1986 (7) TMI 51 - HC - Income Tax

Summary

Issues:
1. Assessment under section 168 of the Income-tax Act, 1961
2. Taxability of principal amount and interest on annuity deposit
3. Deductibility of proportionate estate duty on annuity deposit
4. Claim for deduction of devaluation loss
5. Treatment of devaluation loss as capital or revenue

Analysis:

Assessment under section 168:
The court referred to a previous judgment between the same parties where similar questions were answered in the affirmative against the assessee. The court indicated that the answers provided in the previous case would apply to the current questions as well, leading to an unfavorable outcome for the assessee.

Taxability of annuity deposit:
The court discussed the transfer of funds from a foreign account to an Indian account, highlighting the loss incurred due to a fall in the exchange rate. The assessee claimed this loss as a deduction against income from "Other sources." However, the Tribunal rejected the claim, stating that the loss from currency rate fluctuation cannot be considered a trade or any other loss for tax purposes.

Deductibility of estate duty on annuity deposit:
The court considered whether the proportionate estate duty payable on the annuity deposit should be deductible from the assessable income. The Tribunal's decision on this matter was not explicitly discussed in the judgment.

Claim for deduction of devaluation loss:
Regarding the claim for deduction of a devaluation loss, the court emphasized that the loss was not connected to any business activity and was claimed against income from "Other sources." The court ruled that the loss did not meet the criteria for deduction under section 57(iii) of the Income-tax Act, as it was not laid out or expended for the purpose of making or earning income.

Treatment of devaluation loss:
The court addressed the nature of the devaluation loss and whether it could be considered a capital or revenue loss. It was clarified that the loss resulting from currency exchange, unrelated to trading activity, could not be treated as an expenditure under section 57(iii). The court answered questions regarding the devaluation loss in the affirmative against the assessee.

The judgment concluded by stating that the court made no order as to costs in the circumstances of the case.