Court upholds foreign income assessment for 1970-71, emphasizing taxation based on accrual.

The court upheld the assessment of an individual's foreign income accrued in Ceylon for the assessment year 1970-71, converting it into Indian currency based on IT rules without considering remittance restrictions. It ruled that income accruing outside India should be included in the assessment year of accrual, emphasizing that taxation should be based on accrual or arising outside India, irrespective of remittances or foreign exchange certificate schemes. The judgment rejected the argument that discounts under the certificate scheme should impact real income calculation, affirming that the entire accrued income from Ceylon should be subject to the conversion rate under IT rules.

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Issues:
1. Conversion of foreign income into Indian currency for assessment.
2. Interpretation of rules regarding taxation of income accruing outside India.
3. Application of Foreign Exchange Entitlement Certificate Scheme in taxation.
4. Consideration of restrictions on remittances from foreign countries in tax assessment.

Analysis:
The judgment involved the assessment of an individual as a resident and ordinarily resident for the assessment year 1970-71, where the assessee disclosed foreign income accrued in Ceylon. The Income Tax Officer converted this income into Indian currency at a specific rate per IT rules and made the assessment based on this conversion. The assessee appealed, arguing that only 45% of the Ceylon income could be converted into Indian currency due to restrictions on remittances imposed by the Ceylon government. However, the Appellate Authority and Tribunal upheld the assessment, stating that the conversion should be done based on IT rules, regardless of remittability issues (Para 1).

The main contention raised by the assessee was that taxation should be based on real income, considering the restrictions on remittances from Ceylon. The counsel referred to Section 220(7) of the Income Tax Act, 1961, which acknowledges such prohibitions. The court delved into the scheme of taxation for income accruing outside India, citing relevant case laws. It was established that foreign income for a resident should be assessed based on accrual or arising outside India, irrespective of remittances or bringing into India (Para 2).

The judgment emphasized that income accruing outside India should be included in the year of accrual, without considering remittances or foreign exchange certificate schemes. The court highlighted that the method of accounting cannot avoid the charge on income accruing in India, as per Section 5 of the Income Tax Act. The decision was supported by legal principles ensuring income is not taxed twice and must be included in the total income of the relevant year (Para 3).

In conclusion, the court ruled in favor of the revenue, affirming that the Ceylon income should be included in the assessment year of accrual without considering discounts or remittance restrictions. The judgment rejected the argument that discounts under the certificate scheme should affect real income calculation. The conversion rate under IT rules applied to the entire accrued income from Ceylon, disregarding any potential discounts upon remittance (Para 4).

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