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

The Division Bench answered in the negative and in favour of the Revenue the following questions"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that having regard to the Notification under Section 104(3) ofthe Income Tax Act, 1961 in S.O. No. 3210, dated 8.8.1969 issued by the Government the assessee was not liable to pay additional tax under section 104 ofthe Income Tax Act, 1961 for any of the assessment years from 1972-73 to 1974-75 ?2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amounts realised by the assessee from the transfer of its import licences constituted sales proceeds derived by it from its export within the meaning of the Notification S.O. No. 3210, dated 8.8.1969 and therefore the assessee would be entitled to enjoy the exemption from the operation of the provision of Section 104 ofthe Income Tax Act, 1961indicated in the questions, we are concerned with the Assessment Years 1972-73 to 1974-75.

Court's reasoning:
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.