1964 (10) TMI 15 - SC - Income Tax

Whether on the facts and in the circumstances of the case the disallowance of the loss of 67,764 as claimed and the computation of the profit at 382 is valid in law ? Held that - The principle adopted by the High Court appears to be unexceptionable that to ascertain the real profits the department was right in computing the cost price of the properties in Malayan currency in accordance with the Schedule appended to the Ordinance. It accords with our view. Adverting to the second argument that the Schedule to the Ordinance should be confined only to the scaling down of debts we are unable to hold that the department and the Tribunal were in error in adopting the conversion table furnished in the Schedule to the Malayan Ordinance. Appeal dismissed.

Summary

Issues:
1. Interpretation of conversion rates for scaling down property costs during Japanese occupation.
2. Justification for adopting conversion rates from the Debtor and Creditor (Occupation Period) Ordinance, 1948.
3. Application of conversion rates for determining profit or loss on property sales in different currencies.
4. Comparison with a similar case regarding the use of conversion rates from the Ordinance.
5. Validity of the Income-tax Officer's method in light of previous practices and legal principles.

Analysis:
The appeal before the Supreme Court involved a Hindu undivided family's business profits assessment for the year 1951-52, including a claim of loss on the sale of properties during the Japanese occupation of Malaya. The Income-tax Officer scaled down purchase prices using conversion rates from the Debtor and Creditor Ordinance, leading to a significant difference in the computed profit. The appellant challenged this decision, arguing against the application of the Ordinance's conversion rates beyond their intended scope. Additionally, the appellant emphasized maintaining consistent accounting practices and the necessity of considering currency fluctuations when properties are bought and sold in different currencies.

The Supreme Court upheld the decisions of lower authorities, supporting the Income-tax Officer's use of the Ordinance's conversion rates to determine the actual profit on property sales during the occupation period. The Court highlighted the necessity of a common standard for assessing profits when transactions involve different currencies. Drawing parallels with a previous case, the Court affirmed the appropriateness of relying on the Ordinance's conversion table for valuation purposes. The judgment emphasized the importance of ascertaining the real profit accrued to the assessee by converting the cost price from Japanese to Malayan currency for accurate assessment.

The Court rejected the appellant's arguments regarding the limited scope of the Ordinance's conversion rates and the consistency of accounting practices. It emphasized the need for a reasonable conversion rate to determine profits accurately, even if it deviates from past methods. By aligning with the High Court's decision in a similar case, the Supreme Court affirmed the validity of using the Ordinance's conversion rates for calculating profits on property sales involving different currencies. Ultimately, the appeal was dismissed, and the appellant was directed to bear the costs, upholding the Income-tax Officer's method and the application of the conversion rates from the Ordinance.