COMMISSIONER OF INCOME TAX Vs. NATIONAL PALAYACOT COMPANY

JUDGEMENT

(1.) THE assessee in this case is a partnership firm of three equal partners carrying on business in the export of lungies and kylis in the Malaysian Federation through its branch at Penang. THE assessee purchases goods in India and exports them to be sold by its branch at Penang. THE head officer of the assessee in India makes out the invoices in the name of the Penang branch for the exports in terms of rupee currency and receives remittances from the Penang branch in the same currency. THE Penang branch, however, maintains its accounts in terms of Malaysian dollars, which is the local currency in Penang. What the Penang branch does is to enter the cost of the goods received from India in terms of dollars. After sales in Malaysia, which yields Malaysian dollars, the Penang branch makes remittances to the head officer in India after converting the dollars into rupees.

(2.) DURING the period January 31, 1966, to March 18, 1966, the assessee sent from its head office in India to the Penang branch goods, valued in terms of rupee currency, at Rs. 2,52,570. In terms of Malaysian currency, the value amounted to 1,62,957.47 Malaysian dollars at the then prevailing rate of exchange between the Indian rupee and the Malaysian dollar. On June 6, 1966, the Indian rupee was devalued. This meant that as against the earlier ratio of Rs. 155 for every 100 Malaysian dollars, the rate of exchange was altered to Rs. 250 for every 100 Malaysian dollars. The Penang branch remitted Rs. 2,52,570 to the assessee's head office sub-sequent to June 6, 1966. This meant that the Penang branch was able to save 59,455 Malaysian dollars in the transaction which would otherwise have had to be remitted to the head office if the Indian rupee had not been devalued.

(3.) ON the other hand, Mr. A. N. Rangaswami, learned standing counsel for the Revenue, contended that the handling of Malaysian dollars was inextricably linked up with the assessee's course of trade, which consisted of export of handloom cloth to Penang for sale and realisation in terms of Malaysian dollars. In this kind of trade, according to the learned standing counsel, gains as well as losses due to fluctuations in foreign exchange were inevitable by products or side effects of the business. The learned standing counsel pointed out that the very course of dealings between the assessee's head office conducting its business with concomitant foreign exchange consequences. Learned counsel submitted that in such a kind of business, it was not necessary that the assessee should indulge in regular dealings in foreign exchange in order that exchange losses or exchange gains may be regarded as part and parcel of its trading results. It was submitted that even though the particular gain of Rs. 1,44,845 in the year of account was the result of a fortuitous circumstance, namely, the devaluation of the Indian rupee, it can by no means be regarded as a windfall, since the receipt was a necessary incident of the very nature and character of the assessee's business.