1986 (2) TMI 37 - HC - Income Tax

Summary

Issues:
1. Determination of capital gains taxable under section 45 of the Income-tax Act for a non-resident.
2. Treatment of loss arising from a change in the rate of exchange in the context of capital gains computation.

Analysis:
The case involved the assessment of capital gains for a non-resident company that sold shares in an Indian company. The primary issue was the determination of the capital gains taxable under section 45 of the Income-tax Act. The assessee contended that the capital gains should be calculated in foreign currency and then converted to Indian currency for tax purposes. However, the court held that since the acquisition and sale of shares took place in India and in Indian currency, the profit had to be computed in Indian currency. The court emphasized that any gains from the transfer of a capital asset are chargeable to income tax under the head "Capital gains" as per the provisions of the Act. The court computed the capital gains at Rs. 12,26,000, rejecting the lower amount claimed by the assessee.

Regarding the treatment of the loss arising from a change in the rate of exchange, the court analyzed whether such a loss could be deducted from the capital gains. The assessee argued that the loss due to currency conversion should be considered a permissible deduction in computing capital gains. However, the court ruled that any loss incurred from converting rupees into foreign currency after the computation of capital gains is not deductible under the Act. The court highlighted that only the income of the assessee is subject to tax, and losses incurred post-computation are not eligible for deduction under section 48 in the capital gains calculation.

The court referred to relevant legal provisions and precedents to support its decision. It emphasized that the computation of income is in Indian currency as per the Act, and any losses incurred in foreign currency conversion post-computation are not allowable deductions. Ultimately, the court answered question No. 1 in the affirmative, affirming the higher capital gains amount determined by the Income-tax Officer, and question No. 2 in the negative, denying the deduction of loss arising from currency exchange in the capital gains calculation. The judgment favored the Revenue and directed each party to bear their own costs.