1. The assessee is a registered firm carrying on business of manufacture of iron bars, aluminium chains and wires. It also exported aluminium chains to foreign countries. During the assessment years 1966-67, 1967-68, 1968-69 and 1969-70, of which the relevant previous years are the respective calendar years ending December 31, 1965, December 31, 1966, December 31, 1967, and December 31, 1968, the assessee exported aluminium chains under the Special Export Promotion Scheme for engineering goods formulated by the Government of India. One of the major benefits available under the scheme consisted of import entitlements against exports as specified in annexure "V" to the scheme. Under the scheme, an exporter was entitled cither to use the import entitlement himself in his own factory or to sell it to any other manufacturer who manufactured products covered by the scheme. Under the said scheme the assessee-firm exported aluminium chains, in lieu of which it was granted certain import entitlements. Those import entitlements were sold by the assessee to other manufacturers during the relevant years for the followingamounts:
2. This gave rise to the question before the Income-tax Officer as to whether the above receipts were taxable in the hands of the assessee. The Income-tax Officer held that these receipts accrued to the assessee as a result of business activities carried on by it. He observed that had the assessee not sold the import entitlements, it would have availed the same. He rejected the claim of the assessee that the receipts received were capital in nature and that the same were not liable to tax on the basis of trading receipts. In this view of the matter, the Income-tax Officer held that the amounts received in the aforesaid four years were liable to tax.
3. The assessee preferred four appeals to the Appellate Assistant Commissioner. The appeal for the assessment year 1966-67 was allowed on May 11, 1971, and the claim of the assessee that the amount of Rs. 64,743 received as the sale consideration of the import entitlements did not constitute a revenue receipt being of the nature of gift, was accepted. The other three appeals for the remaining assessment years, i.e., 1967-68, 1968-69 and 1969-70, came up for hearing before another Appellate Assistant Commissioner. He took a contrary view and held that the receipts relating to these three years were taxable.
4. The revenue preferred an appeal against the judgment of the Appellate Assistant Commissioner in respect of the assessment year 1966-67, while the assessee went in appeal for the remaining three years, viz., 1967-68, 1968-69 and 1969-70. All the four appeals were decided by a common judgment by the Income-tax Appellate Tribunal on August 23, 1973, and the appeal filed by the revenue was allowed whereas those preferred by the assessee were dismissed. While deciding these appeals, the Tribunal gave two findings against the assessee. The first was that these import entitlements were directly relatable to the assessee's trading activities ; hence the sale receipts of the import entitlements were in the nature of supplementary trading receipts and thus were taxable. The second finding given was that the import entitlement was a benefit within the meaning of Section 28(iv), which had been converted into money and, therefore, the amounts received by the assessee were chargeable to income-tax under the head " Profits and gains of business".
5. Consequent upon the decision of the Income-tax Appellate Tribunal, the assessee filed four applications under Section 256(1) of the Income-tax Act requiring the Tribunal to draw up a statement of the case and to refer the questions of law to the High Court for its opinion. As the questions involved in the four cases were identical in nature, having arisen out of the consolidated order of the Tribunal dated August 23, 1973, the Tribunal drew up a consolidated statement of the case and referred the following two questions for the opinion of this court :
" 1. Whether, on the facts and in the circumstances of the case, the sums of Rs. 64,743, Rs. 61,162, Rs. 60,036 and Rs. 15,826, being the sale proceeds of the import entitlements granted by the Government of India to the assessee against exports and sold by the assessee to other persons during the accounting years relevant to the assessment years 1966-67, 1967-68, 1968-69 and 1969-70, respectively, were capital receipts?
2. If the answer to question No. 1 is in the negative, whether the said sums were taxable in the hands of the assessee either as profits and gains of business or as benefit under Section 28(iv) of the Income-tax Act, 1961 ?"
