1964 (4) TMI 128 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to deduct trading loss or loss of revenue nature due to Japanese authorities' action.
2. Entitlement to claim the amount of loss in Indian currency at the exchange rate at the time of loss.

Issue-wise Detailed Analysis:

1. Entitlement to Deduct Trading Loss or Loss of Revenue Nature:
The primary issue was whether the petitioner-firm could deduct the loss of Rs. 1,94,495 due to the freezing of their stock-in-trade and book debts by Japanese authorities in July 1941, as a trading loss or loss of revenue nature. The Tribunal initially found that the loss occurred due to enemy action but classified it as a capital loss, not a business loss. Upon review, the High Court remanded the case to the Tribunal for further factual clarification. The Tribunal's supplementary statement confirmed that the goods were lost by the end of 1941 and that the loss amounted to Rs. 1,46,130. The High Court, referencing the decision in Pohoomal Bros. v. Commissioner of Income-tax, concluded that the loss was indeed a trading loss or loss of revenue nature. Therefore, the first question was answered affirmatively with the modification that the loss amount be Rs. 1,46,130 instead of Rs. 1,94,495.

2. Entitlement to Claim the Amount of Loss in Indian Currency at the Exchange Rate at the Time of Loss:
The second issue was whether the petitioner-firm could claim the loss amount converted into Indian currency at the exchange rate prevailing at the time of such loss. The Tribunal found that the compensation received from the Government of India included an amount for the loss of stock-in-trade, estimated at 37,750 Yens, equivalent to Rs. 30,766. The total quantum of loss suffered was 1,79,311 Yens, equivalent to Rs. 1,46,130. The High Court held that the relevant exchange rate was the one prevailing during the accounting year (1941-42) when the loss occurred, not the rate in 1945 when compensation was received. Thus, the Tribunal's finding that the loss amount in Indian currency was Rs. 1,46,130 was upheld. Consequently, the second question was also answered in the affirmative.

Conclusion:
The High Court concluded that the petitioner-firm was entitled to deduct the trading loss of Rs. 1,46,130 and claim the loss amount converted into Indian currency at the exchange rate prevailing at the time of the loss. The department was ordered to pay 3/4th of the costs of the reference to the assessee.