HINDUSTAN LEVER LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee -company before us is M/s. Hindustan Lever Ltd. and in the assessment years under consideration, viz., 1962 -63 and 1963 -64, the assessee -company effected exports out of India of various products manufactured by it during the previous year for a total price of Rs. 74,00,000 approximately. It claimed deduction out of income -tax and super -tax payable by it on the profits and gains claimed to have been derived by it from these exports under s. 2(5)(i) of the Finance (No. 2) Act, 1962. When the ITO called upon the assessee -company to establish that it had made profit on the export sales as required by the relevant provisions under which the claim for deduction out of the tax payable had been made, the company expressed its inability to establish the same on the ground that no separate accounts of the export sales had been maintained. It was accordingly urged on its behalf that under r. 2(3) of the Income -tax (Determination of Export Profits) Rules, 1962, which were applicable the profits on export sales was to be taken as a proportionate fraction of the profits and gains of the whole business of which such exports formed a part. On the quantum of profits in respect of which a deduction had been claimed, it was urged by the company that, in consideration of the company having exported its products, the Government had issued import entitlements on the strength of import licences to the company. It was pointed out that, on the strength of these licences, the company had imported large quantities of palm oil and other products at a rate cheaper than the rates prevailing in the home market. It was submitted that the savings so effected by it should be deemed to form a part of the profit derived by it from the export of goods. The contention, in other words, was that if the profit, both actual and notional, derived by the company was taken as part of the profit from such export of goods, the company would be found to have derived profit from such export of goods and it was thus qualified for the deduction of the prescribed amount of tax payable by it under s. 2(5)(i) of the Finance (No. 2) Act, 1962. In the alternative and without prejudice to these general submissions, it was finally contended that even if the earlier submissions were not accepted, the assessee was entitled to deduction in respect of profit made by it on the export of such goods, which fetched a price higher than its cost price. In other words, the submission was that it was not necessary to consider whether in totality the export had yielded any profit to the company and the company could claim the benefit of s. 2(5)(i) in respect of a part of the export which had in fact yielded profits expressly.

(2.) THE ITO rejected all the alternative stands of the assessee -company, but in his orders, which are annexs.'A' and 'B' to the statement of the case, we do not find much discussion.

(3.) THE Tribunal derived support from the view of the Kerala High Court in CIT v. Saraf Trading Corporation : [1968]69ITR62(Ker) , in which decision the Kerala High Court has dealt with the words 'derived profits and gains from the export of goods'. In its decision the Kerala High Court has considered the decision of the Privy Council in CIT v. Kamakhya Narayan Singh [1948] 16 ITR 325 and the observations of Isaacs A.C.J. in Federal Commissioner of Taxation v. Clarke [1927] 40 CLR 246. In its view the word 'derived' had a specific connotation which had been accepted and applied by courts of law and in that connotation the assessee's case was liable to be rejected.