1990 (2) TMI 43 - HC - Income Tax

Tax Court Rules Notional Profits from Unsettled Contracts Not Taxable

Indian Overseas Bank Versus Commissioner Of Income-Tax

Indian Overseas Bank Versus Commissioner Of Income-Tax - [1990] 183 ITR 200, 82 CTR 81, 51 TAXMANN 283 Issues Involved:The judgment involves the tax case references u/s 256(1) of the Income-tax Act, 1961 regarding the taxability of provision made towards estimated profit on exchange for the assessment years 1972-73 and 1973-74.Assessment Year 1972-73:The assessee, a nationalized bank, estimated profit on unsettled forward exchange contracts. The Income-tax Officer taxed these amounts, which the Appellate Assistant Commissioner and Tribunal upheld. The assessee argued that these were provisions, not actual profits. Citing precedents, the assessee contended that notional profit cannot be taxed. The High Court agreed, stating that estimated profits were not actual and could not be taxed.Assessment Year 1973-74:Similar to the previous year, the assessee estimated profits on unsettled contracts. The Income-tax Officer taxed these amounts, upheld by the Appellate Assistant Commissioner and Tribunal. The assessee argued that these were provisions, not actual profits. Citing precedents, the assessee contended that notional profit cannot be taxed. The High Court agreed, stating that estimated profits were not actual and could not be taxed.Conclusion:The High Court held that the estimated profits made by the assessee on unsettled forward exchange contracts were not actual profits and could not be taxed. Citing precedents, the court emphasized that notional profits cannot be subjected to tax treatment. The court rejected the Revenue's argument and ruled in favor of the assessee, stating that the amounts represented notional profits and were not assessable for tax purposes.