The main legal principle established in the judgment is that the accretion in value of receipts arising from business activities is not exempt from tax under section 4(3)(vii) of the Indian Income Tax Act, 1922.

Hegde, J.—At the instance of the assessee, the Income Tax Appellate Tribunal (Hyderabad Bench) has referred to this court under section 66(1) of the Indian Income Tax Act, 1922, the question "whether on the facts and in the circumstances of the case, the sum of Rs. 1,92,136 is liable to be taxed ?"

2. The facts of this case concisely put are as follows : The assessee is a private limited liability company carrying on business in assembling and overhauling different types of aircraft. The dispute in this case relates to its assessment in the assessment year 1950-51, the relevant accounting period being the year ended March 31, 1950. In the course of its business the assessee undertook to repair and overhaul at its Bangalore factory the aircrafts belonging to Messrs. Saudi Arabian Airlines and Messrs. Arabian American Oil Co. In respect of those contracts, the said two clients of the assessee had to pay their dues in dollars to the company's bank in America.

3. On September 19, 1949, the Indian rupee was devalued and, at that time, the assessee held with its bankers in the U. S. A. a sum of $1,98,202'75. These dollars were originally valued in the books of the assessee at the old rate of exchange, i.e., Rs. 3'33 per dollar. On account of devaluation of the rupee, the exchange rate was fixed at Rs. 4'75 per dollar. Consequent upon that, when the dollar balances were valued at the new rate of exchange there was an appreciation in their rupee value to the extent or Rs. 2,80,639. The Income Tax Officer held that the gain in question is liable to tax. He rejected the assessee's contention that the same was exempt from tax under section 4(3)(vii) as the accretion in question was a mere windfall. It was also contended before the Income- tax Officer without success that it was unfair to tax the company on a mere book entry.

4. Those very contentions were raised before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the accretion in question was a casual and non-recurring one and that the same was due to a fortuitous circumstance but since at its inception the " receipts" arose from business and the same was intended to be utilised for the assessee's business, he held that section 4(3)(vii) is inapplicable to the facts of the case. But, he granted a reduction in the sum of Rs. 88,503 observing as follows :

"The matter cannot, however, rest there. At my instance the company has since given the value of its ascertained and outstanding dollar liabilities as on September 19, 1949, the crucial date. They amounted to $ 62,326 and had actually been discharged and paid after September 19, 1949. Just as the dollar assets held on that date appreciated owing to devaluation, these dollar liabilities too appreciated for the same reason. It is only proper, therefore, that the assessment is restricted to the appreciation on the excess of the assets over the liabilities as on September 19, 1949. In other words, the addition is reduced by Rs. 88,503."

5. The assessee took up the matter in appeal to the Tribunal. The contentions noticed earlier were repeated before the Tribunal with no better success.

6. The only question for consideration is whether the amount in dispute can be said to fall within the exemption provided in section 4(3)(vii) of the Indian Income Tax Act, 1922, as it stood on the relevant date. In order to come within that exemption, the assessee has to establish : (1) the "receipts" in question were casual and non-recurring in nature; and (2) the same did not arise from business. As regards the first requisite, i.e., the "receipts" being casual and non-recurring in nature, there was no dispute before us. The finding of the Tribunals below on that point was accepted by the department as correct. Before us the controversy centered round the question whether those "receipts arose from business". It was not disputed that if those receipts are held to have arisen from business it would be chargeable to ta