1978 (3) TMI 55 - HC - Income Tax

Summary

Issues:
1. Whether the sum of Rs. 16,534 is income liable to tax for the assessment year 1967-68?

Analysis:
The case involved a dispute regarding the taxability of a surplus amount of Rs. 16,534 received by an individual assessee due to the devaluation of goods imported from the U.S. The assessee claimed the amount to be exempt from tax, arguing that it was not earned in the course of business but was a refund from a separate transaction. The Income Tax Officer (ITO) disallowed the claim, stating that the amount was earned in the course of business. The Appellate Authority Commissioner (AAC) and the Tribunal upheld the ITO's decision, leading to the reference to the High Court.

The assessee contended that the surplus income was not part of the business income but was a casual and non-recurring receipt. The counsel relied on a Kerala High Court case to support this argument. On the other hand, the revenue argued that the surplus amount was a part of the business income, citing Supreme Court decisions. Section 10(3) of the Income Tax Act exempts casual and non-recurring receipts unless they arise from business activities.

The High Court analyzed previous judgments to determine the nature of the surplus amount in question. In one case, the Supreme Court held that surplus attributable to specific transactions was not taxable as business income. However, in another case, the Court ruled that profits from exchange operations during business transactions were revenue receipts. The Court distinguished the case cited by the assessee, stating that it was not applicable to the present scenario.

Referring to a Kerala High Court case involving a bank, the Court emphasized that appreciation in the value of assets dealt with in the course of business constituted trading receipts. Ultimately, the Court held that the surplus amount received by the assessee due to devaluation was an integral part of the business and, therefore, taxable. The reference was answered in favor of the revenue, granting them costs.

In conclusion, the High Court determined that the surplus amount of Rs. 16,534 was derived from the business activities of the assessee and was thus subject to tax for the assessment year 1967-68.