Receipt-based taxation limits currency conversion rules that cannot tax notional foreign exchange income beyond actual receipt.

Rule 115(c) of the Income-tax Rules was examined for whether foreign exchange export receipts had to be converted at the rate prevailing on the last day of the previous year, rather than on the date of actual receipt. The Court held that income tax attaches to income when actually received in the course of business, and that delegated rules under section 295 cannot widen the charging provisions or impose tax on notional income not yet received or realisable. On that basis, rule 115(c), as then framed, was beyond the parent Act and could not be applied to the assessee's export receipts; the revisional order was quashed.

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Issues: Whether rule 115(c) of the Income-tax Rules, 1962, was beyond the scope of sections 4 and 28 of the Income-tax Act, 1961, insofar as it required conversion of foreign exchange receipts at the exchange rate prevailing on the last day of the previous year instead of the date of actual receipt.

Analysis: The Court held that income-tax under the Act attaches to income when it is actually received in the course of business, and that the charge is not to be shifted to a notional figure by converting foreign exchange at a later date. It considered the scope of rule-making power under section 295 and held that a rule made to carry out the purposes of the Act cannot enlarge the charging provisions or compel tax on income not actually received and not realisable in future. Applying that principle, the Court found that rule 115(c), as then in force, would tax the assessee on an amount higher than the rupee value actually received on the relevant dates, and therefore exceeded the parent Act.

Conclusion: Rule 115(c) was held to be ultra vires and inapplicable to the assessee's export receipts; the impugned revisional order was quashed, in favour of the assessee.

Ratio Decidendi: A delegated rule governing currency conversion cannot override the charging provisions of the Income-tax Act by taxing notional income beyond the amount actually received; conversion must conform to the receipt-based charge under the Act.

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