- At the instance of the revenue, the ITAT has referred two questions of law for the years 1967-68 and 1969-70 and an additional question for the year 1969-70 in R.A. Nos. 57 & 58/C/1975-76 in ITA No. 483 & 549/C/72-73 in compliance with the directions of this Court. One of the common questions referred for the years 1967-68 and 1967-70 is as follows :

"Whether, on the facts and in the circumstances of the case, the ITAT having adopted month-to-month basis for computation of profits, is right in law in not adopting the same basis for the computation of profits from the sale of import entitlements ?"

2. The assessee, respondent in these two reference, is an individual and a director in M/s Cochin Company Pvt. Ltd. The business of the company is export of sea-foods. In respect of such export, the company was allowed under the export incentive scheme certain "import entitlements". It is said that these import entitlements were sold by the assessee at a profit. For the accounting year ending 31-2-1965 the assessee company had a profit of Rs. 5,79,382, for the year ended 31-12-1966 the profit was Rs. 2,17,566 and for the year ended 31-12-1967, it amounted to Rs. 1,78,151. It is also said that the "import entitlements" were sold on certain definite dates. These are mentioned in paragraph 6 of the statement of the case of the Appellate Tribunal.

3. The amounts so received by the assessee were treated as profits by the ITO. In appeal, the AAC held than in computing the profit of the year the income on the sale of import "entitlements" can be treated as the income only on the date of sale and the rest the profit and loss should be treated as having uniformly arisen throughout the accounting year. This is mentioned in paragraph 8 of the statement of the case. The matter was taken in second appeal before the Appellate Tribunal. In paragraph II of the statement of the case the Appellate Tribunal has stated as follows :

"It was mentioned earlier that the Appellate Assistant Commissioner was of opinion that the profit in respect of the import entitlements arose only on the date of sale. The departments contention was that this profit should also be treated as arising de die in diem. The reasoning of the department was that the company while effecting the sale abroad gets as consideration the sale proceeds from the Government. This was not discretionary but automatic on the assessees sending his statement of foreign sales. Only the quantification of the profit is postponed to the date when it is actually issued. The Tribunal rejected this contention and observed in para II of their order that it is true an exporter has an entitlement to import certain specified goods and it is relatable to the export sales figures. But that by itself does not produce income. An import entitlement can be dispensed in three ways. First, the assessee might himself import goods in which case there is no profit. The import entitlement allows him to import goods which are otherwise not allowed to be imported by the Import and Export (Control) Act. Let us suppose he imports an item which is his raw material or stock-in-trade. He would debit the purchases to the extent of cost and if the goods are not used or sold would show it in the closing stock. This can be at cost. However, it is quite likely that the goods have considerable value on sale. But so long as sale is not effected, he is entitled to value it at cost. No profit then need be estimated thereon. Second, he may not utilise it at all and allow it to lapse. There again, no profit arises. It is only on the third alternative of sale he would be entitled to profit. The Tribunal, therefore, upheld the Appellate Assistant Commissioners method of calculation with the rider that in the calculation made he has overlooked to add to the profits of December, 1965. Rs. 2,70,782."

4. As could be seen from the statement of the case, the Appellate Tribunal was of the view that the import entitlement can be dispensed (disposed of) in three ways. The Appellate Tribunal has also stated that it is only in the third alternative of sale, the assessee would be entitled to profit and that profit accrued only on the date of sale.

