Accretion to a fund which is part of the circulating capital of a business, even if caused by an external factor like devaluation, results in a profit to the assessee in its business and is taxable as such.

( 1 ) THE facts found and/or admitted in this reference under Section 256 (1) of the I. T. Act, 1961, are of short compass. The Calcutta Jute Agency (P.) Ltd. , Calcutta, the assessee, carries on business in purchase and sale of jute. Under an agreement dated 3rd April, 1963, one W. F. Ducat and Co. had been engaged to carry on the business of the assessee as the latter's manager and/or managing agents. Acting on behalf of the assessee, W. F. Ducat and Co. entered into a contract for purchase of jute in London from Pakistan in 1965, and opened a letter of credit there covering the price of the said jute in favour of the intending seller. Thereafter, hostilities broke out between India and Pakistan, the contract could not be performed and the letter of credit remained unoperated. There was devaluation of the Indian rupee in June, 1966, and by reason of the unoperated letter of credit, W. F. Ducat and Co. received a sum of Rs. 1,52,710 in excess over the amount originally deposited by them in rupees. This surplus was passed on to the account of the assessee and included by the assessee in its own profit and loss account in the accounting year ending 31st March, 1968. In its assessment for the said accounting year, being assessment year 1968-69, the ITO treated this surplus as a trading receipt and added the same to the total income of the assessee.

( 2 ) BEING aggrieved by this assessment, the assessee preferred an appeal to the AAC. It was contended before the AAC that this surplus was not a trading receipt but a receipt of a casual and non-recurring nature and as such was not taxable. It was submitted that the assessee was not a dealer in foreign exchange and did not even carry on any business itself. It was further contended that the intended contract had been frustrated due to factors beyond the control of the assessee. The AAC, however, held that the surplus arose in the hands of the assessee in the course of the business carried on by W. F. Ducat and Co. on behalf of the assessee and, therefore, the amount was taxable. He confirmed the order of the ITO.

( 3 ) BEING aggrieved thereby the assessee preferred a further appeal before the Income-tax Appellate Tribunal. The assessee reiterated its aforesaid contention before the Tribunal and in support thereof cited a decision of this court in the case of Sutlej Cotton Mills Ltd. v. C1t. The revenue sought to distinguish Sutlej Cotton Mills on facts and, in turn, cited M. Shamsuddin and Co. v. CIT in support of their contentions to the contrary.

( 4 ) THE Tribunal found that the business was admittedly being carried on by W. F. Ducat and Co. Ltd. , as agents for and on behalf of the assessee, and held that the surplus arising in connection with and in the course of the business carried on by the assessee through its agents had, therefore, been rightly taxed as business profits. The Tribunal dismissed the appeal of the assessee.

( 5 ) FROM this order of the Tribunal, the following question has been referred at the instance of the assessee :"whether, in the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,52,710 was the income of the assessee and liable to tax in the assessment year 1968-69 ?"

( 6 ) MR. S. R. Banerjee, learned advocate for the assessee, has contended before us at the hearing that mere receipt of a surplus resulting from devaluation and without any volition or activity on the part of the assessee will not result in accrual of a taxable amount in the hands of the assessee. He stated that the source of the surplus was the devaluation, an act of State, and not the business carried on by the assessee. He contended that the business of the assessee came to an end when the contract was frustrated and the amount in pound sterling was lying immobilised and frozen.

( 7 ) THIS was no doubt an asset of the assessee but it was a sterlised asset in the nature of capital and was not circulating capital. In support of his c