Export rebate computation includes cash subsidy and import entitlement proceeds as export-derived business receipts.

Rebate under clause 2(5)(a) of the Finance Act, 1966 had to be computed under section 2(5)(d) and Rule 2(2) of the Income-tax (Determination of Export Profits) Rules, 1966 by ascertaining export income under the Income-tax Act, 1961. Cash subsidy linked to export loss and proceeds from sale of import entitlements were treated as business receipts referable to export activity and included in export profits. The narrower argument that only profits proximately caused by the export qualified was rejected because the statutory scheme brought these receipts within export-derived gains for rebate purposes.

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Issues: Whether cash subsidy received from the export promotion council and profits from sale of import entitlements formed part of the profits and gains derived from export of goods for rebate under clause 2(5)(a) of the Finance Act, 1966.

Analysis: The rebate under section 2(5)(a)(i) of the Finance Act, 1966 had to be computed in accordance with section 2(5)(d) and Rule 2(2) of the Income-tax (Determination of Export Profits) Rules, 1966. On that basis, the qualifying export income was to be ascertained under the Income-tax Act, 1961. The subsidy was directly linked to the loss sustained on export, and the import entitlement proceeds arose from export performance. Both receipts were therefore business receipts referable to the export activity and were includible in computing export profits. The argument that only profits proximately caused by the export qualified was rejected because the receipts were directly connected with the exports and were required to be treated as export-derived profits under the statutory scheme.

Conclusion: The receipts from cash subsidy and sale of import entitlements were includible in the profits and gains derived from export, and the assessee was entitled to rebate.

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