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High Court Of Calcutta
DIPAK KUMAR SEN, C. K. BANERJEE
KHANDELWAL BROTHERS PVT.LTD - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 304 Of 1975
Decided On : 03/13/1978
INCOME TAX - Business income - Profit on account of devaluation of Indian rupee - Whether profit accrued to assessee on 3rd November, 1964, when assessee actually adjusted its account in respect of the sum due to the assessee from Messrs. K. A. Export Corporation, New York - Held, No - Profit accrued to assessee at the time of devaluation and not at the subsequent adjustment of the accounts of the assessee or at the time when the assessee obtained the sanction of the Reserve Bank of India to adjust its two accounts.
Fact of the Case:
The assessee, Messrs. Khandelwal Bros. Pvt. Ltd., Calcutta, became entitled to a sum of $1,08,540.20 from one K. A. Export Corporation, New York, by way of commission equivalent to Rs. 3,60,624-12-3 under the rate of exchange prevailing prior to the devaluation of the Indian rupee on 16th September, 1949. In the same year, a sum of $5,477.67 was adjusted on account of certain expenses incurred by the assessee during the period prior to devaluation. In the same year, one Khandelwal Refrigeration Corporation Ltd., an allied concern, was amalgamated with the assessee. An amount of $36,968'08 standing to the debit of the said Messrs. K. A. Export Corporation, New York, in the accounts of the said amalgamated company was adjusted in the accounts of the assessee after amalgamation in the same year. Thus, a sum of $1,40,030.61 became due to the assessee as aforesaid in the said accounting year from the said K. A. Export Corporation, New York.
Finding of the Court:
The Tribunal held that the amount originally due to the assessee from the said K. A. Export Corporation, New York, was on account of commission and as such it was a business receipt and retained such character throughout till the same was adjusted. Before the same was received by the assessee in India, the Indian rupee was devalued and, therefore, the surplus arising therefrom took the character of a revenue receipt. This surplus arose in the course of the trade of the assessee and thus constituted a trading profit.
Issues: Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of Rs. 1,95,883 on account of devaluation of Indian rupee did not accrue or arise to the assessee on 3rd November, 1964, when the assessee actually adjusted its account in respect of the sum due to the assessee from Messrs. K. A. Export Corporation, New York?
Ratio Decidendi: The assessee accumulated this fund out of its trade receipts whereafter it was used throughout as its circulating capital and was available for the purpose of meeting the assessee's business expenses. Therefore, any accretion in the value of this fund as a result of devaluation or exchange fluctuation must be held to be in the nature of a trading accrual. The surplus accrued to the assessee at the time of devaluation and not at the subsequent adjustment of the accounts of the assessee or at the time when the assessee obtained the sanction of the Reserve Bank of India to adjust its two accounts.
Final Decision: The question referred at the instance of the assessee is answered in the affirmative to the extent as indicated above and in favour of the revenue. The Tribunal will compute the profit on the total amount of dollars receivable by the assessee on the date of the devaluation. The question referred at the instance of the revenue is answered in the affirmative and against the revenue. It is made clear that the surplus or profit arose or accrued consequent to the devaluation in the accounting year when the devaluation took place.
( 1 ) THIS is a consolidated reference under Section 256 (1) of the I. T. Act, 1961, arising out of the income-tax assessment of Messrs. Khandelwal Bros. Pvt. Ltd. , Calcutta, in the assessment year 1965-66. The question referred at the instance of the assessee is as follows:"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of Rs. 1,95,883 accrued to the assessee on account of devaluation of Indian rupee was business income ?"
( 2 ) THE question referred at the instance of Commissioner of Income-tax, West Bengal-I, Calcutta, is as follows:"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of Rs. 1,95,883 on account of devaluation of Indian rupee did not accrue or arise to the assessee on 3rd November, 1964, when the assessee actually adjusted its account in respect of the sum due to the assessee from Messrs. K. A. Export Corporation, New York?"
( 3 ) THE facts found and/or admitted in the proceedings are shortly as follow: the Indian rupee was devalued on the 16th September, 1949. At the end of the Diwali year 2006 corresponding to 21st October, 1949, i. e. , the assessment year 1950-51, the assessee became and continued to be entitled to a sum of $1,08,540. 20 from one K. A. Export Corporation, New York, by way of commission equivalent to Rs. 3,60,624-12-3 under the rate of exchange prevailing prior to the said devaluation. In the same year, a sum of $5,477. 67 was adjusted on account of certain expenses incurred by the assessee during the period prior to devaluation. In the same year, one Khandelwal Refrigeration Corporation Ltd. , an allied concern, was amalgamated with the assessee. An amount of $36,968'08 standing to the debit of the said Messrs. K. A. Export Corporation, New York, in the accounts of the said amalgamated company was adjusted in the accounts of the assessee after amalgamation in the same year. Thus, a sum of $1,40,030. 61 became due to the assessee as aforesaid in the said accounting year from the said K. A. Export Corporation, New York.
( 4 ) IN subsequent years, i. e. , 1952-53 to 1954-55, 1957-58 and 1963-64, there were further adjustments in the said account by way of payments and receipts, whereafter a sum of $1,12,628. 15 remained due to the assessee from the said Messrs. K. A. Export Corporation, New York, in the assessment year 1963-64.
( 5 ) IN the assessment year 1952-53, there was a separate transaction between the assessee and Messrs. K. A. Export Corporation, New York, relating to purchase of black pepper. K. A. Export Corporation remitted a sum of $2,98,000 in favour of the assessee on a Telegraphic Transfer Account. There were disbursements in the said account and in the accounting year 1957-58, a sum of $1,46,321. 24 became payable by the assessee to the said K. A. Export Corporation, in this account.
( 6 ) THE above two accounts, viz. , the Commission account and the Telegraphic Transfer account, were finally adjusted with the sanction of the Reserve Bank of India, received on the 1st February, 1963. On the 3rd November, 1964, the assessee transferred the said sum of $1,12,628. 15 due to it on the commission account to the Telegraphic Transfer account in adjustment of its dues. In this final adjustment an accretion of Rs. 1,95,883 was shown for the first time as a credit in the profit and loss account by reason of difference in exchange rate on account of devaluation.
( 7 ) IN its income-tax assessment for the assessment year 1965-66, the corresponding accounting year ending on the 3rd November, 1964, the assessee claimed the said sum of Rs. 1,95,883 to be its casual income and not taxable. Alternatively, it was submitted that the said amount had accrued to the assessee immediately on devaluation of the Indian rupee and even if the same was held to be the business income of the assessee it could not be taxed in the assessment year 1964-65. The IT
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