HINDUSTAN LEVER LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The assessment years involved 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 countries on the strength of theimport entitlement was at a rate much lower than the rate obtaining in the indian market for similar products. Since the assessee paid a lower price for the imported palm oil the assessee made a larger profit than what it would have made had it purchased palm oil locally at a higher rate. The assessee, therefore, would be entitled to benefit of Section 2 (5 (i) of Finance (No. 2 act, 1962, in respect of the amount of profit it made in excess of what it would have otherwise made if it had to buy palm oil locally.

(2.) The entire profit derived from the sale of goods made by the assessee arises out of sale of goods in India. No part of the assessee's income has not (sic) been derived from any export of its products. Section 2 (5 (i) of Finance (No. 2 Act is attracted only when the assessee's total income includes any profit 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 a foreign country at a rate much lower than the rate obtaining in the local market. But purchasing something at a rate cheaper than the local market rate does not result in any profit. Profit arises from sale of goods. The question in this case is whether the assessee's total income includes "any profits and gains derived from export of any goods or merchandise out of India". The total income has to be computed in accordance with the provisions of the Income Tax Act. The assessee's business income has to be computed in accordance with the provisions of Section 28 to Section 43-C of the Income Tax Act. It cannot be said that the total income of the assessee as computed by the Income Tax Officer comprised of any item which was profits and gains derived from export. The assessee's contention is that profits and gains made by sale of goods by the assessee were manufactured out of some imported raw material. It is incomprehensible how by mere utilisation of imported goods the assessee can be said to have derived profits and gains from the export of any goods on merchandise out of India.

(3.) The assessee in this case does not want to go to the genesis of the import of palm oil. The contention is that unless the assessee exported goods, it would not have obtained the import entitlements. The import entitlements were used to import palm oil. If cheap palm oil was not used, the assessee could not have made the quantum of profit that it did. There is an element of absurdity in this argument. If 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 was to be rejected straightaway.