TaxTMI 
TaxTMI 
1966 (1) TMI 24
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and in the circumstances of the case, the surplus or difference arising as a result of devaluation in the process of converting dollar currency in regard to the sum of $36,123.02 repatriated to India was profit which was taxable in the hands of the assessee ? (2) Whether the said sum of $36,123.02 having been taxed in the relevant earlier years, the surplus or difference in dollar exchange account arising by reason of the repatriation thereof as a result of devaluation was rightly taken as profit taxable ? " The relevant facts and circumstances, as stated in the statement of the case, are as follows: The respondent, Tata Locomotive and Engineering Co. Ltd., hereinafter referred to as the assessee, is a limited company registered un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a Inc., New York. The reason why this was done was explained in the assessee's letter dated October 26, 1948, to the Reserve Bank of India. In it the assessee stated inter alia as follows : "It would be more convenient if the amount of commission payable to us periodically be deposited into other account with our representative, Messrs. Tata Inc., New York, opened with reference to your letter EC, BY. 7031/74/46 dated 2nd October, 1946, as the same would go to reduce the amount of remittance to be made from here in recoupment of that amount from time to time. These amounts will be utilised solely for the purposes detailed in our letter to you TC 679 dated 15th August, 1946." The purposes referred to in the said letter of August 15,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs, the case proceeded before the income-tax authorities as well as before the Tribunal on the footing that the two remittances be considered as failing in the accounting year ended March 31, 1950, for the purpose of the appeal before the Tribunal. The remittances of $49,500 included the sum of $48,572.30 that was held by the assessee on September 16, 1949. This repatriation of the sum of $48,572.30 gave rise to a sum of Rs. 70,147 as surplus in the process of converting dollar currency into rupee currency. The Income-tax Officer assessed the amount of Rs. 70,147 on the ground that it represented profits that arose to the assessee " incidentally to its carrying on the business." The Income-tax Officer observed : " Whether the funds we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unts. But regarding the sum of $36,123.02 the Tribunal held that it would not be justified in coming to the conclusion that there was any constructive remittance, first in the direction U.S.A. to India and then of an equivalent sum from India to the U.S.A. It further held that the amount was earned as commission. It was received in dollars and was retained in that form for the changed purpose under the authority of the Reserve Bank of India. When the company found that the purpose for which it was to be used failed, viz., acquisition of capital equipment, etc., it requested the Reserve Bank of India to permit it to bring to India, vide assessee's letter dated 17th December, 1949, where it sought the Reserve Bank's permission to bring $40,00....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... company. This character was retained right up to September 16, 1949, when the pound sterling was devalued, and it did not undergo any change till the benefit accrued on this amount to the assessee-company as a result of change in the exchange rate. The High Court further held that " there is no evidence in this case nor a finding recorded by the Tribunal that the assessee-company had at any time decided not to utilise these amounts for the purpose of purchasing capital goods, and, therefore, repatriated these amounts to India." The High Court further held that the sum of $36,123.02 was it part of its fixed capital and remained so till the date it was repatriated to India. The surplus or difference arising as a result of devaluation in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en cited before us, but it seems to us that the answer to the questions depends on whether the act of keeping the money, i.e., $36,123.02, for capital purposes after obtaining the sanction of the Reserve Bank was part of or a trading transaction. If it was part of or a trading transaction then any profit that would accrue would be revenue receipt ; if it was not part of or a trading transaction then the profit made would be a capital profit and not taxable. There is no doubt that the amount of $36,123.02 was a revenue receipt in the assessee's business of commission agency. Instead of repatriating it immediately, the assessee obtained the sanction of the Reserve Bank to utilise the commission in its business of manufacture of locomotive boi....