1988 (3) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of surplus amounts as revenue receipts or short-term capital gains.
2. Competence of the Tribunal to refer the question of revenue receipts without an application from the Revenue.
3. Nature of the surplus amounts arising from devaluation of currency.

Summary:

1. Taxability of Surplus Amounts:
The primary issue was whether the amounts of £34,674, £52,301, and £23,832 are taxable as revenue receipts or short-term capital gains. The assessee argued that these surpluses, arising from the devaluation of Indian currency, were capital receipts and not taxable. The Income-tax Officer treated them as revenue receipts, but the Appellate Assistant Commissioner and the Tribunal disagreed, holding them as capital gains. The Tribunal further classified them as short-term capital gains, which the assessee contested.

2. Competence of the Tribunal:
The assessee challenged the Tribunal's competence to refer the question of revenue receipts without an application from the Revenue. The Tribunal had included this question in the reference made at the instance of the assessee, despite no application from the Revenue. The court held that the Tribunal was not competent to refer the question suo motu, as per the Supreme Court's decision in CIT v. V. Damodaran [1980] 121 ITR 572. The reference to the question of revenue receipts was deemed void.

3. Nature of Surplus Amounts:
The court examined whether the surplus amounts were capital gains. It was established that the amounts were not revenue receipts as they were not related to any trading transaction but were an accretion to the capital raised in a foreign country for the expansion of the assessee's fertilizer factory. The Tribunal's classification of these amounts as short-term capital gains was based on the misconception that the assessee purchased pound sterling at a particular price. The court disagreed, stating that the company did not acquire foreign currency at a cost. The conversion of foreign currency into Indian rupees did not involve a transfer within the meaning of section 2(47) of the Income-tax Act, as it did not constitute a sale or exchange between two persons.

Final Decision:
The court concluded that the surplus amounts obtained by the assessee due to the devaluation of the rupee were not capital gains within the meaning of section 45 of the Income-tax Act. The Tribunal's conclusion on this matter was incorrect. The question referred was answered in the negative and in favor of the assessee, with costs awarded to the assessee.