Eastern Chemical And Minerals v. Commissioner Of Income Tax

EASTERN CHEMICAL AND MINERALS v. COMMISSIONER OF INCOME TAX MARCH 9, 1999 B (S.P, BHARUCHA, S.S. MOHAMMED QUADRI AND • R.C. LAHOTI, JJ.] - lncom_e_ Tax Act, 1961 : C S. 104, 104(3 )-!ncome-tax on undistributed income of com-panies-Exemption from-Notificatio11 No. S.O. 3210 dated 8.8.1969 granting exemption froni operation of s. 104 to companies exporting goods out of India and receiving sale proceeds i11 India or bringing it into India provided sale proceeds received from export amount to 50% of gross receipts of the business during previous yeat-Receipts from transfer of import licences-Held, do not D fall within the requiremel!ts of the Notification: ! -- The assessee was granted permission, for the purpose of a barter deal, to export ferro silicon and import pesticides and was allowed to endorse_ the 1mport licences in favour of actual users on the list of the E Director General, Technical. For assessment years 1972-73 to 1974-75, the assessee, rel>ing upon the income derived from the exports that it had made as also upon the consideration that it had realised for the assign· ment of the import licences, claimed exemption_from levy of additional _ income tax under s. 104(1) of the Income Tax Act, 1961 read llith Notifica· . lion No. S.O. 3210 dated 8.8.1969. The Notification exempted every Indian F Company from operation of s. 104 in respect of the previous year relevant ',to the assessment year commencing OU 1.4.1970 and in Subsequent years, . pr~,ided . that such company exported any goods \ -or merchandise out of . --- India and sale proceeds of the exports was received in or brought into .India by or on behalf of the company according to Foreign Exchange G [/ ]Regulation Act, 1947 and the said sale proceeds amounted to 50% or more ?f the company's i;r'oss receipts during the previous year. The Income Tax Officer rejected the claim. On appeal, the Commissioner of Income Tax (Appeals) a~ also the IncomeTax Appellate Tribunal did not accept the contention of Revenue that the realisation from assignment \ii import H licences could not be treated as sale proceeds derived from exports, and 948 upheld the the claim of the assessee. The reference made to the High Court A was answered in favf'ur of Revenue. Aggrieved, the assessee filed the present appeals. Dismissing the appeals, this Court HELD : 1.1. The consideration received by the assessee upon assign-ment of the import licences does not fall within the requirements of Notification No. S.O. 3210 dated 8.8.1969 and cannot be taken into account in determining whether 50% or more of the assessee's income is derived from the sale proceeds of exports. [954-E] 1.2. The Notification read with the proviso thereto makes it clear that for the purposes of determining whether the sale proceeds derived by an assessee from exports amount to 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 D India". Further, 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 considera-. E tion 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 ex-ports amount to 50% or more of its aggregate gross income. [954-A-C] Commissioner of Income Tax Madras-I v. Wheel and Rim Company F of India Limited, 107 ITR 168, distinguished. CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 526-28 of 1992. From the Judgment and Order dated 4.4.91 of the Madras High G Court in T.C. Nos. 632-634 of 1980. Dushyant A. Dave and V. Balachandran for the Appellant. (fet @fhoon te Pewee w saat ange A Se Prater wt ania oer # alg fdas Tél Oo ga a ag are 8 ae ere et Tare fe hetOl SET very fet S St MRA et Oe S Ura Te fe denn faces S ania se Ardea a Pea ore! weloy Mees 3 Sl, cei deepeatsit ot ut atte S due ar alas oe aT afer 8 oe dao AeneaFear war em! aftr sigue ar arf & foes after ar Sad veers wet Vy areir arfreore! wetoT ailereeAorg aepemat wre fares a wer + A fra faerar wen Sha a, dei, S ate wet ws fea Car aif ad wea eeer seat SYoTra eT& Pores Hd ry du wey S HT: asem Val eft get afta or fears dep feces a Pde Fa fae S tem @ A Ada Bean oTWea el Ver wre vit Peery Gea a wae ke aa fla war 81 ora: BAN Yea wa aE s Pe ukeore Set for Bonet St orgwig fafa dere ar Prenes far ct HA€ site