M SHAMSUDDIN AND COMPANY Vs. CIT

JUDGEMENT

(1.) THE following question has been referred to this Court under S. 256 (1) of the Income-tax Act, 1961, by the Appellate Tribunal, Cochin bench: "whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the amount of Rs. 2,54,862. 19 represents income derived by the assessee in the course of trade. " THE facts are as follows. THE assessee, a firm of four partners, owns cashew factories and exports cashew kernels to foreign countries, mostly to U. S A. THE assessee also has forward transactions of sale with some of the foreign buyers. THE invoice price of the exports is fixed between the parties in terms of dollars. For the forward contracts of sale also, the price is stipulated in terms of dollars. At the time of payment the assessee receives the rupee equivalent of the price in dollars.

(2.) THE Indian currency was devalued on 6-6-196 6. As on that date, the assessee had to receive the value of exports made immediately before that date-THE assessee had also entered into certain forward contracts with foreign buyers before 6 61966 for the sale of cashew kernels, and the value, of these goods also had to be received after the date of the devaluation. THE rupee equivalent of the price in dollars, in respect of the above transactions, was received by the assessee after the date of the devaluation and consequently it was received at the post-devaluation rate. In this process the assessee earned a profit of Rs. 2,54,862/-being the appreciation in the exchange value of the price in dollars, in terms of the Indian rupee.

(3.) THE assessee contended that the decision of the supreme Court in Commissioner of Income-tax versus Tata Locomotive and engineering Co. Ltd. (60 ITR. 405) must be held to have impliedly overruled the decision of the Mysore High Court referred to earlier. In the Supreme Court case the question arose this way. THE assessee-company carrying on the business in the manufacture of lomotives had to make purchases of plants and machinery from U. S. A. For this purpose the assessee remitted to its agents in U. S. A. large amount with the sanction of the Exchange Control authorities. Some amounts due to them from other business transactions in America were also diverted and formed part of the remittance for the purchase of the plants and machineries. THE pound sterling and with it the Indian rupee were devalued in september, 1949 and the assessee found it very expensive to buy the American goods and so with the permission of the Reserve Bank of India, withdrew a large part of its remittance made to America. By reason of the devaluation at the current exchange rate the rupee equivalent of the dollars was much higher than what had been remitted, and the surplus was treated by the Income-tax Officer as profits arising to the assessee in carrying on its business. THE Supreme court held that the act of retaining the moneys in U. S. A. for capital purposes after obtaining the permission of the Reserve Bank of India was not a trading transaction in the business of manufacture of locomotive boilers and locomotives and it was only a transaction of accumulating dollars to pay for capital goods. THE surplus attributable to the devaluation was, therefore, held to be a capital accretion and not a profit taxable in the bands of the assessee. THE facts here are entirely different from the facts in the above case. Here the assessee, trading in the goods supplied, got an appreciated value as price of the goods on account of the devaluation. It is certainly a receipt arising from the business and therefore is a trading receipt liable to be assessed as trading profits in the hands of the assessee. THErefore, the supreme Court decision does not in any way change the principle to be applied to the facts of this case. THE principle to be applied in this case is the same as the principle that was applied by the Mysore High Court in 49 ITR. 471, and hence the Income-tax authorities were right in assessing this profit arising out of the devaluation as trading profit in the hands of the assessee.