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Issues: (i) Whether the savings effected by importing goods on the strength of import licences obtained against exports formed part of profits derived from export within section 2(5)(i) of the Finance (No. 2) Act, 1962; (ii) Whether the export-profit deduction could be claimed only if the export business as a whole yielded an overall profit, or whether it could be allowed in respect of individual export sales that earned profit.
Issue (i): Whether the savings effected by importing goods on the strength of import licences obtained against exports formed part of profits derived from export within section 2(5)(i) of the Finance (No. 2) Act, 1962.
Analysis: The expression "derived from" was construed in its narrow and direct sense. The relevant inquiry was confined to the immediate and effective source of the profit, and not to a remote or indirect connection with the export activity. Savings arising from the use of import entitlements to import goods at favourable prices were treated as flowing from the import entitlement itself, not from the export of goods. The rules framed for computation could not enlarge the statutory ambit of the charging provision.
Conclusion: No. The savings on imports were not profits derived from export, and the issue was decided against the assessee.
Issue (ii): Whether the export-profit deduction could be claimed only if the export business as a whole yielded an overall profit, or whether it could be allowed in respect of individual export sales that earned profit.
Analysis: The statutory language referred to profits and gains derived from the export of "any goods" and not from the export business as a whole. On that wording, the benefit was not confined to a collective net profit from all export transactions. If particular export sales produced profit and the other statutory conditions were satisfied, the deduction could be allowed in respect of those profitable sales notwithstanding an overall loss on the export business.
Conclusion: Yes. The deduction was available on individual export sales that yielded profit, even if the total export business did not show an overall profit, and the issue was decided in favour of the assessee.
Final Conclusion: The first question was answered against the assessee, while the second was answered in favour of allowing the export-profit relief on profitable individual sales; the reference was thus disposed of with mixed success.
Ratio Decidendi: The phrase "derived from" in export-profit relief provisions denotes a direct and immediate source of profit, and the relief may be claimed for individual export transactions that themselves yield profit even if the export business taken as a whole results in a loss.
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