[GKW Ltd. v. CIT, 200 Taxman 396 (Cal.); 12 Taxman. com 234 (Cal.)]
The assessee-company was making export under the Advance Licence Scheme of the Government. In the accounts for the A.Y. 1997-98, the assessee passed a book entry debiting export benefit receivable account and crediting miscellaneous income by a sum of Rs.228.34 lakh. The said amount represented the customs duty benefit which would have accrued to the assessee on the import of raw materials in future. The assessee claimed that the sum of Rs.228.34 lakh credited to the profit and loss account was a notional figure not liable to income-tax and, accordingly, the said amount was claimed as a deduction from the profits as per profit and loss account. The Assessing Officer treated the sum of Rs.228.34 lakh as the assessee’s income on the ground that the assessee had itself shown the same as such in its books of account. On appeal, the Commissioner (Appeals) and the Tribunal upheld the order of the Assessing Officer.
On appeal filed by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under :
“(i) If the language employed in clause (iiia) of section 28 is compared with the next two clauses, i.e., clauses (iiib) and (iiic), it will appear that while in case of clause (iiia), it is the profit on actual sale of licence that will be chargeable to tax, but in the cases covered by clause (iiib) or (iiic), cash assistance (by whatever name called) received or receivable by any person against exports or any duty of customs or excise repaid or repayable as drawback to any person against exports are chargeable to tax.
(ii) Thus, the Legislature was conscious that in cases covered under clause (iiia), only profit on sale of licence should be chargeable, but not the profit which may come in future on sale of the licence, because the benefit of making import without payment of customs duty accrues to an assessee only at the time of actual import and if the domestic price of the raw materials is lower than the landed cost of the imported materials, it would not be sensible to import the raw materials under the advance licence. Moreover, at times, the advance licences may not be utilised within the period of validity thereof and in such cases, no actual benefit is available to an assessee, whereas in the cases covered by clause (iiib) or (iiic), there is no scope of non-utilisation of the cash assistance or drawback mentioned therein and, as such, those are automatically chargeable to tax.
(iii) So long as the profit had not actually accrued to the assessee on sale of the licence, the notional figure indicated in the profit and loss accounts of the assessee could not be chargeable to tax.
(iv) It is now a settled law that if a particular income shown in the account of profit and loss is not taxable under the Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is outside the purview of tax laws; a particular income is either liable to tax under the taxing statute or it is not. If it is not, the ITO has no power to impose tax on the said income.
(v) Therefore, the Tribunal committed substantial error of law in treating the amount of Rs.228.34 lakhs as chargeable to incometax notwithstanding the fact that the same did not come within the purview of section 28(iiia) when the licence had not been sold and no profit had come in the hands of the assessee.”