6. For the sake of convenience, we propose to take up question No. 2 first. As indicated above, the assessee exported aluminium chains under the Special Export Promotion Scheme for Engineering Goods in the assessment years in question. The scheme was formulated by the Government of India under Section 3 of the Imports and Exports (Control) Act, 1947. Under Section 3 of the aforesaid Act, the Central Government is entitled to make an order controlling import and export. It appears that in exercise of the powers under Section 3, the Special Export Promotion. Scheme for Engineering Goods had been formulated by the Government of India. Under paragraph. 5 of this scheme the benefits which may be granted to a registered exporter have been enumerated. The benefits consist of
(a) Import entitlements : Against exports of the products mentioned in annexure V, a registered exporter will be entitled to import entitlements as indicated in the same annexure.........
Under paragraph 7, import entitlement may be used for the import of the materials or sold to any manufacturer who manufactures products covered by the scheme and who directly exports a part of his product or sells a part of his product for export.
7. A reading of the whole of the scheme as well as the provisions of the Imports and Exports (Control) Act, 1947, would indicate that an exporter is entitled to get the import entitlements admissible under the scheme as of right provided, of course, he satisfied its requirements. The question about the nature of this very scheme for engineering goods framed by the Government of India came up for consideration before the Supreme Court in Probhudas Morarjee Rajkotia v. Union of India, AIR 1966 SC 1044. The question relating to the nature of the licence or import entitlement, to which an exporter may be entitled again came up for consideration in Union of India v. Anglo Afghan Agencies, AIR 1968 SC 718. In both these cases, it was clearly ruled that where a person had acted upon representations made in the Special Export Promotion Scheme that import licences up to the value of the goods exported will be issued, his claim for import licence could not be arbitrarily rejected. These authorities assist us in understanding the nature of the import entitlement which is available to an exporter under the scheme formulated by the Government of India under Section 3 of the Imports and Exports (Control) Act, 1947. It would be found from these decisions that import entitlements have not been treated as merely either a bounty or gift.
9. It has, therefore, to be seen whether the entitlements received by the assessee under the Special Export Promotion Scheme were a benefit and, if so, did it arise from business of the assessee. The word "benefit" has not been defined in the Act. It is, therefore, permissible to resort to the dictionary meanings of this word. The same is "a natural advantage or profit, which includes monetary advantage or monetary profits". (See Black's Dictionary, 1951 edition). In the present case, the assessee exported aluminium chains to the foreign countries in accordance with the provisions of the scheme for import of engineering goods. As noted above, the assessee was a firm carrying on the business of manufacture of iron bars, aluminium chains and wires. It was in connection with this business that it exported aluminium chains and in lieu thereof obtained the import entitlements in the four assessment years. The assessee could either utilise the import entitlements for itself or sell the same in the market and obtain monetary benefits. In either event the assessee would have been entitled to benefits inasmuch as it was definitely an advantage or profit arising out of the business in which the assessee was engaged at the relevant time. By allowing the import entitlements the Government had allowed an additional facility to the assessee to give an import licence to another person if the assessee itself could not use it fully. This was a facility given for the purposes of avoiding and blocking heavy finances in import licence if the assessee itself could not afford to do it. In fact, the import entitlement by itself was a right. As a matter of fact, the position was almost similar in both the events, whether the assessee imported the goods for itself or allowed it to be used by another person to that end.
