TMI Blog1981 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ere foreseen by the assessee at the time of making exports and, therefore, were earned by the assessee in the ordinary course of its business is based upon any material or evidence and is perverse ?" The assessment years involved are 1965-66 and 1966-67 for which the relevant accounting years are the calendar years 1964 and 1965, respectively. The assessee is a limited company which is engaged in the business of aluminium goods which are exported by the assessee. During the course of its business of export of aluminium goods and by virtue of the Special Export Promotion Scheme for engineering goods made out by the Govt. of India, Ministry of Commerce Industry, Department of International Trade, the assessee was entitled to get import entitlements. In view of the fact that a good deal of arguments were advanced on the nature of the right under the import entitlements it would be necessary to refer to some of the provisions of the Scheme under which the assessee was so entitled. As we have mentioned before the said Scheme is an Export Promotion Scheme for engineering goods and it applied to the exports of Indian goods other than " rolled steel " which had not undergone any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut it deals in detail with the same. Clause 7 deals with the use of import entitlements. It is relevant to refer to the provisions of the said clause which are as follows : " 7. 1. The import entitlement may be used for the import of the materials as mentioned in annexure VII and subject to the conditions, if any, mentioned therein import entitlement for machinery or machine parts, etc., may be accumulated for a maximum period of two years and up to a maximum value of Rs. 10 lakhs. The procedure to be followed for the import of machinery, etc., is given in annexure VIII. If any raw materials, components or consumable stores not mentioned in annexure VII are sought to be imported by an exporter, the matter may be referred by the Council to the Department of Technical Development for a decision. For this purpose, the Council should furnish a report whether such materials, etc., are actually required in the manufacture of the export products covered by the Scheme. Similarly, any request made by an exporter for the import of machinery or machine parts, etc., in excess of the prescribed entitlement should be forwarded by the Council with its recommendations, to the Department of Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of the said Export Promotion Council. The ITO, therefore, was of the view that such entitlements were sold by the assessee by way of business expediency and, therefore, the said entitlements were circulating capital or trading assets of the assessee and the surplus resulting from their sale was income of revenue nature liable to tax. He, therefore, brought the said sale proceeds to tax, because, in his opinion, the sales were effected in the ordinary course of the assessee's business and after allowing deductions of Rs. 7,65,087 and Rs. 9,17,928 in the respective two years under consideration, the ITO brought to tax the net amounts of Rs. 25,26,093 and Rs. 12,08,304 in the assessment years 1965-66 and 1966-67. The assessee went up in appeal before the AAC and various arguments were advanced on behalf of the assessee. The AAC, however, agreed with the order by which the ITO confirmed the said assessment order. In view of the questions raised and in view of some of the arguments pressed it would be necessary to refer to certain portions of the order of the Tribunal. Dealing with the decision of the Patna High Court in the case of Bisheswar Singh [1955] 27 ITR 376 to which our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture and export of aluminium goods in the usual course and, therefore, it is assessable income, and not a capital receipt. This view finds support from the judgment of the Hon'ble Calcutta, High Court in the case of United Bank of India Ltd. [1963] 50 ITR 258. The Hon'ble Supreme Court of India in the case of Sardar Indra Singh Sons Ltd. [1953] 24 ITR 415, had also occasion to consider this proposition. It was held by the Hon'ble Supreme Court of India that the question in such cases was whether the sales which produced a surplus were so connected with the, carrying on of the assessee's business that it could fairly be said that the surplus was the profits and gains of such business. It was not necessary that the surplus should have resulted from such course of dealing in securities as by itself would amount to the carrying on of a business of buying and selling securities. It would be enough if such sales were effected in the usual course of carrying on business or if the realisation of securities was a normal step in carrying on the assessee's business. " Out of the aforesaid order of the Tribunal refusing to refer the question of law, the assessee came up before this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the High Court of Madras held that the expenditure was not of capital nature and the assessee was entitled to deduct, the amount claimed as business expenditure. On appeal to the Supreme Court, it was held by majority judges (S.K. Das J. dissenting), that the amount of Rs. 6,111 paid by the assessee was an amount paid to obtain an enduring asset in the shape of an exclusive right to fish; the payment was not related to the chanks which it might or might not bring to the surface; it was not an amount spent in acquiring its stock-in-trade but for acquiring an asset from which it may collect its stock-in-trade. It was, therefore, an expenditure of a capital nature, and though it was incurred for the purposes of the assessee's business, it was not allowable under s. 10(2)(xv) of the Indian I.T. Act, 1922. Learned advocate for the assessee emphasised that the very right which the Supreme Court considered to be the right of the assessee, therefore, ceased on the transactions. It was emphasised that it was the nature of the right and the relation inter se which were vital. Therefore, the nature of the right acquired and the user of the same and the relation inter se should be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said decision would also be applicable to the facts of this case. In the very same volume, there is another decision of the Madras High Court which had to examine some aspects involved, to which our attention was drawn, i.e., the Full Bench decision of the Madras High Court, in the case of Addl. CIT v. K. S. Sheik Mohideen [1978] 115 ITR 243. There, the assessee had made remittances under the National Defence Remittance Scheme and such remittance earned import entitlements