Sxtere 60 at araRore Hiftae dees a Prenfea fog ort ot atte & srg arf, 1803 f ua A OTT ga eaW Wad By BF wey arte wares UW wea =vera err fay we fahrear ¥ aE oe a ua SRS Seem aot Wel15. Od Ha: Sl GAR Tq fey Ayaca oral anita B, aftenital GARG wT & und? fle a 21 veressa aa snr for wal ay wat Peed geq a Fa Ss Yor a sitet GIRS Ht 7S [2001] 2 wa fF & 156|ry“9rd, 1999 wTa-aX sfahaA, 1961(1961 G1 43) — at 104 — afeRad sax & vaneSe we — fant_Patt arr sand argetterat & wager & ferg sre afeteet aha 8 arn, 1969 at aifteprat ase Be @ salaria aja 8 qafears aor asa wet Heat galore Peart ar at 104d waht Pett et aNd WOR & atiey Hates At ARG 26 Ad, 1969 } wa ERT ag faa gS wars @ fay ARR oes Us eter aes, aaracit ane forts GR-fafteer H 52 are way (a we) SAToe Prata ot sre vert GT Ag] ge aoa HS Patch wr seat wats Gor Aer w, ul 22 ara wayO afte 7 el, WAGGAGT aad HRI St azar at wg eft! Patt wl ae qlee fora war an feSeas& vat F ysoifera at or wach 1 Peet + ae ara fear & fee ae arora He Gr ste 3210,NNT 8 SANG, 1969 H Ts TST MR 104(1)seit sfsRaa sra-aGS SaTET S WE IA HT Ha Barwa ereta fe wa [2001]2wefF > 81 STa-wy afore + Pate at zeit onedtore we A Sra-ax area (anita) & sd where Arar siteRar et ore-ae arte arftrareer 3 oft feral aiftrame ae wedte oar Re ae STAT ate or fe ateen, at wre Prateor asf o fore erm othe ef Sean A oer at as aenet wnfaett a par UH ar 50 wfeeraW after err Toned foarT at aie a ae alter at mE ot Aarrara orga(aysh) a sa wo AmeSFMT & oeA et AAT UT Cea| siftrareor & Poly ae ander S Sa MET Ger rararera wi Pafiee Raw.TESSeq are A vas aftaar eaten fier site as affair rar fe Paik at aes aTel wl Mata wet ser Pate wr fees ser aa A oer Her DS oeSt SAE HEI wa erwares HF atte wige Ht aE! ante GIRHee By, arfirraifea ag oremey « sera « fery fee wer Prete are Prater Seger Rawat Sree aeraWeb SA HT SO MIT A SAS ale e, Pats S fees ara, seri oa B sree Pret ag a afroae 4 art fy oie SF A oy Ut 1 Vt He Mt aqeaa fren was gE aT S TE AA WT aforeol Pata @, We Pete or aa or fase A Sara fear ara 81 ae fase A dare fea oar & ct tetWe fleet ger fares afittas & srdel & ager Fae A ong ort aioe! ersaen, Peet errPrat & sree A wre stared erqaferal & wages& ry ore far ear wees ae sere atwfeera ur Gene arftar i (oer 9)— OT SAS Ent WY Gages ae 4 ae fear rar &, war afar Hal artensit B oar BS arex 3of feet Wit aft & forg wire ot orate & oh gaa are waht aensty a ux Rata S aTFear sar uftre, oka fer ame facta fara wa 8, Sat oreBH artansit d siqvia aA ara faiteTS THIN PT wH fry feera A At fore ot Geren fos ear Praia at are cer so wera a weed aesPatt @ fora amr @ ura fora rar ai (fer 10)2.|| "atte [1977](1977) 107 srgdhe aS 168: ORO AGA, AMA ASte WSs Ra aiatt ane sar Pes (Rafter) siftranften=:1992 at ffter aniter 5226-28. | 1980 & stat ATEN We 632-634 4 Ase Ver wares BS aT4 ante, 1991ta atx ander anitenelt at six 8wast Guid Waa sie ae aera: sreaeft a sie @ fret OPora te Preven @ oreae see [SP Ea] adeCeue dea Geertotk deerme (fait wl TORI sk word faut w vat A sax fear :-—.|oo T.L.V. Iyer, T.C. Sharma and B.K. Brasad for the Respondent. (1999) 1 S.C.R. A . The Judgment of the Court was delivered by BHARUCHA, J. Under appeal is the decision of a Division Bench of the High Court at Madras. The Division Bench answered in tlie negative and in favour of the Revenue the following questions: B 1. "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) of the Income Tax Act, 1961 in S.O. No.3210. dated 8.8.1969 issued by the Government the asses-see was not liable to pay additional tax under section 104 of the C 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 D 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 opera-tion of the provision of Section 104 of the Income Tax Act. 1961 ?" As indicated in the questions, we are concerned with the Assessment Years 1972- 73 to 1974-75. To appreciate what is involved, it is necessary to set out, at the outset, the provisions of Section 104 of the Income Tax Act, 1961 so far as they are- relevant: "104. Income-tax on undistributed income of certain companies -(1) Subject to the provisions of this section and of sections 105, 106, 107 and 107A, where the Income-Tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately G following the expiry of that