1991 (2) TMI 7 - HC - Income Tax

Summary

Issues:
1. Interpretation of the Foreign Exchange Regulation Act.
2. Tax liability on notional income.
3. Compliance with High Court judgment by the Tribunal.

Interpretation of the Foreign Exchange Regulation Act:
The case involved a contract entered into by the petitioner with Hindusthan Motors Ltd. for the sale of foreign exchange. The petitioner purchased foreign exchange from banks at a certain rate, and later the rupee was devalued. The Income-tax Officer alleged that the contract was illegal under the Foreign Exchange Regulation Act, leading to a tax liability. However, the Appellate Assistant Commissioner found that the transaction was fulfilled at the pre-devaluation rate, and no actual profit accrued to the petitioner. The High Court emphasized that the charge under the Income-tax Act is on real income, not imaginary income, and held that the addition made by the Income-tax Officer was unjustified.

Tax liability on notional income:
The Appellate Assistant Commissioner concluded that no tax could be imposed on notional income as the foreign exchange transaction was executed at the pre-devaluation rate. The Tribunal, however, remanded the matter back to the Appellate Assistant Commissioner for further scrutiny, leading to subsequent orders by the Tribunal. The High Court intervened, stating that the Tribunal failed to comply with its earlier judgment directing a specific consideration of the Appellate Assistant Commissioner's conclusion. The High Court quashed the Tribunal's orders, emphasizing the need for strict conformity with its judgment and directing the Tribunal to reconsider the matter in line with the previous directive.

Compliance with High Court judgment by the Tribunal:
The Tribunal's failure to adhere to the High Court's directive regarding the consideration of the Appellate Assistant Commissioner's conclusion led to the quashing of its orders. The High Court emphasized that the Tribunal must act in strict conformity with its judgment and directed a reevaluation of the matter based on the initial findings. The High Court granted relief to the petitioner, setting aside the Tribunal's orders and instructing the Tribunal to reconsider the case in accordance with its earlier judgment.