1980 (4) TMI 85 - HC - Income Tax

Summary

Issues Involved:
1. Whether the receipt of Rs. 1,87,870 constituted income taxable under the Income-tax Act.
2. Whether the sum of Rs. 1,87,870 arose from business.

Detailed Analysis:

Issue 1: Whether the receipt of Rs. 1,87,870 constituted income taxable under the Income-tax Act.

The assessee, a firm engaged in the business of exporting hill produce like pepper, entered into contracts with a Russian party to sell pepper. Due to the devaluation of the Indian rupee on June 6, 1966, an agreement between the Governments of India and Russia allowed an increase of 47.5% on the unimplemented portion of the contracts. The assessee received an additional amount of Rs. 1,87,870, being 47.5% of 95% of the sale price, which was initially contested as a casual receipt not arising from business.

The Tribunal found that the amount was income and arose from business, thereby dismissing the appeal. The court held that the amount was claimed, paid, and accepted as the enhanced value of the balance sale price under the contracts, consequent upon the devaluation. The receipt was income obtained by the assessee in the course of business and was not a windfall. Even if it was a voluntary payment, it would still be taxable as it was received in the course of business.

Issue 2: Whether the sum of Rs. 1,87,870 arose from business.

The court noted that the transactions with the Russian buyer were not fully settled when the rupee was devalued. The assessee's demand for the additional amount was based on the shipments and claimed as the balance amount due under the shipments. Despite initial resistance, the Russian buyer ultimately paid the amount, facilitated by the intervention of the Indian Embassy at Moscow. The court concluded that the payment was not a gift but was made under the contracts.

Citing previous cases, the court distinguished the facts from Union Engineering Works [1976] 105 ITR 311 (Ker), where the excess amount due to devaluation was considered a windfall. Instead, the court found the principle from M. Shamsuddin & Co. v. CIT [1973] 90 ITR 323 (Ker) and Bank of Cochin Ltd. v. CIT [1974] 94 ITR 93 (Ker) applicable, where the larger price received due to devaluation was considered a trading receipt and thus taxable.

Conclusion:

The court answered both questions in the affirmative, in favor of the revenue and against the assessee. The receipt of Rs. 1,87,870 was deemed taxable income arising from business, and not a casual or non-recurring receipt. The parties were ordered to bear their own costs.