COMMISSIONER OF INCOME TAX vs SYNTHETIC STONES.

B. R. ARORA, J. :

The Tribunal, Jaipur Bench, Jaipur, at the instance of the Revenue, under s. 256(1) of the IT Act, has referred the following question of law for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in entertaining an additional claim which was not raised either before the ITO or first appellate authority and in allowing assessees claim for cash compensatory support. Such claim is not made either in trading or profit & loss account ?"

After the reference made by the Tribunal, the law on the point has been amended and an Explanatory Note on the provisions of the Finance Act, 1990, was issued making/modifying the provisions relating to exemption of income from export. The Circular No. 572, dt 3rd Aug., 1990, [printed at (1990) 87 CTR (St) 1] issued in this regard reads as under :

" Explanatory notes on the provisions of the Finance Act, 1990 - Modification of provisions relating to exemption of income from exports

27.1 At present exporters are given incentives by way of cash compensatory support (CCS), drawback of duty and import entitlement licences. The taxation of CCS has been a subject-matter of litigation. The Calcutta High Court in the case of Jeewanlal (1929) Ltd. Vs. Commissioner of Income Tax, held that the CCS received by an exporter was a revenue receipt and was subject to Income Tax. The Special Bench of the Tribunal has, however, in a case, distinguished the aforesaid decision and came to the conclusion that the CCS was a capital receipt and hence not subject to tax. The Departments view all along has been that CCS or any other subsidy received by an exporter as an export incentive is a revenue receipt and hence taxable.

27.2 Similarly, the Departments view as regard drawback of duty and profit on sale of import entitlement licences has been that these are revenue receipts and hence liable to tax. There are many Court decisions supporting this view.

27.3 To put an end to litigation which may arise regarding the taxability of these incentives received by exporters, new cls. (iiia), (iiib) and (iiic) have been inserted in s. 28 of the Act to provide that profit on sale of import entitlement licences, CCS and drawback of duty respectively shall be chargeable to Income Tax under the head "Profits and gains of business or profession". These have, further, been included in the defination of the term income in cl. (24) of s. 2.

27.4 These amendments will take effect retrospectively from the dates from which these incentives were introduced. Thus, amendment with regard to profit on sale of import entitlement licences will apply from 1st April, 1962; cash assistance from 1st April, 1967, and drawback of duty from 1st April, 1972 and will, accordingly, apply in relation to the asst. yrs. 1962-63, 1967-68 and 1972-73 respectively, and subsequent years."

In view of the amendment made in the taxing provision regarding the taxability of these incentives received by the exporters, new cls. (iiia), (iiib) and (iiic) have been inserted in s. 28 of the IT Act to provide that profit on sale of import entitlement licences, CCS and drawback of duty respectively shall be chargeable to Income Tax under the head "Profits and gains of business or profession".

These have, further, been included in the definition of the term income in cl. (24) of s. 2 and hence it is not necessary to go into the merits of the case. The law has been amended with retrospective effect from the dates from which these incentives were introduced. In view of the amended provisions of s. 28 of the Act relating to exemption of income from exports (item No. 27.3 above), the reference is answered in favour of the Revenue and against the assessee.