previous year are less than the statutory percentage of the distributable income of the company of that previous year, the Income Tax Officer shall make an order in writing that the company shali apart from the sum determined as payable by it on the basis of the assessment under Section 143 or H Section 144, be liable to pay income-tax at the rate of - EASTERN CHEMICAL AND MINERALS. v. C.I.T. [BHARUCHA, J.] 951 (a) fifty percent, in the case of an investment company; (b) thirty seven per cent, in the case of a trading company, and ( c) twenty five per cent, in the case of any other company. on the distributable income as -reduced by the amount of B dividends actually distributed, if any. (3) if the Central Government is of opinion that it is necessary or expedient in the public interest so to do, it may, may, by notification notification in the Official Gazette and subject to such conditions as may be specified therein, exempt any class of companies to which the provisions of this section apply from the operation of this section." "atte (fait 4. Fa Ae & weal sie seat TRaeat A anita afte ae aiawer A wet en fosWRORSPARTIAT at aa-cry arfelray, 1961 ot ERT 104(3)seit VIN Gt AY aN8 srr, 1969wT& Ce He Se 3210 HT CAT.A Ta By Pai 1972-73 8 1974-75 ae feet wt Pater a fery srea-ax APTA, 1961 St aT 104 H ach sifaRaat. Hr or dara Her H fey ae wt a? 2. FT Ae & seal gi saat wea a atte affreawr aes afaik eer F we en ant Geet stad afeierat a sar Ent Aer Hl WE Wai Gas st aka 8 srr,a SRT we-stk te 3210 BS Satria saw Pata S ore fey ay faswa sievs = site ora:Paid sra-any afaay, 1961 at a104 H wade SB yada W we uA aT SHeel”Sc 1969 2. Chatfs west FY suefita feat var 8, ware Wder Prafeor af 1972-73B 1974-754 BI a pe at sfadfera & Saar Aouad SA & fay, wea FH araafOPras, 1961aT ERT 104 ;|“404, fare Borat BH afar Ber Wy -G — (1) SAINI D Be INT 105, 106, 107 se107H H BadeH seas Ge t fs vet sra-q7e allont HaarBi wire s fe fet gd at~. apy orftreert faa wo A oreer eo fe ae HoT aT 143 AIR 144 GH atest Pakor GS ene WeSe ERI wares sana wer & sifted wt, face are sia we oki for ge aega: fadRa, ate ws)fae aiest at cer Agere wea; .(@) arnt wot at aan F Sate weed, sik (3) afe Sails Wa ah ae wa 8 fe Ven Gen cfte fed A arava a WA8, al gE WTA aTENT aie We Gat S onl we By, GN wetfee a ond, vA Haat s fret wt 4, ORI 104(3) SRI veel seat G1 WATT GRA BT ANSsrr, 1969al sfeRLAAT (He Gre SMe 3210)| |CPAURE, sax afer, 1961 (1961 aT 43) Ht ART 104Hl SAINT (3) ERI Wedaferal cr watt cea gy site fra Havers (rove sik Sh fear) wt ate 6 oP, 1967 Alario 4oe Ge Be 2007 HT BtSIARHee BY Fe WA SA Ww fe ole fea 4 Ven Gen srazawp ae® a awid & pete Wh ads oot a, al afdhaa at oer 109 # Es(ii) F sarakentee fara=arfadi & athe 1 atta, 1970 oT ores SM are Prakor a aie fret vearaadi ay STa YaF VaR mrefick afer [2001] 2 we Fp Wearedate 14d wad Sweats: :() oe & ater fret art a after an Pata att & ar:; ©ART & ae og wit dian od & a ae Var et & as 7) ART @ TX waite fet soa a when, dr a amt Pre wt Peet te,STIS, FT, Waa (Sega) YT YT a wRH MT, A MA Wa sift’ at veita Swate ern, aftifsrp a dete a, eqya a Prgon; BA aeftet wert wer aedt S aik ag (@) 4 Pie Pata & fama am a, wenfeefe; Ae (@) a (a) A fee aot|OER & feaeas we Mgyy eh ae ara Got ERI ai gaat site S fetRATaree afters, 1947 (1947 ot 7) aie ages way Ty fed Praafk oneal B agar AAo oho SaySsOo wy ae ok fe art ae yd at eke, ve (@) FARE Pale weea waa.einry site gaa ene ig (@) zr Ag-(a) a oat A Ae act oradS fare a will thet SG thet SG SG& at ar So weet a SE after eA SPpS ot ora will thet SG thet SG SG 5. PaiReh ot and GRR sp after area Yate 26 An, 1900 8 va Era ag PEF mito am Prife of organ wart ah ag] ga yea 4S Palfelt a oat waftia get yer ae Gt 22 ae weBTA+S var A pots at owe.— 6. Paid 7 ae car fara & fee ae wae aiftrepr a eer Usa RT 104(1) & arity aftRaa aire mieat wt great wr ar sovfeara B affes Fr ware four a aie a ae colts S aE oft Br arenaae aMRCARE Rear fe wa oh mph at ars A wed gy Pathe of arn aga Get) gad 1 ¢1977).307 ang > Bre 468.;eea . _ Ret SProca is Pon & omeay ora [RP weRT] -prefta $1 get var efter a7 Recor Roar aie ae aPPaiha fore fee Pelt otaa 8. 