Kanta, J.:— This is a reference on a case stated under s. 256(1) of the I.T Act, 1961 (referred to herein as “the said Act”). The questions referred to us for our determination in this reference are as follows:

“(1) Whether, on the facts and in the circumstances of the case, the claim of the applicant that the receipts of Rs. 99,021 for the assessment year 1966-67 and Rs. 1,71,982 for the assessment year 1967-68, arising on account of sale of import entitlements, were:

(a) items of capital receipts or

(b) items of casual and non-recurring nature and hence exempt from income-tax under section 10(3) of the Income-tax Act, or

(c) an item of export profits or export sales eligible for rebate from income-tax under section 2(5)(a)(i) or 2(4)(a)(ii) of the Finance Act, 1966, or 1967, has been rightly rejected?

(2) Whether the sum of Rs. 99,021 for the assessment year 1966-67 and Rs. 1,71,982 for the assessment year 1967-68, have been rightly assessed as applicant's income from business?

(3) Whether, on the facts and in the circumstances, the applicant is entitled to appropriate relief on Rs. 99,021 for the assessment year 1966-67, under section 2(5)(a)(i) or (ii) of the Finance Act, 1966, and Rs. 1,71,982 for the assessment year 1967-68, under section 2(4)(a)(i) or (ii) of the Finance Act, 1967?”

2. The facts giving rise to the reference are as follows:

The assessee is a private limited company. The relevant assessment years are assessment years 1966-67 and 1967-68, respectively, for which the relevant accounting years are Samvat years 2021 and 2022 ending on October 24, 1965, and November 12, 1966, respectively. By reason of exports of aluminium circles manufactured by the assessee, the assessee secured import entitlements which, however, it sold for a total sum of Rs. 99,021 in the relevant previous year in respect of the assessment year 1966-67, and for a sum of Rs. 1,71,982 in the relevant previous year in respect of the assessment year 1967-68. The said amounts were received during the said respective previous years. These import entitlements were granted under the Export Promotion Scheme for Engineering Goods, 1964, enunciated by the Government of India which was in operation during the relevant period. It is not necessary to set out the details of that Scheme. It is enough to note that a person who secured import entitlements was entitled to use the same for the import of raw materials to be used in the exporter's own factory or factories or to sell the import entitlements to any other manufacturer who manufactured products covered by the Scheme and who directly exported a part of their products or who sold a part of their products for export. The assessee claimed before the ITO in the relevant assessment proceedings that the said amounts, namely, Rs. 99,021 and Rs. 1,71,982, were capital receipts as the assessee was not a dealer in import entitlements and alternatively contended that the said receipts were exempt from the levy of income-tax under s. 10(3) of the said Act as being of a casual and non-recurring nature. The assessee claimed that, in any event, the said amounts constituted export profit eligible for rebate of tax under the aforesaid section of the Finance Act, 1966, for the assessment year 1966-67, and the aforesaid section of the Finance Act, 1967, for the assessment year 1967-68. The ITO rejected all these contentions of the assessee and included the aforesaid amounts in the taxable income of the assessee. The appeal preferred by the assessee against these orders were dismissed by the AAC, who held that the sale of import licence at a consideration, was a part of the business of dealing in stainless steel and aluminium products. The assessee then preferred a second appeal to the Income-tax Appellate Tribunal. These appeals were also dismissed. The Tribunal held that the receipts of the said amount of Rs. 99,021 in the assessment year 1966-67, and of Rs. 1,71,982 in the assessment year 1967-68, were the income receipts and were not of a casual or non-recurring nature. The assessee's claim for rebate under the aforesaid sections of the respective Finance Acts was also rejected by the Tribunal. It is from this decision of the Tribunal that the aforesaid questions have been referred to us.

3. We propose to consider the first question as to whether the receipts of the aforesaid amounts can be considered to be capital receipts. In this connection, Mr. Mehta, learned counsel for the assessee, contended that the term “capital asset” has been defined in sub-s. (14) of s. 2 of the said Act and under that definition, the aforesaid import entitlements must be regarded as a capital asset of the assessee, as the assessee did not carry on business in import entitlements and hence they could not constitute its stock-in-trade. We find it difficult to accept this submission. What Mr. Mehta's argument overlooks is the provision of cl. (iv) of s. 28. The said clause read with the opening portion of s. 28 of the said Act reads as follows:

“Section 28 : The following income shall be chargeable to income-tax under the head ‘Profits and gains of business or profession’—

(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.”

