TMI Blog1997 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in these matters are 1962-63 and 1963-64. The assessee is a manufacturing company. In the relevant years of account, it made large profits. The assessee had, also exported groundnut oil which resulted in an apparent loss of Rs. 3.44 lakhs. However, for the exports made at a loss, the assessee was rewarded with import entitlements. It utilised the import entitlements in purchasing palm oil from foreign countries. The imported palm oil was consumed internally by the assessee for manufacturing other products. The particulars of the products manufactured by the assessee utilising palm oil have not been given in the order of the Tribunal. The contention of the assessee is that the oil which was purchased by the assessee from foreign countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2) Act is attracted only when the assessee's total income includes any profits or gains derived from export of any goods or merchandise out of India. The assessee has simply consumed some imported palm oil in manufacturing the products which were ultimately sold in the local market. On behalf of the assessee, it has been pointed out that had the assessee sold the import entitlement its income would have been profit from export. That may or may not be the position in law. We do not have to decide this point in the instant case. Here, the assessee has not sold anything which he has imported. He has imported palm oil which he has utilised in manufacturing other products. It may be that at a particular point of time, palm oil was selling in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it is taken to its logical conclusion it may be said that the goods which were originally exported by the assessee were manufactured in India, Therefore, profits made on export or even the import entitlements were derived from the manufacturing activity in India. This argument has to be rejected straightaway. On behalf of the assessee strong reliance has been placed on section 28(iiia), (iiib) and (iiic) of the Income-tax Act. We fail to see how any of these three clauses comes to the aid of the assessee in any manner. Clause (iiia) speaks of profits on sale of a licence granted under the Imports (Control) Order ; clause (iiib) speaks of cash assistance received or receivable by any person against exports ; and clause (iiic) speaks of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but a case of utilisation of import entitlement. Because of the exports made by the assessee, the assessee was rewarded with the import entitlements. The assessee utilised all the import entitlements for import of palm oil which was consumed by the assessee in manufacturing of its own products. The products were sold for profit. The profit in this case arose out of sale of goods. That is the proximate cause of making of the profit. At this juncture, we can refer to the decision of the Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325. In that case it was pointed out that the word "derived" is not a term of art. Its use in the definition demanded an inquiry into the genealogy of the product. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent-and rent is obviously derived from land there could be no arrears of rent and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from this series of facts. All that emerges is that as regards the interest, land rent and non-payment of rent stand together as causae sine quibus non. The source from which the interest is derived has not thereby been ascertained. The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the imm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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