IMPORTANT POINT
Rule 115 (c) of 1 Tax Rules 1962 is not ultra vires the substantive promissions of I.T. Act, 1961.

JUDGMENT

Sen, J.-Special leave granted.

2. The Commissioner of Income Tax has come up in appeal against the judgment of the Division Bench of the Bombay High Court, quashing an order passed by the Commissioner of Income Tax under Section 263 on March 30, 1989. The High Court was also of the view that clause (c) of Rule 115 of the Income Tax Rules, 1962 was in conflict of the substantive provisions of the Income Tax Act and was ultra vires the Act.

2.The controversy in this case is about the taxability of the amounts received by the assessee from foreign buyers during the period July 1, 1982 to June 30, 1983 (assessment year 1984-85). the assessee offered for assessment the amounts received as price of the goods sold to foreign buyers as and when the amounts were received in course of the accounting period and was taxed accordingly, the amounts which were not actually received from the foreign buyers in course of the accounting period were con-verted into rupees on the basis of the exchange rate on the last day of the accounting year i.e. June 30, 1983 and was brought to tax accordingly for the assessment year 1984-85.

3. The Commissioner of Income Tax was of the view that the Income Tax Officer had wrongly assessed the quantum of income arising out of the export sales without applying Rule 115. Accordingly, he issued a noticed under Section 263 upon the assessee proposing to revise the order of assessee the Commissioner of Income Tax passed the following order:-

"The last point is regarding application of Rule 115 in respect of earnings on export of iron ore to Japan. The assessee has taken the income at the rate at which the amount has actually been credited by the bank. It did not apply the national rate as required under Rule 115. In his reply, the assessee has contended that Rule 115 (c) can be applied only to income which is expressed in foreign currency or not otherwise. I am afraid this interpetation is unacceptable, I, therefore, direct the asessing officer to find out the actual rate of conversation in respect of different remittancesand also the Telegraphic Transfer buying rate at the end of the year and convert the foreign exchage at the Telegraphic Transfer buying rateon the last day of the previous year as required by Rule 115, if that is more favourable to the revenue, and bring the difference to tax."

4. This order was challenged by the assessee by a writ petition in the Bombay High Court in which the vires of Rule 115(c) of the Income Tax Rules, 1962 was also questioned. The facts of the case, as recorded in the order of the High Court, are as under:-

"The petitioners in this case are a company incorporated under the Companies Act, 1956. The petitioners are exporting iron ore to foreign countries, more particularly to Japan the petitioners entered into agreements for sale of iron ore with foreign buyers at certain prices. As per the arrangements betweeen the foreign buyers and the petitioners, the foreign buyers opened a letter of credit with a bank in India. As soon as iron ore is signed by the master of the ship and the petitioners raise invoices against the foreign buyers for the price of the ore shipped. Thereafter these documents are presented by the petitioners to their banker in India and the petitioners receive payment through the Indian bankers in rupees at the rate of exchange previling then. If on the date of closing of the fincancial year any amount of sale proceeds remains outstanding, it is converted into Indian rupees at the rate of exchange prevailing on the last day of the financial year and is entered in the books of the petitioners and accounted for as their income."

5. The High Court further examined the manner in which payment was made to the assessee by the foreign buyers and observed:-

"To come to a right conclusion about this question, we will have to see in what manner the petitioners receive income and at what point of time income tax is leviable. In the present case, the petitio