Issues Involved:
1. Whether the sale proceeds of Rs. 7,25,854 received by the assessee on the sale of the export licence represented capital receipt and was exempt from income-tax.
2. Whether the provisions of section 28(iiia) were applicable to the receipt of the aforesaid sum.
3. Whether the export licence had no cost of acquisition and the sale proceeds thereof were not liable to capital gains tax.
4. Whether the assessee was entitled to the deduction under section 80HHC despite the audit report in Form No. 10CC-AC being filed only before the Tribunal.

Detailed Analysis:

Question No. 2:
Mr. Sumit Chakravarty, counsel for the Revenue, conceded that section 28(iiia) of the Income-tax Act, 1961, does not apply in this case. The receipt in question was from the transfer of an export licence under the Export Control Order, 1977, whereas section 28(iiia) pertains to the profit on sale of a licence under the Imports (Control) Order, 1955. Thus, the profit from the sale of the export licence cannot be taxed under section 28(iiia). This question is answered in the affirmative, against the Revenue, and in favor of the assessee.

Question No. 3:
This question pertains to the charging of the receipt under capital gains. Capital gains are computed under section 45 in conjunction with section 55. Until 1995, section 45 did not include the transfer of a capital asset in the form of a licence under the Export Control Order, 1977. Additionally, the cost of acquisition could not be determined under the existing computation methods, rendering the receipt non-taxable under capital gains. The court referenced CIT v. General Industrial Society Ltd. [2003] 262 ITR 1 (Cal) to support this conclusion. Therefore, this question is also answered in the affirmative, against the Revenue, and in favor of the assessee.

Question No. 1:
Mr. Chakravarty argued that the receipt from the transfer of the licence constitutes income under section 10(3) if it exceeds Rs. 5,000. However, Mr. R.K. Murarka, counsel for the assessee, contended that section 10(3) is not a charging section but an exemption provision for incomes of a casual or non-recurring nature. The licence qualifies as a capital asset under section 2(14), and the receipt from its transfer is a capital receipt, not income as defined in section 2(24). The court concluded that the receipt could not be charged under any other head if it could not be taxed under section 45 due to the unascertainable cost of acquisition. The court referenced several cases, including B.K. Roy Pvt. Ltd. v. CIT [1995] 211 ITR 500 (Cal), to support this view. Thus, this question is answered in the affirmative, against the Revenue, and in favor of the assessee.

Question No. 4:
The issue here is whether the deduction under section 80HHC can be claimed without submitting the audit report along with the return. The court examined sub-section (4) of section 80HHC, which mandates that the audit report must be filed to claim the deduction. However, the court distinguished between the mandatory nature of filing the report and the procedural requirement of submitting it with the return. Citing various judgments, including CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom) and CIT v. Punjab Financial Corporation [2002] 254 ITR 6 (P&H) [FB], the court held that the requirement to file the report along with the return is directory, not mandatory. Therefore, the deduction cannot be disallowed solely because the audit report was filed at the Tribunal stage. The court also referenced Murali Export House v. CIT [1999] 238 ITR 257 (Cal), which supports this interpretation. Consequently, this question is answered in the affirmative, in favor of the assessee.

Conclusion:
All questions are answered in the affirmative, against the Revenue, and in favor of the assessee. The reference is dismissed with no costs.

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