COMMISSIONER OF INCOME TAX Vs. VITRE ENGINEERING CO

JUDGEMENT

(1.) THE assessee before us is M/s Vitre Engineering Co., Bombay. It carries on work in India as consulting engineers. However, it is not a separate entity in the sense known to company law, being a division or a branch of M/s Vitre Corporation, a corporation incorporated in the United States of America. However, the Indian Division, viz., the assessee will be required to be considered as a company under the Indian IT Act, 1922.

(2.) SOME of the employees of the assessee are American nationals, who were paid salaries partly in dollars and partly in rupees. The dollar part of the salary was paid by the head office in New York. The head office also charged the assessee for certain overhead expenses. A third head of account which was claimed by the head office pertains to work like design, supply of drawings, etc. All this work was done in the United States of America and payment for the same was made in dollars in the United States of America. A running account used to be kept between the head office and the assessee. The assessee company had obtained the permission of the Reserve Bank of India for maintenance of such account. The said account was allowed to be operated and remit tance effected to the head office on the conditions imposed by the Reserve Bank of India and with the approval of the Reserve Bank of India.

(3.) ON 6th June, 1966, the rupee was devalued to the extent of 57.5%. The new exchange rate for one U.S. dollar after devaluation came to Rs. 7.50. To give effect to this changed exchange rate, the assessee credited the head office with a sum of Rs. 7,64,830.27 which would seem to represent the devaluation loss. A corresponding amount was debited earlier to ''gain or loss on foreign exchange". Between 5th June, 1966 and 31st Dec. 1966, the assessee remitted to its head office $1,60,124.84 which in terms of the devalued rupee amounted to Rs. 12,00,936.30. This would be against the rupee equivalent of Rs. 7,62,499.24 which was required prior to devaluation. In other words, the assessee had to pay Rs. 4,38,437.06 to discharge its dollar liability to the head office to the extent it was discharged during this period.