TaxTMI 
TaxTMI 
2011 (5) TMI 429
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....The assessee entered into an agreement dated 24.07.1962 (hereinafter referred to as „Agreement‟) with one Mr E. Manekji of Karachi, Pakistan for sale of its two cement factories located at Karachi and at Dandot, Distt. Jhelum. The agreement envisaged that the purchaser, i.e., Mr Manekji would make the payment in cash or kind or both according to the procedure laid down. 2.1 In so far as the payment in kind was concerned the procedure laid down broadly envisaged that Mr Manekji would supply and deliver cement to the assessee in its factory in India equal to the value of the agreed purchase price. The supply of cement was to commence immediately after the receipt of instructions from the assessee for despatch of the same. The supplies had to be completed over a period of 3 years. 2.2 As is obvious the values of supplies made by Mr Manekji were required to be adjusted against the purchase price. In addition to the annual deliveries, the purchaser was also required to supply and deliver to the assessee a further quantum of cement in lieu of interest at the rate of 6% per annum on a weekly diminishing balance of the purchase price. 2.3 To secure performance of its obligat....
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....o the assessee a total sum of GBP 35,49,634/- towards sale consideration (qua the aforesaid factories), costs and interest. It may be noted that the interest paid spanned a period commencing from 01.10.1962 and ending on 03.05.1976. 3. It appears that the said sum was released to the assessee on a bank guarantee being furnished by the Barclays Bank in favour of NBP. The Barclays Bank, in turn, was secured by a counter bank guarantee furnished in its favour by the London branch of Bank of India. The assessee in order to give comfort to Bank of India kept the amount it had received from NBP, in satisfaction of the award, with the London branch of Bank of India, in the form of an interest bearing fixed deposit. The fixed deposit was made for an initial period of 18 months which ended on 11.07.1977. 3.1 It would be important to note at this stage, as recorded in the Assessing Officer‟s order, that by a communication dated 22.04.1980, the assessee was called upon to furnish the terms and conditions on which the said fixed deposit was made with the Bank of India. In response to the same, the assessee appears to have simply stated, vide letter dated 25.04.1980, that the fix....
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....by applying Amended rule 115 of the IT Rules, 1962: Rs 2,66,51,778/- Less principal being sale price of the two cement Factories as per books: Rs 2,08,19,678/- Rs 58,32,100/-" (* It may be noted that GBP 18,21,721/- is the principal amount awarded out of the total sum of GBP 35,49,634/- awarded to assessee by the arbitrators). 3.5. To complete the narrative, it appears that the assessee on maturity of the fixed deposit i.e., on 07.11.1977, received a sum of GBP 41,65,860/-. Since the assessee was offered a better rate of interest, the said amount was once again deposited in the Bank of America and Citi Bank. The money was finally repatriated to India only on 15.11.1978. 3.6 The Assessing Officer in coming to the conclusion that the amounts were taxable inter alia returned broadly the following findings of fact : (i) the amount received by the assessee on 03.05.1976 became its „absolute property‟ subject to the assessee furnishing a bank guarantee; (ii) the receipt of the amount could not be linked to the obligation of the assessee to furnish a bank guarantee; (iii) the assessee was at liberty to remit the amount to India after the order of the High Court or in any ....
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....hat is relevant for our purposes is that in respect of the question at hand, the revenue‟s appeal was dismissed and the order of the CIT(A) in that regard was confirmed. The Tribunal has dealt with the said aspect in paragraph 52 of its judgment. Suffice it to say that the Tribunal has affirmed the order of the CIT(A) by relying adverbatim on the observations contained in CIT(A)‟s order to which reference has been made by us hereinabove. The revenue being aggrieved, as noticed above, has preferred the captioned reference. 4. Before us the arguments on behalf of revenue have been addressed by Ms Bansal, senior counsel assisted by Mr Deepak Anand, while on behalf of the assessee submissions were made by Mr V.P. Gupta. 4.1 Ms Bansal submitted that both the CIT(A) as well as the Tribunal had committed two errors. First, by holding that the principal amount GBP 18,21,721/- was held in London on capital account. Second, (which according to her flowed from the first error) the application of the judgment of the Supreme Court in the case of Satluj Cotton Mills Ltd. vs CIT, West Bengal (1979) 116 ITR 1 to the present case. Ms Bansal laid stress on the fact that the assessee....
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....1980) 124 ITR 31 and CIT vs J.V. Gupta & Sons (HUF) (2000) 241 ITR 861. 5. Having heard the learned counsel for the parties and perused the record what emerges from the record is as follows: 5.1 The Tribunal in coming to the conclusion, which it did, has based it on deductions all of which according to us did not entirely flow from the record. The fallacy of the Tribunal in this regard is demonstrable from the following: 5.2 First, that the principal amount of GBP 18,21,721/- was received by the assessee on capital account, that is, was a capital asset. Since it held so, it went on to conclude based on the principle enunciated in Satluj Cotton Mills (supra) that any appreciation or depreciation in the value of currency had to take the same colour. Therefore, the profit earned by the assessee, that is, a sum of Rs 58,32,100/- could not be brought to tax. 5.3 The second limb of its deductive reasoning was that since the principal sum remained "unutilized" in the form of a fixed deposit, in the bank, in London it was not used in the assessee‟s business and hence, necessarily retained the character of a capital asset. 5.4 Lastly, the Tribunal held that since there was no con....
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....d be upheld and also as regards the exact extent to which the award would be sustained, i.e., the quantum of money that would be awarded to the assessee. The reasoning supplied both by the Tribunal as well as the CIT(A) that because a fixed deposit had been created with the London branch of Bank of India, the amount was held in capital account is not borne out from the evidence on record. The Assessing Officer‟s findings in this regard that the amount was not "immobilized" appear to be correct. 7. This brings us to the last limb of the Tribunal‟s reasoning: which is, that the profits, if any, could said to have arisen in favour of the assessee, only if, there was actual conversion of the monies received by the assessee is a principle with which, we agree. However, it is also been found as a fact that on the fixed deposit maturing the assessee received a sum equivalent to GBP 41,65,860/- which was reinvested, and thereafter, remitted to India on 15.11.1978. Therefore, it is obvious that a conversion did take place. If that were so, whether or not profit or loss accrued to the assessee and to what extent, would depend upon whether appreciation or depreciation of foreign ....