TMI Blog1995 (3) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... e business. It was also pointed out that the assessee did not deal in export licences and it was no part of its business to purchase and sell or in any manner deal in export licences. According to the assessee the export licence was an intangible asset of capital nature. 3. The Assessing Officer did not accept the assessee's contentions. He was of the view that the export entitlement was received in the course of the assessee's regular business and therefore, the sale proceeds represented trading receipts and consequently a part of the assessee's income. He also relied on the provisions of section 28(iiia) inserted by the Finance Act, 1990 with retrospective effect from 1-4-1962. He, therefore, brought the sum of Rs. 7,25,854 to tax as income from business. 4. The assessee's appeal to the CIT(A) on this point was rejected substantially on the same grounds as were taken by the assessing authority. 5. In ground No. 2 before us, the assessee challenges the view of the departmental authorities on this point. The learned counsel for the assessee submitted that section 28(iiia) is not applicable to the facts of the case since that section referred only to profits on sale of a licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful consideration of the facts of the case, the various authorities cited by both the sides and their contentions, we are of the view that the assessee is entitled to succeed on this point. It is common ground that the assessee's business is not that of dealing in export licences. Therefore, the export licence obtained by it cannot constitute stock-in-trade in its hands. On the other hand, from the relevant provisions of the Exports (Control) Order, 1977 issued on 24-3-1977 by the Ministry of Commerce, we find that as per Rule 3 no person shall export any goods of the description specified in Schedule 1 to the order, except under and in accordance with a licence granted by the Central Government or by an officer specified in Schedule 2. It is common ground that the garments fell under Schedule 1 and, therefore, it required a licence if an assessee wanted to export them. In the case of a person engaged in the business of export of garments such as the assessee, the garments constitute the stock-in-trade, but the export licence without which the garments cannot be exported, constitutes a capital asset. The judgment of the Madras High Court in the case of Seshasayee Bros. Ltd. cited b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y public notice dated 15-10-1987, the licence can be transferred either fully or partly to another registered exporter of garments at any time up to 30th September of the relevant year subject to certain conditions. These conditions are not relevant for our purpose except that a transferee of the licence cannot himself transfer the licence to another exporter. This also indicates the intention of the Government of India to discourage the trading activity in licence. 9. In the case of Kettlewell Bullen Co. Ltd v. CIT [1964] 53 ITR 261, the Supreme Court observed as under at page 270 of the report : " Whether a particular receipt is capital or income from business, has frequently engaged the attention of the courts. It may be broadly stated that what is received for loss of capital is a capital receipt : what is received as profit in a trading transaction is taxable income. But the difficulty arises in ascertaining whether what is received in a given case is compensation for loss of a source of income, or profit in a trading transaction. Cases on the borderline give rise to vexing problems. The Act contains no real definition of income ; indeed it is a term not capable of a def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt must be considered as capital receipt. In the present case the assessee has obtained the licence for export of garments and the obtaining of the licence under the Export (Control) Order, 1977 is the condition precedent for the actual carrying on of the exports. Thus the export licence constitutes the profit-making apparatus of the assessee. It relates to the very frame-work or structure of the assessee's business. If that is sold, the source of income itself is destroyed and the compensation received in respect thereof must undoubtedly be considered as capital receipt. Only if the licence remains with the assessee, can it export the garments and carry on the business. But it is common ground, that there was no export by the assessee during the year. If there is no export at all, which means that there is no business during the year, then the primary condition for the application of section 28 of the Act would be absent and as held by the Supreme Court in the case of Prabhu Dayal, at pages 810 and 811, the section could not be made applicable where an assessee did not carry on business at all during the accounting period. 12. Thus, either way the matter is looked at, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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