Foreign currency devaluation gains on business profits are taxable income, not capital receipt, where funds were retained as trading profits.

Surplus arising on remittance of foreign currency balances after rupee devaluation was treated as a revenue receipt taxable as income, not a capital accretion. The Court held that mere retention of business profits in a foreign country does not alter their character as income, and prior assessment of those amounts was irrelevant to their treatment on remittance. Tata Locomotive was distinguished because that case involved foreign currency held for acquisition of capital goods, whereas the present funds remained business profits. Applying the principle in Hindustan Aircraft, the gain attributable to devaluation was held incidental to the business and chargeable under the relevant provision.

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Issues: Whether surplus arising on transfer of foreign currency balances after devaluation of the Indian rupee was a capital accretion or a revenue receipt taxable as income.

Analysis: The assessee had earned fees in Sri Lanka and retained the amounts there before later remittance to India. The Court held that mere retention of business profits in a foreign country did not convert them into capital, and the fact that the amounts had earlier been assessed to tax was irrelevant to their character on remittance. The decision in Tata Locomotive was distinguished because there the foreign currency holding had been earmarked and retained for acquiring capital goods, whereas here the funds remained business profits. Following the principle applied in Hindustan Aircraft, the profit arising from appreciation due to devaluation was treated as incidental to the business and chargeable as income under the relevant provision.

Conclusion: The surplus realised on devaluation was a revenue receipt taxable as income, not a capital receipt.

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