JUDGMENT

R. M. SAHAI, J. :—Legal issues that arise for consideration in this appeal, directed against the decision of the High Court in Commr. of Income-tax, Tamil Nadu v. Universal Radiators, (1979) 120 ITR 906, on questions of law referred to it in a reference under the Income-tax Act (in brief the Act) are, if the excess amount paid to the assessee due to fluctuation in exchange rate was taxable either because the payment being related to trading activity it could not be excluded under Section 10(3) of the Act even if it was casual and non-recurring in nature or it was stock-in-trade, therefore, taxable as revenue receipt or in any case the compensation for the loss of goods could not be deemed anything but profit.

2. Shorn of details the assessee, a manufacturer of radiators for automobiles booked copper ingots from a corporation in the United States of America for being brought to Bombay where it was to be rolled into strips and sheets and then despatched to assessee for being used for manufacture. While the ingots were at sea, hostilities broke out between India and Pakistan and, the vessel carrying the goods was seized by the authorities in Pakistan. The claim of the assessee for the price paid by it for the goods was ultimately settled in its favour by the insurer in America.

3. Meanwhile the Indian Rupee had been devalued and, therefore, in terms of rupees the appellant firm got Rs. 3,43,556/- as against their payment of Rs. 2,00,164/- at the old rate. The difference was credited to profit on devaluation in the Profit and Loss Account. The claim of the appellant that the difference being a casual receipt and non-recurring in nature, it was not liable to tax, was not accepted by the Income-tax Officer. In appeal the Appellate Assistant Commissioner was of opinion that the receipt was one which did not arise directly from carrying on business by the assessee but was incidental to it. But he did not find any merit in the submission that the ultimate realisation was in nature of capital gains and not revenue receipt. In further appeal the Tribunal held that when the goods were seized by the Pakistan authorities the character of the goods changed and it became sterlised and, therefore, it ceased to be stock-in-trade of the assessee. The Tribunal held that the devaluation surplus was in nature of capital receipt and not a profit made by the assessee in course of business. It further found that the money which came to the assessee was as a result of the settlement of the insurance claim and, therefore, the profit that resulted from it could not be considered to have arisen in normal course of business. When the matter came to the High Court, in its advisory jurisdiction, at the instance of the department, on the following questions of law :

(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in holding that the devaluation surplus earned by the assessee consequent to the settlement of the claim by the insurance company is not assessable as revenue receipt for the assessment year 1967-68?

(ii) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the profit earned by the assessee on account of devaluation of Indian Currency was not in the course of carrying on of the business or incidental to the business?

It did not agree with the Tribunal as according to it if the assessee had got the goods imported into India and sold them it would have got higher amount as a result of devaluation. Therefore, it held that there could be no dispute that the assessee was liable to pay tax on difference of the sale price and the cost. The High Court further held that the nature of the amount which came in the hands of the assessee was revenue receipt. It did not agree that the payment made to the assessee was otherwise than for business, as the whole transaction was part and parcel of the business carried on by the assessee and could not be d