Law:

Section:

I. Section 2(5) of the Finance Acts, 1965 and 1966 and 2(4)(a)(i) of the Finance Act, 1967 - Tax concession in respect of profits and gains derived from export of good - Assessment year 1964-65 - Assessee company, hundred per cent subsidiary of a foreign company, incurred losses in actual export of good but made profits on account of sale of goods imported by it on strength of import licence given to it by Government of India for encouraging exports - Whether both sale price of good exported and receipt of import entitlement were directly due to export of goods and thus both constituted income derived from export of goods and profits arising out of their combined value would be profits derived from export - Held, yes - Whether, therefore, assessee was entitled to tax concessions under respective Finance Acts - Held yes FACTS-I The assessee company was hundred per cent subsidiary of a foreign company carried on the business of manufacture and sale of carpets and almost its entire production of carpets was exported out of India. The Government had granted incentives for encouraging exports. One part of the incentive was import entitlement. The assessee-company received import licence in respect of certain dyes, chemicals, wool etc., because of the carpets exported by it. It incurred a loss on the export of carpets. It sold the dyes, chemicals, wool and wool tops imported by it on the strength of the said import licence and earned huge profits on such sales. For the assessment year 1964-65, the net profit of the company in both these business activities was Rs. 3,82.912 and it was taxed on this amount. The question arose for consideration in instant reference were whether the assessee was entitled to the tax concessions granted by the Finance Acts, 1965, 1966 and 1967 and whether the profits and gains resulting from the sale of the import entitlements could be said to be profit and gains "derived" from the sale of goods out of India. HELD-I It seemed clear that the export of goods by the assessee yielded two kinds of returns. One was the sale price for the carpets and the other, receipt of import entitlements. Both these receipts were directly due to the export of…

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