DIPAK KUMAR SEN, J.

( 1 ) M/s. Martin and Harris (P.) Ltd. , Calcutta, the assessee, was assessed to income-tax in the assessment year 1968-69, the corresponding previous year ending on December 31, 1967. During the said assessment year, the British pound sterling was devalued vis-a-vis the Indian rupee. The assessee at the relevant time had been manufacturing goods under licence from M/s. Organon Laboratories Ltd. of London, who were supplying to the assessee on credit major part of the materials needed for such manufacture. The price of such materials was, however, payable by the assessee in pound sterling.

( 2 ) THE ITO found that as a result of the devaluation, the liability of the assessee under the outstanding bills of the foreign supplier was reduced by Rs. 2,86,101 and added the said amount to the income of the assessee for being brought to tax.

( 3 ) BEING aggrieved, the assessee preferred an appeal before the AAC who sustained the addition.

( 4 ) THERE was a further appeal by the assessee to the Income-tax Appellate Tribunal. It was contended on behalf of the assessee before the Tribunal, inter alia, that : (a) any profit accruing or any loss resulting from devaluation between the currency of 1his country vis-a-vis the currency of a foreign country cannot be treated as taxable trading profit or deductible trading loss, as devaluation is an act of State executed under its sovereign power de hors the trade or business. (b) A profit arising from devaluation can only be regarded as capital profit. (c) No remittance being made by the assessee to the foreign suppliers and there being no settlement between the parties, the assessee could not be said to have made any profit as a consequence of the devaluation.

( 5 ) THE Tribunal held that if any profit arose as a result of the devaluation, the same was a taxable trading profit and not an accretion to capital. It was held further that a reduction of the liability of the assessee as a result of the devaluation was a profit directly or indirectly arising from and incidental to the business of the assessee.

( 6 ) THE Tribunal, however, found that a profit did not accrue to the assessee on the day the foreign currency was devalued. It was held that a profit should be deemed to have accrued to the assessee when the benefit of reduction of liability was realised by the assessee, i. e. , when the assessee paid to the foreign supplier. The fact that the assessee was maintaining its accounts on mercantile basis, it was held, would not make any difference to the position. It was not in dispute that in the relevant accounting year no payment had been made in foreign currency against any outstanding bill of the foreign supplier.

( 7 ) THE Tribunal held that no profit had accrued to the assessee during the relevant year ion account of devaluation. The Tribunal deleted the addition.

( 8 ) ON an application of the Revenue under Section 256 (1) of the I. T. Act, 1961, the following question stated to be a question of law arising out of its order has been referred by the Tribunal to this court for its opinion :"whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no trading profit consequent upon the devaluation of the pound sterling accrued to the assessee during the relevant previous year and, in that view, deleting the addition of Rs. 2,86,101 made in the assessment for the assessment year 1968-69 ?"

( 9 ) AT the hearing, learned counsel for the parties reiterated the respective contentions raised in the proceedings below. A number of decisions were, however, cited at the Bar in aid of the respective submissions.

( 10 ) OF the decisions cited, we note in particular the following, facts in which are similar to the facts of the case before us. (a) Shamsuddin v. CIT. In this case, the assessee carried on business in export of cashewnuts. The assessee entered into forward contracts of sale with foreign buyers quoting price in dollar

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