KIRLOSKAR ASEA LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to us in the above case by the Income-tax Appellate Tribunal, Bangalore Bench, under s. 256(1) of the I.T. Act, 1961, hereinafter referred to as "the Act", is "whether, on the facts and in the circumstances of the case, a sum of Rs. 2,98,657 was rightly assessed as "long-term capital gain'." Briefly stated, the facts of the case are as follows:

(2.) ON behalf of the assessee, it is argued by G. Sarangan that the amount of $1,10,643 was not a capital asset but was money and, therefore, no question of earning profit by selling it or by transferring it could arise in the circumstances of the case. We cannot subscribe to the above view put forward by the assessee. The expression "foreign exchange" is defined in the Foreign Exchange Regulation Act, 1947, by s. 2(d) thereof, as foreign currency and includes all deposits, credits and balances payable in any foreign currency, and any drafts, traveller's cheques, letters of credit and bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency. Indian currency is defined by s. 2(g) thereof as currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under s. 28A of the Reserve Bank of India Act, 1934. For all intents and purposes, foreign currency is in the nature of a commodity which can be converted into local currency by selling it. Our view receives support from the language adopted by Lord Greene M.R. in Imperial Tobacco Co. (of Great Britain and Ireland) Ltd. v. Kelly (H. M. Inspector of Taxes) [1943] 25 TC 292 (CA). In that case, the learned Lord held that the U. S. Dollars held by a British company constituted commodity. The relevant part of that decision at page 300 reads on follows:

(3.) THE question referred to us is, therefore, answered in the affirmative and against the assessee.