3a ante. F vad afteale vad Perera wget on selsas siadferd Vl ae4 aie, 1970 Hoe et ae Rak a8 O Geta od ad sik ceaeadi asi a ae 4 oer 104 GH wat “Eng Ue da water Veh areata Sot ary GRAN S ayer A Ra G ater foe Aret ar atforoayan Pata aed@ sik Pata & fama ona Pata Got eer a Saat six U facet yerafter, 1947 (1947.21 7) aie aes sary Ty feet Pree oAk oreet GH START F ANA A TTfey ae SAATode:=A| or expedient in the public interest so to do, it may, may, by notification notification c in the Official Gazette and subject to such conditions as may be specified therein, exempt any class of companies to which the provisions of this section apply from the operation of this section." A notification dated 8th August, 1969 (No.S.0.3210) was issued in exercise of the powers conferred by Seciion 104(3). It read thus : D "In exercise of the powers conferred by sub-section (3) of section 104 of the Income-Tax Act. 1961 (43of1961), and in partial modification of the Ministry of Finance (Department of Revenue and Insurance) Notification No. S.0.2007 dated the 6thJune.1967, E the Central Government, being of opinion that it is necessary and expedient in the public interest so to do, hereby exempts every Indian Company (not being an investment company as defined in clause (ii) of section 109 of the Act) from the operation of the said section 104, in respect of the previous year relevant to the assess-ment year commencing on the 1st day of April, 1970, and any F subsequent year : A notification dated 8th August, 1969 (No.S.0.3210) was issued in exercise of the powers conferred by Seciion 104(3). It read thus : Provided that such Indian company, in the course of its busi-ness. - (a) exports any goods or merchandise out of India; or (b) performs any constructional operations or renders any service outside India; or ( c) provides or makes available to any enterprise or institution, association, or other body established outside India, any technical H 952 SUPREME COURT REPORTS (1999] 1 S.C.R. A know-how being any patent, invention, model, design, secret for-- mula or process, or similar property right, or information concern-ing industrial, commercial or scientific knowledge, experience or skill, and the sale proceeds of the exports referred to in item (a) or, B as the case may be, the income accruing to the company from the activities of its business referred to in item (b) or ( c) is received in or brought into India by the company or on its behalf in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947), and any rules and orders made thereunder : c . . '· ProVIded further that the sale proceeds denved by the company· from the exports, if any. referred to in item (a) and the gross - ·receipts derived by it from the activities of its business referred to in item (b) or item ( c) or both, during the previous year, amount. in the aggregate, to 50 per cent or more of the aggregate amount D of the sale proceeds and all other gross receipts of the business during the previous year credited to the profit and loss account of the company." The assessee had, by a letter dated 26th March, 1969, written by the -E Government of India, Ministry of Commerce, been granted permission to export for the purpose of a barter deal, ferro-silicon manufactured by the Mysore Iron and Steel Works, Bhadravati, upto a value of Rs.52 lacs (f.o.b.). Against this value the assessee was permitted to import pesticides as therein enumerated of a total value that did not exceed Rs.22 lacs. The assessee was informed that the import licences that would be issued in this F regard could be endorsed in favour of actual users on the list of the Director General, Technical Development. aeaik fe oof exrcad of } che Paid 8 ge foes om a at & ches ohsaat an 4 or fara aera afk ORER Gt RI apa safeGS APT GT 50 Hire A ara Tot9. Ue 50 Tae Wfeeia HV aT VERY H yao site @, PrfaH fay fe + a fa arm,a Paid arr aeig Pata Nd 8 S qa ater fips foearrayeg a Sat after aSura fee aa Sar ae wa EIHe WM aged fon was Te aRG S Tea T afewMPratd & a Prater a are a faker 4H ears fever Gray BI ae Facer AF vere. fare Gira & at Te TTfeera 4 vet fra or wena fs oer Praffet ara Pate a aor fess omy Saat Ha BIT HI 50OferAt SUN sfzlogre| ;10. Preide ag fafra wie Pathe ot arara aigaftrat ot & fey SHIR GATT Bl FAH sera _ot sae are tS wae S ae A sre Pear Gra &, Tat aapaI sanaBF aa G TW el“ag ameet fay Para 4 et ferer on wear fee eer Pate at ona ar So wferera A GAT ale The assessee claimed that it was entitled to the exemption from the levy of additional income-tax under Section 104(1) read with the said notification. For this purpose, it relied upon the income derived from the G exports that it had made as also upon the consideration that it had realised for the assignment of the import licences obtained pursuant to such ex-ports. The Income Tax Officer rejected the assessee's contention. The Commissioner of Income Tax (Appeals) accepted it, as also did the Income Tax Appellate Tribunal. The Tribunal noted. that it was common ground H that if the realisation from the transfer of the assessee's import licences EASTERN CHEMICAL AND MINERALS. v. C.I.T. [BHARUCHA, J.] 953 were considered as sale proceeds derived from exports, they would con-stitute more than 50% of the aggregate amount of the gross ,,receipts credited, to the profit and loss account for all the assessment years. It was the contention of the P..evenue that the import licence realisation could not be treated as such sale proceeds. The Tribunal relied upon a judgment of the Madra~ High Court in Commissioner of lllcome Tax Madras-fv. Wheel and Rim Company of India Limited, (107 ITR 168) and held that, having regard to the integrated nature of the scheme, the import licence realisa-tion by the assessee would constitute sale proceeds derived by it from exports within the meaning of the said notification. Arising out of the judgment and order of the Tribunal, the questions C quoted above were referred to the High Court. The High Court found, rightly, that the judgment in the earlier case referred to above was distin-guishable on facts. It 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 D 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 Tribunal's conclusion. E What is involved in this appeal is the construction of the said notifica-tion and, particularly, the provisos thereof. The notification exempts every Indian company from the operation of Section 104 in respect of the previous year relevant to the assessment year commencing on Ist April, 1970 and in subsequent years, and we now quote only what are the relevant words thereof: "Provided that such Indian company in the course of its business . exports any goods or merchandise out of India and the sale proceeds of the exports is received in or brought into India by the company or on its behalf in accordance with the Foreign Exchange Regulation Act, 1947 (7 of 1947) and any rules and orders made thereunder; provided G further that the sale proceeds derived by the company from the exports during the previous year amount, in the aggregate, to 50% or more of the aggregate amount of the sale proceeds and all other gross receipts of the business during the previous year credited to the profit and loss account of the company." H SUPREME COURT REPORTS A For the purposes of determining whether the sale proceeds derived by an assessee from exports amount to 50% or more of its aggregate gross income what is to be taken into account are "'the sale proceeds of the expor~"; 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 B 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 considera-tion received· by an assessee for assignment of import licences received pursuant to the exports cannot be taken into account for the purpose of C determining whether the sale proceeds derived by the assessee frum ex-ports amount to 50% or more of its aggregate gross income. 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 D falls outside the scope of the two requirements of the said notification. It may be that, as argued by learned counsel for the assessee, the import licences arc intended to compwsate the assessee for any loss that it has incurred by reason of exp~rt at competitive international rates. Nonethe-less, for the purposes of the said notification, the consideration received E 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 assessee's income is derived from the sale proceeds of exports. We affirm the judgment of the High Court and dismiss the appeal F with costs. Appeals dismissed.