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TMI Blog1984 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ither use the same or sell it to others. The assessee sold such import entitlements and earned some profits. The total income of the assessee for the years in question included the sale proceeds of such import entitlements. The ITO allowed relief under s. 80HH of the Act in respect of the entire receipts inclusive of the sale proceeds of the import entitlements. The Commissioner in exercise of his power under s. 263 of the Act was of the opinion that the assessee was not entitled to the relief under s. 80HH in respect of the receipts from the sale of the import entitlements. He, accordingly, set aside the assessment and directed the ITO to re-do the assessment after excluding the proceeds of the sale of import entitlements. The assessee preferred appeals before the Appellate Tribunal with the contention that the import entitlements were secured in the course of the business in the industrial undertaking and the profits derived therefrom must, therefore, fall for relief under s. 80HH of the Act. The Tribunal did not accept that contention. While following the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, the Tribunal rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the obligation to pay 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 immediate and effective source is rent which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. There is no commercial connection between the interest and the rented land and effective source-not land-has become apparent ". It is apparent from the above observations that the Privy Council assigned a restricted meaning to the word " derived ". In the view of the Privy Council, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning as judicially determined unless the context apparently requires any other meaning. As we have earlier seen, the assessee has an industrial undertaking mainly for the purpose of exporting sea-food. In that business, the assessee has earned import entitlements under a scheme approved by the Government of India. The scheme was not as such connected with the export of sea-food. It was generally for encouraging exports. The assessee has sold those import and realised some profits. The question is, whether that profit could be said to have been derived from the industrial undertaking of the assessee ? Sri Prasad contended that the assessee is engaged in only one business, i.e., the business of processing and exporting of sea-food. The assessee secured import entitlements in the course of such business and not independent of it. The import entitlements thus form part of the business of export of sea-food. The profits derived therefrom are also commercially connected with the industrial undertaking. If there is a commercial connection between such profits and gains and the industrial undertaking, then such profits and gains must also fall for relief under s. 80HH. He further ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income-see s. 3(3) of the Act]. All taxable income must necessarily have a definite source (see the Law and Practice of Income Tax by Kanga and Palkhivala, p. 162). If that is the concept of the " source ", can we legitimately say that the profits and gains derived by the sale proceeds of the import entitlements must be held to have been derived from the industrial undertaking of the assessee. Far from it, the import entitlements were awarded by the Central Government under a scheme to encourage exports. The source referable to the profits and gains arising out of the sale proceeds of the import entitlements would, therefore, be the scheme of the Central Government and not the industrial undertaking of the assessee. Our view finds support from the decision of the Kerala High Court in Cochin Company v. CIT [1978] 114 ITR 822. Balakrishna Eradi (as he then was), speaking for the Bench, observed at page 830 thus : " The argument advanced on behalf of the assessee is that since the assessee had become eligible for the import entitlements only on account of its having exported goods out of India, the income derived by conversion of the import entitlements into money by a process o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee sold the import licence and made a profit of Rs. 4,00,000 odd and claimed rebate on the value of the export goods and on the value of the receipts from the sale proceeds of the import licence. The Madras High Court observed that the assessee was entitled to the relief since the receipt by way of the profits due to the sale of import entitlements are directly referable to the export of the cycle rims made by the assessee and, consequently, they can be said to be profits and gains derived from the export of cycle rims even on the basis of any theory of proximity. The Bombay High Court in Hindustan Lever's case [1980] 121 ITR 951, and the Madhya Pradesh High Court in Gwalior Rayon Silk's case [1983] 143 ITR 590, have dissented from the view taken by the Madras High Court in the above-said case. In our opinion, the decision of the Madras High Court proceeded not with the precise meaning of the word " derived " as judicially determined by the Privy Council in Kamakhaya Narayan Singh's case [1948] 16 ITR 325 (PC) and the Supreme Court in Cambay Electric Supply Industrial Co.'s case [1978] 113 ITR 84. In Metal Rolling Works Pvt. Ltd. v. CIT [1983] 142 ITR 170, the Bombay H ..... 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