which were sold by the assessee resulting in a profit which was assessed to capital gains tax by the officer. The Tribunal, however, held that there was no capital gains liable to be taxed. On a reference, the Madras High Court held that the Tribunal was right in holding that there would be no liability to capital gains tax on the sale of import entitlement certificates as, in order that there might be capital gains, there must be cost of acquisition in terms of money which was absent in the case of import entitlements or of goodwill. We are, however, not concerned really with this controversy, viz., whether an asset which had not cost the assessee anything could create, on transfer, either capital or revenue re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is understood in judging capital assets. Therefore, in parting with such a right the assessee was parting with a capital asset. We are, however, unable to accept this contention, because as we have said the right was acquired in the very course of dealing as an exporter. The nature of the right flowed from the capacity as a dealer in export. The acquisition of the right under the scheme itself envisaged the right to import goods as well as the right to part with the same and dealing with that, either by using or transferring the same, would only be dealing with a trading asset in the capacity of an owner of a business and the consequences of the same will follow. Though it might not be said there was any intention to deal with it, this flowed directly in the course of his business dealing and part of the carrying on of its business as an exporter. Our attention was also drawn to the decision of the Supreme Court in the case of Pingle Industries Ltd. v. CIT [1960] 40 ITR 67. There, the Supreme Court was dealing, in our opinion, with entirely a different set of facts. There, the assessee which carried on, inter alia, the business of selling Shahabad flag stones, obtained from a jag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular period through banking channels by persons who were Indian nationals, the assessee was given an import licence for his having effected foreign exchange remittance. By transferring the same to a third party, the assessee got sum of Rs. 67,125 and this was assessed by the officer as capital gains. The Tribunal, however, held that, no capital gain was involved in the transfer of the licence, as it did not cost anything to the assessee in: terms of money in its creation or acquisition, as the import entitlement was acquired by the assessee on the basis of foreign exchange remittance. On reference, the High Court held that, generally, only if an asset had cost something in terms of money for its acquisition, the provisions relating to capital gains tax would apply and this principle was not restricted only to cases of transfer of capital assets like goodwill, copyright, trademark, etc., which were created by personal efforts, and, as in the instant case, the acquisition of the import licence did not involve any cost to the assessee, no question of any liability to capital gains would arise on its transfer. As mentioned hereinbefore, we are, however, not concerned with this controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether the right to get import entitlement and the amount received by sale of such entitlement really derived from the carrying on of the business of the assessee of export. We are of the opinion that looked at from that point of view it was so derived. The case upon which the Tribunal had relied mainly is the decision of the Patna High Court in the case of Bisheshwar Singh v. CIT [1955] 27 ITR 376. There cl. (vii) of s. 4(3) of the Indian I.T. Act, 1922, which provided, that " any receipt not being a receipt arising from business which is of casual and non-recurring nature shall not be included in the total income of the person receiving them ", implied that any casual receipt from trade or from an adventure in the nature of trade should be regarded as income and assessable to tax. The assessee was appointed as a grain stockist on March 1, 1947. He carried on the grain business till December, 1947. The account books maintained for the business was for the period from March to December, 1947. The assessee had obtained on March 12, 1947, two permits for molasses for 1,400, and 4,000 maunds. The officer estimated the profits of the assessee from the sale of these permits and inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect to state that there is no factual evidence to state that the assessee had exported the goods at least initially with the intention of re-selling the rights acquired by such export of the goods, specially when the assessee was not a dealer in those rights. But having regard to the nature of the rights granted by the scheme and having taken part in the scheme after knowledge of those rights, if a fact-finding body on the probability of the situation comes to a conclusion that there was an intention, it could perhaps not be said to be perverse. But, we need not really, however, deal with this aspect of the matter. Because, this question is not really important in deciding, whether, it was an adventure in the nature of a trade. The question before us, in our opinion, can be looked at, apart from being an adventure in the nature of a trade, as being a right and whether it was really a right flowing from the business of the assessee. If looked at from this point of view, then perhaps it is necessary to embark upon whether this finding of the Tribunal was perverse. Such right was derived directly from the carrying on of the business and the nature of the dealing of such right was suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble of being used as such, then its being let out to others did not result in an income which was the income of the business; but it could not be said that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset was the profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. He was entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting out to somebody else. Learned advocate for the assessee was emphasising that there was no question of temporarily allowing a use of the entitlement but there was transfer of title in the instant case before us. That is true. But in the view we have taken that is not the decisive matter. In the case of Sardar Indra Singh Sons Ltd. v. CIT [1953] 24 ITR 415 (SC), the assessee was incorporated with the objects, inter alia, of carrying on the business of bankers, financiers, managing agents and secretaries. The assessee was em ..... X X X X Extracts X X X X X X X X Extracts X X X X
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