Case: Hindustan Lever Limited Vs. Commissioner of Income Tax

receivable by any person against exports; and (iii-c) speaks of duty of customs which is not the case here. This argument can be described in the language of Lord Greene, M.R. in the case of Henriksen v. Grafton Hotel Ltd. ((1942) 24 TC 453 (TC at p. 460) as an attempt to rescue the case from shipwreck. Unfortunately, as in that case before Lord Greene, M.R., the attempt has been futile 5. We were referred to a large number of cases. We shall refer to some of them 6. In the case of CIT v. Wheel & Rim Co. of India Ltd. (Mad)) the Madras High Court had to deal with the case of an assessee exporting goods abroad. The assessee obtained cash subsidy from the Engineering Export Promotion Council. It also obtained import entitlement licences which were sold by it. The Madras High Court held that these profits and gains arose out of the export sales and specially in view of the rules framed under the Act, the assessee was entitled to get relief 7. The Madras view was dissented from by the Kerala High Court in the case of Cochin Co. v. CIT ( 1978 (144) ITR 822 (Ker)). That was again a case of sale of import entitlement. The Kerala High Court was of the view that sale of import entitlement was not the same thing as export of goods. The Kerala High Court was of the view that the price received from sale of import entitlements could not be regarded as profits and gains derived from the export of goods 8. None of these two cases really is of any relevance in this case. The case before us is not a case of sale of import entitlement but a case of utilisation of import entitlement. Because of the exports made by the assessee, the assessee was rewarded with the import entitlements. The assessee utilised all the import entitlements for import of palm oil which was consumed by the assessee in manufacturing of its own products. The products were sold for profit. The profit in this case arose out of sale of goods. That is the proximate cause of making of the profit 9. At this juncture, we can refer to the decision of the Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh (PC)). In that case it was pointed out that the word "derived" is not a term of art. Its use in the definition demanded an inquiry into the genealogy of the product. But the Privy Council cautioned that the inquiry should stop as soon as the effective source is discovered. The question in that case was whether interest in respect of arrears of rent payable for land which was used for agricultural purposes would also be agricultural. The claim on behalf of the assessee was that since the rent was payable for agricultural land, the interest on delayed payment of such rent was also of agricultural character and was not taxable. It was explained by the Privy Council at p. 328"... Those who put it in this way say that such interest, when received, has its origin in the tenancy, because, if there had been no tenancy, there would have been no arrears of rent, and if there had been no arrears of rent, there would have been no statutory interest. Following this sequence of causes, they say that it is obvious that interest in circumstances such as these must be classified as "revenue derived from land ". The interest clearly is not rent. Rent is a technical conception, its leading characteristic being that it is a payment in money or in kind by one person to another in respect of the grant of a right to use land. Interest payable by statute on rent in arrears is not such a payment. It is not part of the rent, nor is it an accretion to it, though it is received in respect of it Equally clearly the interest on rent is revenue, but in their Lordships opinion it is not revenue derived from land. It is no doubt true that without the obligation to pay rent - and rent is obviously derived from land - there could be no arrears of rent and without arrears of rent there would be no interest. But the affirmative proposition that interest is derived from land does not emerge from the series of facts. All that emerges is that as regards the interest, land rent and non payment of rent stand together as causae sine quibus non. The source from which the interest is derived has not thereby been ascertained The word derived is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment." * 10. In the instant case, the immediate source of the profit is sale of goods. The export of other goods is not even the second degree but it has to be traced to an even more remote degree. The import was of palm oil. The import was possible because of earlier export of goods at loss. In the chain of sequence the earlier export would be four degrees away 11. The decision of the Privy Council in the case of Kamakhaya Narayan Singh case ((PC)) was cited with approval in the case of Bacha F. Guzdar v. CIT. It was held in that case by this Court, after referring to Kamakhaya Narayan Singh ((1948) 16 325 (PC)) that where a company deriving income from agriculture declared dividend, the dividend did not arise from any agricultural source and could not be claimed to be income derived from agricultural activity 12. There is no necessity for multiplying authorities

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

Explanation:
0[ds]10. In the instant case, the immediate source of the profit is sale of goods. The export of other goods is not even the second degree but it has to be traced to an even more remote degree. The import was of palm oil. The import was possible because of earlier export of goods at loss. In the chain of sequence the earlier export would be four degrees away