9911796707
TMI Blog1982 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... tituted on 20th September, 1965, in the High Court of West Pakistan, Karachi (prize jurisdiction). The assessee had assigned the goods to National Transport Company, Bombay, who made a claim with the Custodian of Enemy Property, Ballard Estate, Bombay. The claim was for Rs. 2,05,539-62 which was the insured value of the goods. The claim was ultimately settled by Lloyds, who by their letter, through their agents, James Finlay Company Ltd., informed the National Transport Company that the consignment was requisitioned and/or sold by the Pakistan Govt. and. Lloyds were authorised to effect the settlement of the claim. The claim was adjusted and passed for Rs. 3,21,467.16, at the rate of pounds 4.8120 equal to Rs. 100, the insured value of the complete consignment lost being taken at pounds 15,469. The assessee-company thus received Rs. 1,14,710 in excess of the value of the stock-in-trade, the excess being due to the devaluation of the rupee during the period between the making of the claim and its settlement. The ITO negatived the claim of the assessee that the excess amount was a casual receipt or alternatively a capital gain and could not be taxed as profit. This order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a change in the exchange rate, then it does not arise out of any business dealings and, therefore, the excess must be treated as a capital receipt. Now, in order to decide whether the excess amount received by the assessee-company from the insurance company partakes of the nature of revenue receipt, it has to be decided whether the receipt is in respect of trading asset or whether it is in respect of a capital asset. In other words, what has first to be determined is whether the excess amount which has accrued to the assessee-company arises out of a transaction in respect of trading asset or in respect of a capital asset. Now, there is no dispute that the excess amount was received as result of the devaluation of the Indian currency. In other words, if there was no devaluation of the Indian currency and if the rate of exchange between sterling and Indian rupee would have remained constant, the assessee would have received the exact amount for which the goods were insured, viz., Rs. 2,05,539.62. The question to be asked is what would be the nature of the receipt which the assessee would have received if the rate of exchange remained the same. Now, what the assessee has, in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protected through the usual trade insurances, and the timber has thus been realised. It is now represented by money, whereas formerly it was represented by wood. If this results in a gain, as it has done, it appears to me to be an ordinary gain-a gain which has taken place in the course of their trade-none the less because, as Mr. Macmillan put it, and as I think Sir John Simon before him appears to have put it, it is no part of a timber merchant's business to trade in fires. I think that a few words in the judgment of Lord justice Sargant express the whole matter in a sentence, and to them it is unnecessary to add anything more. He says : ' To my mind the book value of the timber in the company's books has nothing at all to do with the amount of the loss or with the amount which has been recovered in respect of the loss. That amount is a gain of the company in the course of its business no less than the sale price of the timber would have been if the timber had been sold in the course of ordinary sales during the continuance of the company's business; and in estimating the balance of the profits or gains which the company has to bring, into account for the purposes of income-tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be retrieved by the assessee, the right to claim compensation arises in favour of the assessee, and that compensation, as already pointed out, would partake of the same nature as the price of the stock-in-trade. There is no question of that stock-in-trade converting itself into a capital of the assessee. We shall presently deal with the decision of the Supreme Court on the basis of which this argument has been founded, but suffice it for the present to point out that there is no question of stock-in-trade converting itself into capital asset of the assessee on the day on which the stock-in-trade was seized by the Govt. of Pakistan. We may, in this context, refer to a decision in Landes Brothers v. Simpson [1934] 19 TC 62 (KB), which has been cited with approval by the Supreme Court in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1. In Landes Brothers' case, Landes Brothers, who carried on business as fur and skin merchants and as agents were appointed sole commission agents of company for the sale in Britain and elsewhere, of furs exported from Russia, on the terms, inter alia, that they should advance to the company a part of the value of each consignment. All the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee opened a letter of credit in bank in favour of the foreign seller but the ship in which the goods were sent was, however, seized by the Pakistan Govt. due to hostilities between India and Pakistan. The assessee and its clearing agents took up the matter with the insurance company in America which ultimately accepted the liability and paid the amount in, American dollars. On account of de-valuation of the Indian rupee, the assessee got a higher amount in Indian rupee than what it had paid, and the question was whether the surplus was liable to tax as a trading profit. The surplus was treated as trading profit by the ITO and the AAC but the Tribunal took the view that when the vessel was impounded by the Pakistan authorities, the character of the goods changed and they became sterilised and ceased to be the stock-in-trade of the assessee and hence the amount was a capital receipt. The Tribunal also held that the profit on account of devaluation did not arise directly from the assessee's normal receipts and the profit was not a business profit. Reversing the view of the Tribunal, the Madras High Court held that so long as the profit accruing to the assessee had its origin on reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he foreign country for the purchase of jute goods and which was part of the circulating capital of the assessee, resulted in a profit to the assessee in its business though the accretion might have been caused by an external factor like devaluation. The High Court also held that though the fund became frozen or immobilized, it was the nature and character of the fund and not its mobility that should be considered, and the excess was income of the assessee and was liable to tax. The Kerala High Court has taken a similar view in M. