1979 (1) TMI 93 - HC - Income Tax

Capital Asset, Capital Gains Tax, Foreign Currency, Foreign Exchange, Income Tax Act, Indian Company

Summary

Issues:
Whether a sum of Rs. 2,98,657 was rightly assessed as 'long-term capital gain' under the Income-tax Act, 1961.

Analysis:
The case involved M/s. Kirloskar Asea Ltd., a public limited company, which had a collaboration agreement with a foreign collaborator. The foreign collaborator contributed funds in dollars, which were subsequently repatriated to India. The issue was whether the amount repatriated constituted 'long-term capital gain.' The Income Tax Officer treated the sum as capital gain, leading to an unsuccessful appeal by the assessee before the AAC of Income-tax and the Tribunal.

The assessee argued that the repatriated amount was not a capital asset but money, and hence, no profit arose from its transfer. However, the court disagreed, stating that foreign currency is akin to a commodity that can be converted into local currency by selling it. Citing the Imperial Tobacco Co. case, the court emphasized that foreign currency, when held as a capital asset, can result in capital gain upon conversion.

The court referred to the definition of 'capital asset' under the Income-tax Act, which includes property of any kind held by an assessee. Relying on the decision in Sutlej Cotton Mills Ltd. v. CIT, the court concluded that if profit arises from the appreciation of foreign currency held as a capital asset, it constitutes capital gain. Therefore, the Tribunal was correct in treating the repatriated amount as capital gain taxable under the Act.

In conclusion, the court answered the question in the affirmative, stating that the sum of Rs. 2,98,657 was rightly assessed as 'long-term capital gain' against the assessee.