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Issues Involved:
1. Conversion rate for capital gains and dividends received in the U.K. 2. Validity of Rule 115(b) of the Income Tax Rules, 1962. Issue-wise Detailed Analysis: 1. Conversion rate for capital gains and dividends received in the U.K.: The primary issue was whether the capital gains and dividends received by the assessee in the U.K. should be converted into rupees based on the exchange rate prevailing on the date each gain or dividend was received, or on the exchange rate prevailing on the last day of the accounting year (March 31, 1968). The assessee, a British subject but a resident Indian, sold shares and securities and received dividends in the U.K. during the previous year ending March 31, 1968. The official exchange rate between the pound sterling and the Indian rupee changed from 1:21 to 1:18 due to the devaluation of the pound sterling on November 18, 1967. The Income Tax Officer (ITO) rejected the assessee's claim to compute capital gains and dividends at the exchange rate prevailing on March 31, 1968, stating that profits arise at the time of each sale or receipt and should be evaluated at the exchange rate prevailing at that time. This was upheld by the Appellate Assistant Commissioner (AAC) and the Income Tax Appellate Tribunal (Tribunal), which relied on Rule 115(b) of the Income Tax Rules. The court held that the conversion must reference the date of actual receipt, emphasizing a common-sense economic approach. The court examined Sections 45 and 48 of the Income Tax Act, which deal with the chargeability and computation of capital gains, determining that the full value of the consideration received or accruing as a result of the transfer must be the basis for computation. The court concluded that the official exchange rates prevailing on the dates of receipt must be used, affirming the Tribunal's decision. 2. Validity of Rule 115(b) of the Income Tax Rules, 1962: The assessee challenged Rule 115(b) as ultra vires of the Income Tax Act. Rule 115(b) prescribed the exchange rates for converting foreign income into rupees, recognizing the official exchange rates fixed by the Reserve Bank before and after November 19, 1967. The court noted that the Tribunal had erroneously held that Rule 115(b) concluded the controversy. The court clarified that the rule merely recognized official exchange rates and did not regulate the chargeability or computation of income for capital gains. The court held that the rule was within the rule-making power conferred by Section 295 of the Act and was not ultra vires. Conclusion: (a) The court answered the reference in the affirmative, against the assessee and in favor of the Revenue, holding that the conversion rate should be based on the dates of receipt. (b) The court dismissed the writ petition challenging Rule 115(b), holding that the rule was valid and within the powers conferred by the Act. Costs: The court directed the parties to bear their own costs in both cases.
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