COMMISSIONER OF INCOME-TAX VS R. D. RAMNATH & CO, 2000 PTD-DELHI-HIGH-COURT-INDIA 2014 (1998)

(a) Income-tax---

----Income or capital---Profit on 'sale of material imported for business purposes is income---Indian Income Tax Act, 1961.

(b) Income-tax---

----Income---Business income---Cash compensatory support for exports duty drawback. and profit. on sale of import entitlements---Law applicable---Effect of amendment made by Finance Act, 1990---Cash compensatory support, duty drawback and profit on sale of import entitlements are assessable-- Indian Income Tax Act, 1961, S.28---Indian Finance Act, 1990.

The Finance Act, 1990, has inserted clause (iiib) in section 28 of the Act and sub-clause (vb) in section 2(24) of the Income Tax Act, 1961. These amendments have been given retrospective effect from April 1, 1967, the consequence whereof is that cash compensatory support received by the a9sessee for exports is to be treated as profits/gains of business and hence as income. Similarly, the Finance Act, 1990, has inserted clause (iiia) in section 28 and sub-clause (va) in section 2(24) of the Act, the consequence whereof is that profit on sale of import entitlements has to be treated as profits/gains of business liable to be included in the income of the assessee. The amendment has been given retrospective effect from April 1, 1962. The Finance Act, 1990, has inserted clause (iiic) of section 28 of the Income Tax Act, 1961, and sub-clause (vc) in section 2(24) of the Act. These amendments have been given retrospective effect from April 1, 1972, the effect whereof is that the amount of duty drawback is to be treated as profits/gains of business liable to be included in income:

Held, that the material on record showed that the goods imported were referable to the business activities of the assessee and hence profit on sale thereof would be liable to be taxed as income.

R.D. Jolly with Ms. Premlata Barisal for the Commissioner.

S.K. Aggarwal for the Assessee.

JUDGMENT

R. C. LAHOTI, J. ---For the assessment year 1981-82, the following questions of law have been referred at the instance of the Revenue by the Income-tax Appellate Tribunal for the opinion of the High Court:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that cash compensatory support received by the assessee is riot taxable as income?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in not holding that duty drawback (Rs.6,28,395); profit on sale of import entitlements (Rs.2,24,870) and profit on sale of imported material (Rs.11.477) are capital receipts not liable to tax? .

(3) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that bank commission (Rs.39,378); freight, octroi and insurance (Rs.9,09,148); packing expenses (Rs.8,93,675) and interest other than interest on pre-shipment credit is not eligible for weighted deduction under section 35-B of the Income Tax Act, 1961?"

So far as questions Nos. l and 2 are concerned, they are taken care of by an amendment in the law itself. The Finance Act, 1990, has inserted clause (iiib) in section 28 of the Act and sub-clause (vb) in section 2(24) of the Income Tax Act, 1961. These amendments have been given retrospective effect from April - 1, (967, the consequence whereof is that cash compensatory support received by the assessee is to be treated as profits/gains of business and hence as income.

Similarly, the Finance Act, 1990, has inserted clause (iiia) in section 28 and sub-clause (va) in section 2(24) of the Act, the consequence whereof is that profit on sale of import entitlements has to be treated as profits/gains of business liable to be included in the income of the assessee. The amendment has been given retrospective effect from April 1, 1962.

The Finance Act, 1990, has inserted clause (iiic) in section 28 of the Income Tax Act, 1961, and sub-clause (vc) in section 2(24) of the Act. These amendments have been given retrospective effect from April 1, 1972, the effect whereof is that the amount of duly drawback is to be treated as profits/gains of business liable to be included in income.

It is, therefore, clear that in view of the several amendments in the Income-tax Act referred to hereinabove, in so far as cash compensatory support received by the assessee (question No. l), duty drawback and profit on the sale of import entitlements (question No.2) are concerned, the same would be liable to be taxed as income.

So far as profit on sale of imported machinery (Rs.11,477) is concerned, the statement of case as also the order of the' Tribunal contain any details. However Income-tax (Appeals) shows his having observed had the goods imported resultant profits would have been assessed as business meaning thereby that the goods imported were referable to the business activities of the assessee and hence profit on sale thereof would obviously be liable to be taxed as income and cannot be treated as capital receipts.

So far as questions Nos.2 and 3 are concerned, these questions were referred at the instance of the assessee. Learned counsel for the assessee states that he has instructions not to press the reference on these questions and the same may be returned unanswered.

Accordingly question No. 1, referred at the instance of the Revenue, is answered in the negative, i.e., in favour of the Revenue and against the assessee. Questions Nos.2 and 3 are returned unanswered (sic).

M.B.A./4054/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered.