Export licence proceeds treated as capital receipt; no business income or capital gains tax applied where acquisition cost was unascertainable.

Sale proceeds from an export licence used as part of the assessee's profit-making structure were treated as capital in nature, not trading receipts. Because the assessee was not in the business of dealing in licences and the licence was not stock-in-trade, section 28(iiia) did not apply and the receipt was not assessable as business income. The same amount was also held outside capital gains tax, since no ascertainable cost of acquisition for the licence itself was shown; without a computable acquisition cost, the charging provision for capital gains could not operate. The sale consideration was therefore not taxable under either head.

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Issues: (i) Whether the sale proceeds of the export licence were taxable as business income under section 28(iiia) of the Income-tax Act, 1961. (ii) Whether the same receipt was chargeable to capital gains tax despite the absence of cost of acquisition.

Issue (i): Whether the sale proceeds of the export licence were taxable as business income under section 28(iiia) of the Income-tax Act, 1961.

Analysis: The assessee was not in the business of dealing in export licences, and the licence could not be treated as stock-in-trade. Under Rule 3 of the Exports (Control) Order, 1977, export of the goods required a licence, and under Rule 4(2) transfer of the licence was restricted, showing that trading in licences was not encouraged. The licence was the condition precedent for exporting garments and therefore formed part of the assessee's profit-making structure. On these facts, the receipt represented consideration for parting with a capital asset and not trading profit; section 28(iiia) was not attracted.

Conclusion: The receipt was not taxable as business income and the addition was deleted, in favour of the assessee.

Issue (ii): Whether the same receipt was chargeable to capital gains tax despite the absence of cost of acquisition.

Analysis: The licence was treated as a capital asset, but the material on record showed no ascertainable cost of acquisition beyond the limited service charges and council charges connected with the licensing procedure, which were not shown to be the price of acquiring the licence itself. In the absence of a cost of acquisition capable of computation, the capital gains charging provision could not be applied.

Conclusion: The amount was not liable to capital gains tax, in favour of the assessee.

Final Conclusion: The licence was a capital asset forming part of the assessee's profit-making apparatus, and the sale consideration was not assessable either as business income or as capital gains.

Ratio Decidendi: Consideration received for transferring a licence that is integral to the business structure is capital in nature, and where no cost of acquisition is ascertainable, capital gains taxation cannot be levied.

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