M VELAYUTHAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, an individual, was assessed in the status of a resident and ordinarily resident for the assessment year 1970-71. In the return submitted by him, he had disclosed a sum of Rs. 33, 761 as foreign income accrued in Ceylon. While making the assessment order, the ITO converted this Ceylon income into Indian currency at Rs. 43, 550 with reference to r. 115 of the I. T. Rules and made an assessment order on that basis. THE assessee preferred an appeal contending that the ITO went wrong in coverting the Ceylon income into its equivalent in Indian money applying r. 115. He contended that there were certain restrictions imposed by the Ceylon Govt. in the matter of remittances of income from Ceylon and that under these restrictions before any money earned in Ceylon was repatriated to any other country a foreign exchange entitlement certificate would have to be obtained and only to the extent of the amount shown in the certificate, that amount could be remitted. Under that scheme, only 45% of the value of the income would be remittable to India and the balance would have been absorbed by the Govt. of Ceylon as premium and that, therefore, only 45% of the Ceylon income could be converted into Indian currency.

(2.) THIS contention was rejected by the AAC on the ground that the basis of charging tax on an income accruing or arising abroad has nothing to do with the question whether or not such income is remittable to India and that, if the income arising outside India is expressed in terms of a foreign currency it shall have to be converted into its equivalent in Indian money under r. 115. The rate applied by the ITO being in conformity with the said rule, the appeal was liable to be dismissed. The Tribunal also took the same view and dismissed the appeal. At the instance of the assessee, the following question of law has been referred : "Whether, on the facts and in the circumstances of the case, and having regard to the laws of Ceylon, the Tribunal was justified in law in including Rs. 43, 550 as the accrued foreign income which is liable to be taken into account in making the assessment in Indian for the assessment year 1970-71 ?" *The learned counsel for the assessee contended that he can be taxed only on his real income whatever be the basis, whether accrual or receipt, and his real income : in view of the restrictions on remittances of income from Ceylon into this country should be taken only at 45% of the income accrued at Ceylon. In this connection, he also invited our attention to S. 220, cl. (7), of the I. T. Act, 1961, which takes note of such prohibition or restrictions while considering the question as to whether an assessee can be considered to be in default in payment of any tax. He further contended that the same principle will have to be applied in the case of even applying r. 115 for the conversion of the money into Indian currency. In order to give an answer to this argument, it is necessary for us to see the scheme of taxation of income accruing or arising outside India.Under s. 5 (1) (c) of the I. T. Act, the total income of any previous year of a person who is a resident shall include his income accruing or arising to him outside India during such year. In Sutlej Cotton Mills Ltd. v. CIT, the Supreme Court had occasion to consider a case, where income accrued in one year was remitted in a subsequent year but by the time it was remitted there was a devaluation of the rupee. When the assessee claimed a deduction on account of loss due to exchange fluctuation, the Supreme Court held that he would be entitled to a deduction of the same.