10. Sri K. B. Bhatnagar, counsel appearing for the assessee, however, contended that the nature of entitlement given by the Government to the assessee was bounty or gift. According to his submission, since the assessee had no hand in the framing of the scheme and the entitlement was not given for compensating any loss which it might have suffered, the same could not be treated to be a benefit within the meaning of that word used in Clause (iv) of Section 28 of the Income-tax Act. In this connection, the learned counsel also pointed out that the entitlement itself was unconnected with the trade of the assessee and in such an event it had to be treated as capital asset. Hence, its conversion later on into money by selling it in the market could be considered as capital receipt. The submission is not acceptable to us. A thing given is said to be bounty when it is bestowed with a view to give a favour, reward, premium or subsidy. In the instant case, the entitlement does not have the qualification of a bounty. The object of giving the entitlement was to enable the exporter to earn profits in the exports done by it. It is given to an exporter for carrying on a trade or business for the services rendered. It was not of a benevolent nature. Its giving was not dependent on the gracious and liberal attitude of the Government. An exporter is entitled under the Scheme to get it as of right if he qualifies himself to the same. On fulfilling the qualifications, an exporter could not be denied the entitlement. Accordingly, from its very nature, it is impossible to treat the entitlements as bounty or subsidy. The use of the word "entitlement" itself indicates that the person getting it gets a title and right and not a gift or a reward. We have already noticed the two cases of the Supreme Court where the nature of entitlement under the Scheme formulated by the Government of India under Section 3 of the Imports and Exports (Control) Act, 1947, was considered. These rulings lay down that after having exported goods up to the value of certain limit, an exporter is entitled to an import licence being issued to him, and that the same cannot be arbitrarily rejected. It is, therefore, not correct to say that the nature of the entitlement receipts was only a bounty.
11. For the purposes of attracting Clause (iv) of Section 28 of the Income-tax Act, it is necessary that the benefit should arise from business. It would be seen that the advantage of receiving the entitlement originated from and was intimately connected with the business which the assessee was doing. In case the assessee would not have exported the goods under the Special Exports Promotion Scheme to the extent of the value mentioned therein, it would not have obtained the entitlements. It is thus clear that the entitlements sprang up or came into being because of the business which the assessee was doing. The dictionary meaning of the word "arise" given in the Chamber's Twentieth Century Dictionary as originate, to come into being, leaves no room for doubt that income from import entitlements had actually arisen from the assessee's business.
12. It is not correct, as argued by the learned counsel for the assessee, that as the assessee was not doing the business of selling and purchasing entitlement, the provisions of Clause (iv) of Section 28 could not be pressed into service. As already pointed out, what is necessary for attracting Clause (iv) of Section 28 is that the benefit originates or grows out of the business done and if that aspect is proved, the aforesaid provision would apply.
13. In view of the above, we find that the sums received by the assessee were taxable in its hands as profits and gains of business as benefit under Section 28(iv) of the Income-tax Act, 1961.
14. Coming to the first question, we find it difficult to accept that the amounts received by the assessee in the assessment years 1966-67, 1967-68, 1968-69 and 1969-70 as sale proceeds of the import entitlements could be treated as capital receipts. As observed above, import entitlements were not granted to the assessee as a bounty. On the other hand, the assessee became entitled to get it as of right on the basis of exports made by it in terms of the Special Exports Promotion Scheme. The assessee's trading activity was not only confined to manufacturing of aluminium chains but also extended to exports. The assessee had been making these exports continuously from the year 1965-66 and in lieu of the exports it obtained import entitlements. These import entitlements were sold to other manufacturers. In our opinion, therefore, the sale proceeds of the import entitlements were in the nature of trading receipts, relatable to its trading activities. It is not correct, as urged by the learned counsel for the assessee, that as the income made from the sale proceeds of the entitlements did not recur off and on, therefore, the same could not be considered as trading receipt. An income receipt is not necessarily recurring nor a capital receipt necessarily single. A single receipt may be an item of income whereas an annual receipt recurring only in a number of years may be capital.. This is a question of fact. (See Divecha v. Commissioner of Income-tax [1963] 48 ITR (SC) 222 and Rustproof Metal Window Company Ltd. v. Inland Revenue Commissioners [1941] 29 TC 243; [1948] 16 1TR (Supp) 57 (CA).
15. It was also faintly suggested by the learned counsel for the assessee that as the amount received by the assessee was used to be shown in the capita] account, the same had to be treated as capital asset. The sub mission made has no substance. The name given by an assessee to an amount realised by him does not decide the nature of a receipt. The ques tion always is what is its real character and not what the party calls it.
We have already found above that the receipt was a trading receipt and not capital.
16. In the result, we answer question No. 1 in the negative, in favour of the department and against the assessee, and question No. 2 in the affirmative, against the assessee arid in favour of the department. The department will be entitled to get the costs, which we assess at Rs. 200.