Foreign exchange appreciation in business holdings retains business character and is not exempt as a casual receipt.

Appreciation in the rupee value of dollar balances held in the course of business was treated as part of the same business receipt structure and not as a separate casual, non-recurring receipt. The exemption under section 4(3)(vii) of the Indian Income-tax Act, 1922 applied only where the receipt was both casual and non-recurring and also did not arise from business; here, the foreign currency balances had their source in business receipts, so the later exchange gain retained that business character. The appreciation was therefore chargeable to tax and not exempt under section 4(3)(vii).

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Issues: Whether the appreciation in the rupee value of dollar balances held by the assessee, being casual and non-recurring, was exempt under section 4(3)(vii) of the Indian Income-tax Act, 1922 on the ground that it did not arise from business.

Analysis: The exemption under section 4(3)(vii) required the receipts to be both casual and non-recurring and also to have not arisen from business. The character of the receipt had to be determined by its source and connection with the business in which the dollars were acquired and held. The appreciation in value was not a separate receipt divorced from the original business receipts; it was part of the same receipt structure and followed the business origin of the dollar holdings. Once the underlying receipts were found to have arisen in the course of business, the subsequent increase in their rupee value could not be treated as an independent exempt accretion. The authorities relied on exchange-profit cases to hold that gains arising from business-connected foreign currency holdings were trading receipts.

Conclusion: The appreciation was chargeable to tax and did not fall within the exemption in section 4(3)(vii); the question was answered in favour of the revenue.

Ratio Decidendi: For the purpose of section 4(3)(vii) of the Indian Income-tax Act, 1922, a gain from the appreciation of foreign currency held in the course of business is not exempt where the currency receipts themselves arose from business, because the later fluctuation in value is part of the business receipt and not a separate exempt receipt.

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