4. Now, in the present case, the facts found by the Tribunal clearly show and this is not disputed by either side that the import entitlements were obtained by the assessee in the course of its business, so that the value of the same constituted profits and gains of the business of the assessee within the meaning of the said term in cl. (iv) of s. 28 of the said Act. In these circumstances, it is impossible to regard these import entitlements as capital asset of the assessee. It is equally clear that in these circumstances, the amount realised by the assessee on the sale of these import entitlements must also be regarded as profits of the assessee in its business. We may now. come to some of the cases which were shown to us. Mr. Mehta first relied upon a decision in CIT v. T. Kuppuswamy Filial & Co., [1977] 106 ITR 954 (Mad). In that case by virtue of the National Defence Remittance Scheme under which the import licences were being granted against bank's certificates evidencing certain categories of foreign exchange remittances received during a particular period through banking channels by persons who were Indian nationals, the assessee was given an import licence for his having effected a foreign exchange remittance. By transferring the same to a third party, the assessee got a sum of Rs. 67,125 and this was assessed by the officer as capital gains. The question was whether this amount was liable to tax as a capital gain. It was held by a Division Bench of the Madras High Court that as the acquisition of the import licence did not involve any cost to the assessee, no question of any liability to capital gains would arise on its transfer. We fail to see how this case lends any support to Mr. Mehta's contention, because the court which decided this case was never called upon to consider whether the import licence was a capital asset or revenue asset. Both sides proceeded on the assumption that it was a capital asset and the only question debated was whether the gain made on the sale of that asset was liable to tax as a capital gain or not.

5. In CIT v. Swadeshi Cotton Mills Co. Ltd., [1980] 121 ITR 747 (All), the assessee manufactured cloth which was exported outside India. The assessee received import entitlements under a Cotton Textiles Import Incentives Scheme of the Government of India. Under the said Scheme, a part of the import entitlement was to be utilised by the exporting mills for importing raw cotton for its own use and the balance was to be surrendered to the Textile Commissioner. In consideration of the surrender of a part of the import entitlement to the Textile Commissioner, the assessee received a sum of Rs. 2,33,662 as a subsidy from the export promotion fund. It was held that s. 28(i) of the said Act sought to tax profits and gains of business. The export subsidy would not have been paid to the assessee had he not manufactured cloth and yarn and exported it. The labelling of the payment as an export subsidy did not alter its character, for the amount was paid by reference to the amount of goods exported. The fact that s. 28(iv) was not on the statute book during the relevant assessment year would not take the payment outside the purview of the words “profits and gains of business” which are taxable under s. 28. It was held that the said amount received by the assessee as export subsidy was the assessee's income. This decision supports the view which we have taken as indicated earlier.

6. We do not consider it necessary to refer to the other cases shown to us because in none of these cases, a view has been taken that an import entitlement received by an assessee in the course of its business can be regarded as a capital asset or that the amount realised on the sale of such entitlement would constitute a capital receipt.

7. There can be no question of considering the receipts of the aforesaid amounts of Rs. 99,021 and Rs. 1,71,982 as of a casual nature, because the said receipts have been received by the sale of import entitlements which we have pointed out were earned or acquired by the assessee directly in the course of its business. It has not been seriously urged before us that these receipts could be regarded as casual receipts. In view of what we have stated earlier, it must be held that the aforesaid receipts were revenue receipts and were not of a casual or non-recurring nature and that the same were rightly assessed as the assessee's income from business.

8. As far as question No. 3 is concerned, it is common ground that this question is concluded against the assessee by the decision of a Division Bench of this court in Hindustan Lever Ltd v. Commissioner Of Income-Tax, Bombay City-I., [1980] 121 ITR 951. In the result, the questions referred to us are answered as follows:

Question No. 1 : In the affirmative.

Question No. 2 : In the affirmative.

Question No. 3 : In the negative.

9. It is clarified that all the questions are answered against the assessee. The assessee to pay costs of this reference to the Commissioner.