Exchange loss on foreign remittance must be deducted in computing taxable profits brought into British India.

Foreign remittances brought into British India were taxable only to the extent they represented profits and gains, not on a nominal conversion amount. The text explains that the actual taxable receipt had to reflect the exchange rate at conversion, because the commercial reality of converting foreign currency into rupees included exchange loss. That loss was treated as part of the real profit computation in an overseas money-lending business and not as a capital loss. Accordingly, the remitted sum had to be reduced by the exchange loss when computing income under the Income-tax Act, 1922, and expenditure incurred solely to earn the profits was also recognised as allowable.

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Issues: Whether the entire sum remitted from Saigon was taxable under section 4(2) of the Income-tax Act, 1922, or whether the amount had to be reduced by the loss on exchange.

Analysis: The sum received in British India was taxable only to the extent that it represented profits and gains brought into the country. The assessment could not proceed on a presumption that profits were remitted before capital, because the actual amount received depended on the exchange rate prevailing when the foreign currency was converted into rupees. The exchange loss formed part of the real commercial result of the overseas money-lending business and could not be treated as a loss of capital. The conversion of rupees into dollars and back again was necessary for earning and bringing home the profits, and the computation of taxable income had to take that loss into account. Section 10(2)(ix) of the Income-tax Act, 1922 supported allowance of expenditure incurred solely for earning the profits.

Conclusion: The whole sum of Rs. 23,252 was not taxable under section 4(2) of the Income-tax Act, 1922, and the amount had to be reduced by the loss on exchange, in favour of the assessee.

Ratio Decidendi: In computing taxable profits brought into British India, the real commercial value of the remittance must be taken into account, and exchange loss necessarily incurred in converting foreign receipts into Indian currency is deductible as part of the true profit computation.

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