1982 (11) TMI 64 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of loss or expenditure claimed by the non-resident assessee under Section 57(1) of the Income-tax Act, 1961.
2. Applicability of Rule 115 of the Income-tax Rules, 1962, for converting foreign currency income into Indian currency.
3. Allocation of deduction under Section 80VV of the Income-tax Act, 1961.

Detailed Analysis:

1. Allowability of Loss or Expenditure Claimed by the Non-Resident Assessee Under Section 57(1) of the Income-tax Act, 1961:
The primary issue revolves around whether the non-resident foreign company can claim a differential amount as a loss or expenditure under Section 57(1) of the Income-tax Act, 1961. The assessee argued that the net dividend income received in US currency after deducting consolidated charges by the bank should be considered for taxation. However, both the Income Tax Officer (ITO) and the Commissioner (Appeals) rejected this claim. The Tribunal noted that the case for the assessment year 1974-75 was decided in favor of the assessee, but subsequent conflicting views necessitated a Special Bench. The Tribunal concluded that the facts found did not justify the claim under Section 57(1) as the loss was not real but notional, arising from currency conversion differences. Furthermore, Section 57 had been amended effective from 1-6-1976, making its provisions inapplicable to non-resident foreign assessees.

2. Applicability of Rule 115 of the Income-tax Rules, 1962, for Converting Foreign Currency Income into Indian Currency:
The assessee contended that the real income should be converted into Indian currency using the notional rate specified in Rule 115, rather than the prevalent market exchange rate. The Tribunal found that the real income was the dividend declared by the Indian company, which accrued in Indian currency. The Tribunal emphasized that Section 5(2) of the Income-tax Act specifies that the total income of a non-resident includes all income accruing or arising in India. The income by way of dividend accrues at the time of declaration by the Indian company, making Rule 115 inapplicable. The Tribunal supported this view by referencing the Madras High Court's decision in CIT v. Standard Triumph Motor Co. Ltd. and the Supreme Court's decision in Poona Electric Supply Co. Ltd. v. CIT.

3. Allocation of Deduction Under Section 80VV of the Income-tax Act, 1961:
The second issue concerned the allocation of the Rs. 5,000 deduction under Section 80VV. The assessee argued that this deduction should be entirely against the interest income rather than apportioned between dividend and interest income. The Tribunal agreed with the assessee's contention, noting that there was no specific provision in the Act requiring such allocation. Therefore, the Tribunal directed that the deduction of Rs. 5,000 be allowed against the interest income as claimed by the assessee.

Conclusion:
The Tribunal partly allowed the appeals, rejecting the claim for loss or expenditure under Section 57(1) and the applicability of Rule 115 for currency conversion, but accepting the assessee's submission regarding the allocation of the deduction under Section 80VV.