Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 3,05,343, being the amount realised by the assessee by sale of import entitlements to M/s. Martin & Harris Pvt. Ltd. '
2. This reference relates to the assessment year 1966-67. In October, 1965, the Govt. of India promulgated what was called the 'National Defence Remittance Scheme' so that foreign exchange might become available for the country's defence and other essential requirements. Under the scheme, Indian Nationals (abroad) were allowed to remit money from foreign countries on and after October 26, 1965, by way of gifts, remittances for family maintenance, transfer of capital, etc. Neither the remitters nor the recipients were liable to income-tax on such amounts. It was also assured that the source of such remittances from abroad would not be questioned. And to add to all these, it was also provided that the recipient of the remittance or his nominee would, in such cases, be also given transferable import licence of the value of 60% of the rupee equivalent of such remittance. On December 31, 1965, the Govt. of India gave a clarification that the amounts received by the transfer of such import licence would be treated as a long-term capital gain. In December, 1965, the assessee obtained in India by way of remittance under this scheme a sum of Rs. 2,44,737 and thereby also secured an entitlement to import goods of the value of 60% thereof. Without, however, making use of the entitlement to import goods into this country, the assessee sold the same to M/s. Martin & Harris (P.) Ltd. for a sum of Rs. 3,05,343. In the assessment proceedings, the assessee claimed that 60% of the rupee value of the remittance from abroad was the cost of acquisition of the import entitlement and offered the excess of Rs. 1,58,589 of his sale realisation over that to be taxed as capital gain. The ITO held that the cost of acquisition was nil and hence brought to tax the entire amount realised by the sale of the entitlement. It is important to bear in mind this aspect that the ITO held that, in view of the nature of the asset, the cost of acquisition was nil.
3. There was an appeal before the AAC. He too rejected the assessee's contention that 60% of the amount remitted represented the cost of the import entitlement and concurred with the ITO that, as the assessee had not to spend anything at all for securing the entitlement, its cost of acquisition was nil and that everything realised by the assessee in the sale thereof was hence in the nature of profit to be assessed as long-term capital gain.
4. The assessee went up in appeal before the Tribunal. In the original grounds of appeal before the Tribunal, consistently with the case urged before the lower authorities, the assessee persisted only with his contention that his cost of acquisition in respect of the import entitlement was to be reckoned at 60% of the value of the remittance and not nil as taken by the authorities below. However, the assessee filed subsequently an additional ground of appeal urging that in the view taken by the lower authorities that the import licence did not cost anything to the assessee, the provisions of Section 45 of the I.T. Act, 1961, would not apply at all to the transfer of such a capital asset. The Tribunal allowed the additional ground to be raised, as it was a pure question of law to be decided on facts already on record and no investigation of fresh facts would be necessary for the purpose.
5. After referring to the various contentions of the parties and discussing the nature of the asset and the alternative contention of the assessee, the Tribunal expressed that view that the right obtained by the assessee under the import licence did not cost him anything and hence had no cost of acquisition attributable to it. The Tribunal referred to its certain earlier decision. And the Tribunal was of the view that it could not be contended that by receiving the foreign exchange brought to India its rupee value in full at the official rate, the assessee did not obtain what all he was legally entitled to receive for the same. The import licence too that was given then was in the nature of a gift upon which for that very reason had no cost of acquisition. It was not open or permissible, according to the Tribunal, to characterise this as anything of a grant made to cover the loss of the gains that the assessee or his remitter would have made, had they been allowed to smuggle the foreign exchange and sell the same in the so-called black market.
6. The Tribunal was further of the opinion that there was no dispute about the fact that this import licence so obtained by the assessee was none the less a capital asset and that going by the wording of the relevant section it was given a long-term capital asset. But then it was not as if whenever a transfer of capital asset, whether long-term or short-term, was effected for consideration, the transaction would, of necessity, give rise to capital gain or capital loss according to the Tribunal. Then the Tribunal, in this connection, referred to certain authorities of this court and other courts and then referred to the clarification in the Press Note of the Govt. of India, that any payment received in consideration of the transfer of such import entitlement would be treated as capital gains, which would be of little purpose in this case, as, it was not open to the executive authority to bring it to tax as capital gains if it was not taxable as such under the provisions of the I.T. Act. The Tribunal held that it did not cost anything to the assessee and as such the amount obtained by the assessee could not be taxed as capital gain.
7. Out of the aforesaid order of the Tribunal, the question as indicated above has been referred to this court.
8. We are in agreement with the Tribunal in so far as it held about the nature of the scheme and the right of entitlement to import goods into this country which the assessee had obtained. The assessee did not have to pay anything for the same nor suffer any depreciation or loss for obtaining the same. It was the right of import entitlement obtained by the assessee as an inducement or incentive under the scheme sponsored by the Government for bringing foreign exchange to this country. Therefore, this right, which the assessee obtained by bringing foreign exchange to this country, was the result of some reward or inducement not at the cost of the assessee's money nor the value of the assessee's asset which was brought to India in the legal sense of the term. The scheme, as we have set out hereinbefore, makes it quite clear that the entitlement was not offered or given to the assessee to compensate for any loss that the assessee suffered. But it was rather an inducement given to the assessee to bring foreign exchange for the purpose beneficial to this country. This kind of obtainment of a right or property by such a process cannot be said to cost the assessee anything nor was its cost capable of being estimated.
9. If that is the position, then in our opinion, by the well settled principle as laid down in the latest decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty : 128ITR294(SC) , where it has been held that the asset which did not cost the assessee anything nor was it capable of being estimated a cost could never be subjected to taxation under the scheme of capital gains tax under the I.T. Act, 1961, or the Indian I.T. Act, 1922.
10. In this connection, we may refer to some of the decisions, to which our attention was drawn, of this court in the case of CIT v. Anglo India Jute Mills Co. Ltd. : 129ITR352(Cal) , of the Madras High Court in the case of Non such Tea Estates Ltd. v. CIT : 129ITR28(Mad) , the latest decision of this court in the case of CIT v. Clive Mills Co. Ltd : 147ITR14(Mad) , where most of these cases have been discussed, the Full Bench decision of the Madras High Court in the case of Addl. CIT v. K. S. Sheik Mohideen : 115ITR243(Mad) , where this scheme was directly considered by the Full Bench of the Madras High Court and we are expressing the view which is in consonance with the view expressed by the Full Bench of the Madras High Court. Our attention was, however, drawn to the Division Bench decision of the Madras High Court in the case of K. Balasubramania Nair v. CIT : 119ITR504(Mad) , whore the Division Bench of the Madras High Court was concerned with a route permit which is different from the facts of the instant case. In any event, the Full Bench of the Madras High Court, as we have noted hereinbefore, has expressly dealt with the present scheme with which we are concerned. We may incidentally point out that the contrary view was expressed by the Division Bench of the Madras High Court in the case of S. Vaidyanathaswami v. CIT : 119ITR369(Mad) .
11. Our attention was also drawn to several other authorities to find out the well settled principle as enunciated by the Supreme Court, the Full Bench of the Madras High Court as well as of this court. It is not necessary, in our opinion, to discuss all those decisions in detail.
12. We may incidentally point out that all the authorities, viz., the ITO, the AAC and the Tribunal, unanimously held that the asset did not cost anything to the assessee. Further, learned advocate for the Revenue pointed out that it was because of the nature of the asset. Be that as it may, this finding of fact has not been challenged before us.
13. For the aforesaid reasons, we must answer the question in the affirmative and in favour of the assessee. In the facts and circumstances of the case, the parties will pay and bear their own costs.
Suhas Chandra Sen, J.
14. I agree.