1990 (2) TMI 43

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....ds estimated profit on exchange amounting to Rs. 1,72,911 for the assessment year 1972-73 and Rs. 15,57,022.40 for the assessment year 1973-74 is taxable?" The assessee is a nationalised bank and one of the main items of its business is to deal in foreign Currencies on behalf of its constituents. During the assessment years in question, the forward exchange contracts entered into by the assessee remained unsettled and as the contracts entered into by the assessee related to different foreign currencies, the assessee estimated the profit recoverable on these outstanding contracts on the basis of the rates of exchange as at the end of the accounting period in respect of the two assessment years 1972-73 and 1973-74. The profits so estimated....

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....in respect of the assessment year 1968-69 was the subject-matter of a reference before this court in the decision relied on and that it had been held that notional profit or loss could not be taken note of for purposes of assessment under the provisions of the Act and actual loss or profit alone could be considered for assessment purposes. Reference in this connection was also made to CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC) to contend that though under the provisions of the Act, the two points of time at which the liability to tax is attracted are taken note of, viz., the accrual of the income or its receipt, yet the hypothetical income or loss, though entered in the books, cannot be income or loss, unless such income or lo....

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....hat notional profit or loss, without a settlement, of the outstanding foreign exchange contracts, cannot be subjected to tax treatment and, therefore, the deductions accepted as allowable by the Tribunal were not in order. This contention of the Revenue was accepted and it was held that whether there is a loss or profit on foreign exchange transactions can be ascertained only after settlement of the forward contracts and not before and that so long as that stage had not been reached, the loss can only be notional and not actual or real and a notional loss cannot be claimed as a deduction. Whether a loss or profit, the principle applicable would be the same and the estimated profit, till the settlement of the forward foreign exchange contrac....