Devaluation loss in business may be deductible, but post-accrual fall in taxed profits is not a revenue loss.

Devaluation loss incurred in the course of business was held allowable as a revenue deduction, following earlier binding authority, and the assessee succeeded on that issue. By contrast, the fall in foreign exchange value of unremitted profits already earned and taxed in Indian currency was treated as a post-accrual depreciation in the value of those profits, not a trading loss, so no revenue deduction was available. The distinction turned on whether the loss arose in business operations or only after profits had accrued and been taxed.

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Issues: (i) whether losses arising from devaluation of the Indian rupee were incurred in the course of or incidental to the assessee's business and were allowable as revenue deductions; (ii) whether the loss arising from devaluation of unremitted profits kept in India was an allowable revenue loss.

Issue (i): whether losses arising from devaluation of the Indian rupee were incurred in the course of or incidental to the assessee's business and were allowable as revenue deductions

Analysis: The first question was covered by earlier binding decisions holding that loss arising from devaluation of the Indian rupee in the relevant business context is a revenue loss and is deductible as such.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Issue (ii): whether the loss arising from devaluation of unremitted profits kept in India was an allowable revenue loss

Analysis: The unremitted profits had already been earned and taxed in Indian currency, and the subsequent fall in their foreign exchange value on devaluation was treated as a mere depreciation in the value of profits after accrual, not as a trading loss. The facts were held to be distinct from the cited Supreme Court decision concerning trading or capital character of the underlying funds.

Conclusion: The question was answered in the negative and against the assessee.

Final Conclusion: The reference was disposed of by allowing the assessee's case on the first question and rejecting it on the second, with no order as to costs.

Ratio Decidendi: A post-accrual fall in the exchange value of profits already earned and taxed does not constitute a revenue loss, whereas devaluation loss incurred in the course of business may be allowable as a revenue deduction.

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