Case: Eastern Chemical and Minerals Vs. Commissioner of Income Tax

(c) or both, during the previous year, amount, in the aggregate, to 50 per cent or more of the aggregate amount of the sale proceeds and all other gross receipts of the business during the previous year credited to the profit and loss account of the company." 4. The assessee had, by a letter dated 26th March, 1969, written by the Government of India, Ministry of Commerce, been granted permission to export for the purpose of a barter deal, ferro-silicon manufactured by the Mysore Iron and Steel Works, Bhadravati, upto a value of Rs. 52 lacs (f.o.b.). Against this value the assessee was permitted to import pesticides as therein enumerated of a total value that did not exceed Rs. 22 lacs. The assessee was informed that the import licences that would be issued in this regard could be endorsed in favour of actual users on the list of the Director General, Technical Development. 5. The assessee claimed that it was entitled to the exemption from the levy of additional income-tax under Section 104(1) read with the said notification. For this purpose, it relied upon the income derived from the exports that it had made as also upon the consideration that it had realised for the assignment of the import licences obtained pursuant to such exports. The Income Tax Officer rejected the assessees contention. The Commissioner of Income Tax (Appeals) accepted it, as also did not Income Tax Appellate Tribunal. The Tribunal noted that it was common ground that if the realisation from the transfer of the assessees import licences were considered as sale proceeds derived from exports, they would constitute more than 50% of the aggregate amount of the gross receipts credited to the profit and loss account for all the assessment years. It was the contention of the Revenue that the import licence realisation could not be treated as such sale proceeds. The Tribunal relied upon a judgment of the Madras High Court in Commissioner of Income Tax Madras-I v. Wheel and Rim Company of India Limited, 107 ITR 168 and held that, having regard to the integrated nature of the scheme, the import licence realisation by the assessee would constitute sale proceeds derived by it from exports within the meaning of the said notification. 6. Arising out of the judgment and order of the Tribunal, the questions quoted above were referred to the High Court. The High Court found, rightly, that the judgment in the earlier case referred to above was distinguishable on facts. In analysed the said notification and held that an assessee would get its benefit only after it exported goods out of India and received the sale proceeds of the exports in India. The receipts from the transfer of import licences by the assessee to actual users in India did not fall within the meaning of the said notification. Admittedly, the import licences had been sold by the assessee in India and the sale proceeds thereof had been realised in India. The profit realised on such sales could not be considered as a part of export sale proceeds. Accordingly, the High Court reversed the Tribunals conclusion. 7. What is involved in this appeal is the construction of the said notification and, particularly, the proviso thereof. The notification exempts every Indian company from the operation of Section 104 in respect of the previous year relevant to the assessment year commencing on 1st April, 1970 and in subsequent years, and we now quote only what are the relevant words thereof : "Provided that such Indian company in the course of its business exports any goods or merchandise out of India and the sale proceeds of the exports is received in or brought into India by the company or on its behalf in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947) and any rules and orders made thereunder, provided further that the sale proceeds derived by the company from the exports during the previous year amount, in the aggregate, to 50% or more of the aggregate amount of the sale proceeds and all other gross receipt of the business during the previous year credited to the profit and loss account of the company."8. For the purposes of determining whether the sale proceeds derived by an assessee from exports amount of 50% or more of its aggregate gross income what is to be taken into account are "the sale proceeds of the exports"; that is to say, the export "of any goods or merchandise out of India". Secondly, the sale proceeds of the exports have to be received in or brought into India in accordance with FERA. What is contemplated is the export of goods or merchandise out of India, such export to be paid for in India or abroad. If paid for abroad, such amount has to be brought into India in accordance with the provisions of FERA. Clearly, the consideration received by an assessee for assignment of import licences received pursuant to the exports cannot be taken into account for the purpose of determining whether the sale proceeds derived by the assessee from exports amount of 50% or more of its aggregate gross income.9. No doubt, the barter deal entitles the assessee to import licences. The assessee is further entitled to assign these import licences to actual users, but the consideration that it receives in regard to such assignment falls outside the scope of the two requirement of the said notification. It may be that, as argued by learned counsel for the assessee, the import licences are intended to compensate the assessee for any loss that it has incurred by reason of export at competitive international rates. Nonetheless, for the purposes of the said notification, the consideration received by the assessee upon assignment of such import licences does not fall within the requirements of the said notification as analysed above and cannot be taken into account in determining whether 50% or more of the assessees income is derived from the sale proceeds of exports.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The High Court found, rightly, that the judgment in the earlier case referred to above was distinguishable on facts. In analysed the said notification and held that an assessee would get its benefit only after it exported goods out of India and received the sale proceeds of the exports in India. The receipts from the transfer of import licences by the assessee to actual users in India did not fall within the meaning of the said notification. Admittedly, the import licences had been sold by the assessee in India and the sale proceeds thereof had been realised in India. The profit realised on such sales could not be considered as a part of export sale proceeds. Accordingly, the High Court reversed the Tribunals conclusion.8. For the purposes of determining whether the sale proceeds derived by an assessee from exports amount of 50% or more of its aggregate gross income what is to be taken into account are "the sale proceeds of the exports"; that is to say, the export "of any goods or merchandise out of India". Secondly, the sale proceeds of the exports have to be received in or brought into India in accordance with FERA. What is contemplated is the export of goods or merchandise out of India, such export to be paid for in India or abroad. If paid for abroad, such amount has to be brought into India in accordance with the provisions of FERA. Clearly, the consideration received by an assessee for assignment of import licences received pursuant to the exports cannot be taken into account for the purpose of determining whether the sale proceeds derived by the assessee from exports amount of 50% or more of its aggregate gross income.9. No doubt, the barter deal entitles the assessee to import licences. The assessee is further entitled to assign these import licences to actual users, but the consideration that it receives in regard to such assignment falls outside the scope of the two requirement of the said notification. It may be that, as argued by learned counsel for the assessee, the import licences are intended to compensate the assessee for any loss that it has incurred by reason of export at competitive international rates. Nonetheless, for the purposes of the said notification, the consideration received by the assessee upon assignment of such import licences does not fall within the requirements of the said notification as analysed above and cannot be taken into account in determining whether 50% or more of the assessees income is derived from the sale proceeds of exports.