Trading receipts from forward foreign-exchange contracts treated as revenue income and taxable where transaction shows intention to trade.

Whether proceeds from a single forward foreign-exchange transaction amounted to trading receipts was tested by examining contract form, absence of delivery, payment of interest to keep contracts alive, profit from price difference, and the company objects permitting dealings in foreign exchange. The assessee failed to produce records of purpose and the court drew adverse inference. Applying tests distinguishing revenue receipts from capital appreciation and treating an intention to turn the commodity over for profit as an adventure in the nature of trade, the sum was held revenue and assessable to income tax.

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Issues: Whether the sum of Rs. 1,27,125 realised by the assessee from the purchase and resale of United States dollars constituted a trading receipt of a revenue character assessable to income-tax.

Analysis: The Court examined the nature and circumstances of the single transaction including that it was effected by way of forward contracts, the assessee never took delivery of the dollars, the contract was kept alive by payment of interest, and the profit arose from dealing in the difference between purchase and resale prices. The Court considered relevant tests for distinguishing trading receipts from capital appreciation and relevant authorities on isolated transactions and on purchases made in contemplation of resale. The objects clause of the company included dealing in goods and merchandise and permitted dealings in foreign exchange. The assessee failed to produce records explaining the purpose of acquisition; the Court drew the permissible inference against the assessee. On these facts the transaction exhibited an intention to turn the commodity over for profit and possessed the character of an adventure in the nature of trade.

Conclusion: The sum of Rs. 1,27,125 was a trading receipt of a revenue character and assessable to income-tax; decision against the assessee (in favour of revenue).

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