1998 (3) TMI 64 - HC - Income Tax

Summary

Issues:
Conversion of foreign income for tax assessment purposes under old rule 115 of Income-tax Rules, 1962.

Analysis:
In this case, the firm had a branch in Singapore and manufactured goods in Madras for sale in Singapore. The Income-tax Officer disagreed with the conversion rate used by the assessee and made an addition to the income. The Commissioner of Income-tax (Appeals) directed the Income-tax Officer to apply the provisions of the old rule 115 for conversion. The Revenue appealed, but the Appellate Tribunal refused to interfere, citing the Supreme Court decision in Varghese v. ITO. The main issue was whether the old rule 115 applied to the conversion of Malaysian dollars into Indian rupees.

The old rule 115 provided conversion rates for pound sterling and U.S. dollar but did not include rates for other currencies. The court considered the applicability of the old rule to the conversion of Malaysian dollars. Referring to a previous case, the court noted that the rule applied to income earned in any foreign currency liable to be taxed in India. The court emphasized that the rule aimed to provide a method for converting foreign income into Indian currency without the need to search for exchange rates.

The court held that the Income-tax Officer should convert Malaysian dollars to U.S. dollars at the prevailing rate and then convert U.S. dollars to Indian rupees as per the rates in the old rule. The Appellate Tribunal's direction to apply the provisions of rule 115 for conversion was deemed justified. Consequently, the court answered the question in favor of the assessee, rejecting the Revenue's appeal. The tax case was disposed of with no order as to costs.

In conclusion, the judgment clarified the application of the old rule 115 to the conversion of foreign income for tax assessment purposes. It emphasized the broad scope of the rule to cover income earned in any foreign currency. The decision highlighted the importance of following the prescribed method for conversion to ensure accurate tax assessment.