O K INDUSTRIES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The question for consideration is whether the sale proceeds of import entitlement constituted income chargeable to income tax under S.28 of the Income Tax Act, 1961 (the "Act"). By the impugned order Ext. P3 dated 30-3-1982, the Commissioner of Income Tax held that a sum of Rs. 2,37,283/- received by the petitioner during the period relevant to the assessment year 1973-74 was income chargeable to tax under S.28 of the Act.

(2.) The petitioner is an exporter of sea foods. On the basis of the foreign exchange earned through export, the petitioner was granted by the Government the right to import a certain quantity of goods. This right is called the import - entitlement. Instead of importing goods under the import entitlement, the petitioner sold the entitlement for the above mentioned sum. The contention of the petitioner is that this sum, representing the sale proceeds of the import entitlement, which is in the nature of a right conferred by the Government under the relevant scheme, constituted capital asset within the meaning of S.2(14) and is, therefore, not a trade or income receipt which can be brought to tax under the head "profits and gains of business or profession", as it is sought to be done by the impugned order.

(3.) Appearing for the petitioner, Shri. C. K. Viswanatha Iyer contends: The petitioner has not carried on the business of import of goods. It is solely an exporter of goods. By virtue of its contribution towards export trade, the Government have conferred upon it a certain right which entitled it either to import goods from foreign countries or to sell the entitlement for a price. What is realised as the price of the entitlement represented not the price of goods, which the petitioner did not import, or amounts realised in the course of business of import which the petitioner did not conduct, but the price of a right which the petitioner did not avail of, but sold to others. The amount thus represented the value of an asset. It is in the nature of a capital receipt or represented capital asset, and is, therefore, not liable to be taxed under S.28 of the Act. Nor is it liable to be taxed under the head "capital gains" as the cost of the import entitlement is not capable of determination.