TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 1151
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.... the claim of loss on revaluation and sale of RBI bonds, amounting to Rs. 6,04,75,315/- and Rs. 43,30,000/- respectively. The circumstances relevant for appreciating the controversy, admittedly, are that the assessee had undertaken a few projects in Iraq as subcontractor of M/s. Indian Railway Construction Company Ltd. (Ircon). The assessee in the Assessment Year 1986-87, 1987-88 claims to have completed a portion of the construction work. The works were also certified and the assessee has not received the full consideration for the certified work in the corresponding previous years. The assessee for the Assessment Year 1986-97 adopted completed contract method and the receipts of the work executed in Iraq have not been reflected for consideration in the books of accounts. The Revenue insisted that mercantile system was the procedure followed by the assessee in the previous assessment years and change of accounting system for one project to completed contract accounting system is not acceptable and made the assessment order. 2.1. The assessee challenged the decision of the Revenue in this behalf and contended that the assessee has discretion to adopt an accounting standard commens....
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.... the disallowance of Rs. 6,04,75,000/- being disallowance of loss on revaluation of bonds. 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in interfering with the disallowance of Rs. 43,30,000/- being disallowance of loss on sale of RBI Bonds?" 4. Learned Senior Standing Counsel Mr. Christopher Abraham argues that the assessee, in lieu of receivables for the work executed in Iraq, has realized the bonds from RBI/ECGC. Upon the receipt of bonds, the bonds have to be treated as capital asset and not current asset. The Tribunal recorded a finding that the entry of government bonds cannot come within the purview of stock-in-trade and however committed serious error by including RBI bonds under the head 'current asset'. The notional loss, at any rate, should not have been computed and allowance granted to assessee. Therefore, he argued that the order of the Tribunal to the said extent is illegal and substantial questions framed fall within the jurisdiction of this Court under Section 260A of the Act and prays to allow the appeal. 5. Per contra, learned Senior Advocate Mr. Sreedharan contends that the assessee has been show....
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.... depending upon the rate at which the transaction takes place. He submits that the Revenue once is unable to establish that bonds can be included within the hold of capital asset, the substantial questions of law now framed are without merit and do not come within the scope of this Court's jurisdiction and prays to dismiss the appeal. 5.3 He further argues that the bonds are not investment made by the assessee and assessee is not in the business of sale and purchase of securities, bonds etc. the assessee is in possession of bonds as a consequence of inevitable option offered by the Government of India. The assessee treated it as current asset depending upon the business exigencies for selling and realizing the amount from the sale of bond. 6. The Tribunal in detail considered the case of Revenue, referred to the definition of 'capital asset' and that the government bonds attract the nature of capital asset and briefly noted as follows: "A reading of the Section 2(14) of the IT Act would show that unless specifically excluded, property of any kind held by the assessee would be capital asset. The authorised representative has admitted that it is a part of circulating ....
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....ctors including M/s. IRCON in lieu of the money receivable from Iraq on the execution of the contracts. Having regard to the fact that the bonds were issued in lieu of amounts due i.e. Business receipts, and having regard to unavailability of any other option for realisation of such amounts due; the bonds were liable to be considered as business receipts. It is thus clear that the bonds were liable to be considered as business receipts and any shortfall either by revaluation or on actual realisation was liable to be considered as a business loss. The bonds are normal current asset in the hands of the appellant in the same way, as the receivables in respect of the contracts executed would be current assets. Money receivable could not be treated as capital assets such as Plant & Machinery or investments. The appellant being in need of money for the purpose of carrying on the business continued to treat the bonds as current assets and sell them as and when necessary even at a loss of replenishing the cash bill. Thus both from the point of Income Tax Law and the ordinary commercial accounting procedure the loss sustained on valuing the bonds as at 31.03.96 at cost or market price w....
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....) is applied, bills, receivables, cash in hand, cash with banks, sundry debtors and such other assets, will have to be classified as capital assets. By any stretch of imagination, these assets forming part of circulating capital of any business cannot be termed as capital assets within the meaning of Section 2(14). It is also relevant to observe that where a particular word is defined with the clause "unless the context otherwise requires". (As is the case in Sec. 2 of the Act), it is not mandatory that one should mechanically attribute to the said word the meaning assigned to it in the definition clause. Ordinarily that is so. But where the context does not permit or where the context requires otherwise the meaning assigned to it in the definition clause need not apply. (Printers (Mysore) Ltd. v Asst. CTO (1994) 2 Scc. 434, 444(SC). Therefore CIT(A) was wrong in holding the bonds received by the company in lieu of receivables and held by it as current assets, as capital assets." 7. The Tribunal, on consideration of the decisions and the circumstances, examined the bonds, whether as capital asset or current asset. The Tribunal noted that this depends upon the facts and circumstanc....