1982 (11) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 4,32,318 was allowable in the assessment year 1967-68.
2. Determination of liability on account of devaluation of Indian currency.

Summary:

Issue 1: Allowability of Rs. 4,32,318 in Assessment Year 1967-68
The Tribunal found that the assessee's liability to foreign suppliers was always in terms of foreign currency, and the devaluation of the Indian currency on June 6, 1966, increased this liability. Despite the devaluation occurring after the end of the previous year, the Tribunal upheld the assessee's claim that the liability should be determined based on actual figures available before finalizing the accounts. The Tribunal's decision was based on the principle that commercial profits, not hypothetical or theoretical profits, are assessed for tax purposes. The court cited precedents such as CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 and CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, emphasizing the concept of "real income."

Issue 2: Determination of Liability on Account of Devaluation
The Tribunal's decision was supported by various precedents where subsequent events affecting liability were considered. For instance, in CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144, the Supreme Court held that if income does not result at all, there cannot be a tax, even if a hypothetical income entry is made in the books. Similarly, in Motilal Padampat Sugar Mills v. CIT [1977] 106 ITR 988, the court allowed the deduction of a quantified liability that was determined during the appellate stage. The Gujarat High Court in Arvind Mills Ltd. v. CIT [1978] 112 ITR 64 held that increased liability due to devaluation should be considered in determining the actual cost of machinery for development rebate purposes.

The court concluded that the assessee's liability to pay in foreign currency for imported books was an integral part of the original transaction and not a result of devaluation. The assessee was justified in determining its liability based on actual figures available before finalizing the accounts for the year. The court answered the question in the affirmative, in favor of the assessee, and against the Department, awarding costs of Rs. 250 to the assessee.