Foreign currency held as capital asset gives rise to taxable capital gain on conversion into Indian rupees.

Foreign currency held as a capital asset falls within the definition of "capital asset", and conversion or repatriation of that currency into Indian rupees amounts to a transfer giving rise to capital gains. On the facts found, the currency was held as investment rather than as trading stock, so the surplus on repatriation was not business income. The Karnataka HC held that the gain was correctly taxed as long-term capital gain under the Act.

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Issues: Whether the surplus arising on repatriation of foreign currency held by the assessee was assessable as long-term capital gain.

Analysis: Foreign currency held by the assessee was property and therefore fell within the definition of capital asset. When the dollars were repatriated and converted into Indian currency, the assessee realised a gain by transferring that capital asset within the meaning of the Act. The nature of the asset depended on whether it was held as trading asset or capital asset; on the facts found, it was held as capital asset and not as circulating capital.

Conclusion: The surplus of Rs. 2,98,657 was correctly treated as long-term capital gain and was taxable under the Act.

Ratio Decidendi: Where foreign currency is held as a capital asset, gain on its conversion into another currency is capital in nature and is chargeable to tax as capital gain.

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