INDIAN OVERSEAS BANK Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN these tax case references under section 256(1) of the INcome-tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the assessees, the following common question of law for the assessment years 1972-73 and 1973-74 has been referred to this court for its opinion:

(2.) THE assessee is a nationalised bank and one of the main items of its business is to deal in foreign currencies on behalf of its constituents. During the assessment years in question, the forward exchange contracts entered into by the assessee remained unsettled and as the contracts entered into by the assessee related to different foreign currencies, the assessee estimated the profit recoverable on these outstanding contracts on the basis of the rates of exchange as at the end of the accounting period in respect of the two assessment years 1972-73 and 1973-74. THE profits so estimated for the assessment years 1972-73 and 1973-74 were Rs. 1,72,911 and Rs. 15,57,022.40, respectively. Before the Income-tax Officer, the assessee contended that these amounts were only in the nature of provision and did not represent profits actually realised by the assessee and hence should not be included in the taxable income. THE Income-tax Officer, however, did not accept the claim of the assessee that these amounts represented only provisions and did not represent profits actually realised and, in that view, subjected these amounts to tax. On appeal before the Appellate Assistant Commissioner by the assessee, relying upon an earlier decision of the Tribunal in I. T. A. No. 1864/Mds./1974-75 for the assessment year 1968-69 in respect of the same assessee, the assessment to tax of the aforesaid amounts by the Income-tax Officer was upheld. On further appeal to the Tribunal, it took the view that as in I. T. A. No. 1864/Mds./1974-75 for the assessment year 1968-69, it has been held that the provision for loss on exchange was considered as an admissible deduction, the provision for profits for the two assessment years in question should also be accorded a similar treatment and, therefore those amounts were assessable. It is thus that the aforesaid common question of law has come up before us.