1. This reference made at the instance of the assessee, poses this question :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,57,314 was the taxable income of the assessee ?'
The year of assessment concerned is 1964-65 for which the previous year ended on September 30, 1963. The Government of India had formulated a scheme known as the 'Special Export Promotion Scheme for Engineering Goods' effective from April 1, 1963. It gave registered exporters under the scheme the benefit of import entitlements on production of proof of export and/or receipt of payment therefor. The exporter under the scheme was competent to transfer or sell his import entitlement to other manufacturers. The assessee, as a supplier and erector or transmission line towers was registered under the scheme. It had disposed of its import entitlements during the year under consideration for the sum of Rs. 2,57,314. Before the ITO, the assessee contended that the said sum received on transfer of import entitlements was not taxable because it was a capital receipt. The ITO did not accept the contention. The assessee appealed and submitted before the AAC that the said sum should be treated as a causal receipt. The AAC turned down the contention. The assessee went up to the Tribunal and urged that the import entitlements received by it were fortuitous and non-recurring in nature. The business of the assessee was not to acquire and sell, import entitlements and, therefore, the sale of the import entitlements by the assessee was not a business transaction. The receipt of the said sum was of a casual and non-recurring nature which could not be taken into account in determining the taxable income of the assessee. The Tribunal held that the receipt of the said sum income was connected with the business of the assessee and constituted its income. It could not accept the assessee's submission that the receipt of the said sum was of a casual and non-recurring nature. At the instance of the assessee, this reference is made.
We find that the matter is concluded in favour of the Revenue by the judgment of this court that in Metal Rolling Works Pvt. Ltd v. CIT : 142ITR170(Bom) . The assessee was granted import entitlements under the Export Promotion Scheme and sold them. The assessee contended that the sale proceeds were capital receipts as it was not a dealer in import entitlements and, alternatively, that the receipts were exempt being of a casual and recurring nature.
The court held that the import entitlements were obtained by the non-assessed directly in the course of its business and the value of the same constituted the profits and gains of the business of the assessee. The amounts realised by the assessee by the sale of the import entitlements were profits of the assessee in its business and were neither capital receipts nor receipts of a causal and non-recurring nature. As such the same has to be assessed as the assessee's income from business.
Reliance was, however, placed by the learned counsel for the assessee on an earlier judgment of this court in CIT v. Modiram Laxmandas (P.) Ltd. : 142ITR702(Bom) . The court was called upon to consider whether where the business of the assessee-company was transferred by way of sale long with its good will and quota rights to obtain import licences to a firm, the profits relatable to the quota right and the import licences in the hands of the assessee-company arising from such transfer were assessable to tax under the head 'Capital gains'. The court held that there was in that case no cost of acquiring import licences and the transfer of such licences could not give rise to any capital gains.
It will be seen that judgment in the case of Metal Rolling Works Pvt. Ltd. : 142ITR170(Bom) , squarely covers the point before us. The decision in Modiram Laxmandas' case : 142ITR702(Bom) , is on a somewhat different point, viz., whether the transfer of the quota right to obtain import licences gives rise to capital gains.
In the result, we answer the question framed for our consideration in the affirmative, i.e., in favour of the Revenue.
The assessee shall pay to the Revenue the costs of the reference.