5. When the above references were heard on 10-1-1983 we felt that the appellate order of the Tribunal as also the statement of the case sent to this Court by the Appellate Tribunal are not clear as to how, in what manner and when, the import entitlements were disposed of. Counsel for the assessee then contended that as per the provisions contained in the relevant "Hand Book of Import Control" the assessee sold the import entitlement. Counsel took time to substantiate this by reference to relevant regulations. When the case came up again for arguments on 16-2-1983, counsel for the assessee referred to the "Hand Book of Import Control" and in particular cls. 105 and 106 thereof and urged that the assessee "nominated" the person to whom the import entitlements were passed on and the consideration received therefor, are the sale-proceeds of the same. This aspect highlighted at the time of arguments before this Court has not been specifically adverted to or dealt with by the Appellate Tribunal either in its appellate order or in the statement of the case. It is not clear as to what the Appellate Tribunal meant went it said in para II of the statement of the case, "It is only the third alternative of sale he would be entitled to profit. That profit accrued only on the date of sale. The Tribunal, therefore upheld the Appellate Assistant Commissioners method of calculation with the rider that in the calculation made he has overlooked to add to the profits of December, 1965, Rs. 2,70,782." Amongst others, the aspects relied on by the assessee are crucial and deserve to be examined to arrive at a conclusion as to how, when and in what manner, the import entitlements were disposed of by the assessee. Since we feel that there is no specific finding of advertance to the salient and relevant aspects which led the Appellate Tribunal to arrive at the conclusion discussed in paragraph II of its appellate order and paragraph II of the statement of the case, we are not in a position to satisfactorily answer one of the questions referred to this Court (extracted hereinabove) by the Appellate Tribunal. In order to enable this Court to answer the question of law formulated satisfactorily, we are of opinion that a further or supplementary statement of the case is called for from the Appellate Tribunal in that behalf. So in exercise of the power vested in this Court, u/s 258 of the IT Act, we hereby refer the case back to the Appellate Tribunal for the purpose of clarifying and stating with precision, how, in what manner and when, the import entitlements were disposed of by the assessee mentioned in paragraph II of the statement of the case. The Appellate Tribunal will submit an additional statement of the case with such alternations or additions or modifications as may be deemed necessary for clarifying the position, with its definite findings thereon. We adopt this course in view of the Supreme Court reported as Sutlej Cotton Mills v. CIT, West Bengal (1979) 116 ITR 1 at pp. 13 & 14 (SC). In the said case, the assessee had earned Rs. 36 lakhs and Rs. 18 lakhs in terms of Indian rupees in the asst. yr. 1954-55 and retained them in West Pakistan in Pakistan currency and when currency were subsequently remitted and when currency were subsequently remitted ti India, the assessee received only 25 lakhs and 12-1/2 lakhs and thus suffered a loss of Rs. 11 lakhs and 5-1/2 lakhs in the process of conversion on account of alteration in the rate of exchange. Eventually when the latter reached the Supreme Court the Question was whether the loss was a capital loss or revenue loss. For determining that question a finding as to whether the sum of Rs. 25 lakhs and 12-1/2 lakhs were held by the assessee in West Pakistan on capital account or on revenue account and whether they were part of fixed capital or circulated capital ear-marked and adventured in the business in West Pakistan adventured in the business in West Pakistan was essential. The Supreme Court observed that : if these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of Rs. 11 lakhs and Rs. 5,50,000 resulting to the assessee on remission of those two amounts in India, on account of alteration in the rate of exchange, would be a trading loss, but if, instead, these two amounts were held on capital account and were part of fixed capital, the loss would plainly be a capital loss". It was also observed by the Supreme Court, that the question whether the loss suffered by the assessee was a trading loss or capital loss cannot be answered unless it is first determined whether these two amounts were held by the assessee on capital account or on revenue account or to put differently as part of fixed capital or of circulating capital. The Supreme Court found that in that case no finding was given by the Tribunal on this aspect of the matter. In such circumstances, the Supreme Court observed :

"We would have ordinarily, in these circumstances, called for a supplementary statement of case from the Tribunal giving its finding on this question ...."

On the facts of the particular case, since both parties pleaded before the Supreme Court that their attention was not drawn to this aspect of the matter when the case was heard before the lower authorities and the Tribunal, the matter was remitted back to the Tribunal to take additional evidence or to direct the ITO to take additional evidence and to make a report to it. On the facts of this case, we are satisfied that it will be sufficient, in the circumstances, to adopt the ordinary course formulated by the Supreme in the said decision and call for a supplementary statement of the case from the Tribunal giving its finding regarding, how, in what manner and when, the import entitlements were disposed of by the assessee, with details thereof.

6. The Appellate Tribunal will submit the supplementary statement of the case in the light of the observations and directions contained herein above within one month from the date of receipt of this order.

Carbon copies of this order will be supplied to the counsel for the revenue and the counsel for the assessee on usual terms.