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The issue involves determining whether a surplus amount received by the assessee due to devaluation, which was included in its profit and loss account, should be treated as a trading receipt and added to the total income of the assessee. Summary: The High Court of Calcutta considered a case where a surplus amount was received by the assessee due to devaluation, and the Income Tax Officer (ITO) treated this surplus as a trading receipt, adding it to the total income of the assessee for the relevant assessment year. The assessee contended that the surplus was of a casual and non-recurring nature and should not be taxable. The Appellate Authority Commissioner (AAC) upheld the ITO's decision, stating that the surplus arose in the course of the business carried on by the assessee's agents. The Income Tax Appellate Tribunal also dismissed the appeal of the assessee, leading to a reference to the High Court. The assessee argued that the surplus was not a taxable amount as it resulted from devaluation, an act of the State, and not from the business activities of the assessee. The assessee cited various legal precedents to support its contention that the surplus should be considered a capital receipt rather than a trading receipt. However, the revenue contended that the surplus was connected to the business activities of the assessee and should be treated as a trading profit. The High Court, after considering the facts and legal arguments presented, held that the surplus amount was inextricably connected with the business of the assessee. The Court found that the fund in question was part of the circulating capital of the assessee and had not changed its character despite the frustration of the original contract. Relying on legal precedents and the principle laid down by the Supreme Court in a similar case, the Court concluded that the accretion to the fund constituted a profit to the assessee in its business, even though it was influenced by external factors like devaluation. Therefore, the Court ruled in favor of the revenue, affirming that the surplus amount was taxable as a trading profit. In conclusion, the High Court answered the question referred to it in the affirmative, holding that the surplus amount was the income of the assessee and liable to tax in the relevant assessment year. *Judges*: C. K. Banerjee, Dipak Kumar Sen
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