EASTERN CHEMICAL AND MINERALS versus COMMISSIONER OF INCOME TAX

Citation: [1999] 1 S.C.R. 948 · Decided: 09-03-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Judgment (excerpt)

\ 
I. 
A 
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 
F 
_ 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 
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 
EASTERN CHEMICAL AND MINERALS. v. C.I.T. 
949 
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 
B 
c 
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-
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] 
. E 
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. 
T.L.V. Iyer, T.C. Sharma and B.K. Brasad for the Respondent. 
H 
950 
SUPREME COURT REPORTS 
(1999) 1 S.C.R. 
A 
. The Judgment of the Court was delivered by 
B 
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: 
1. "Whether 

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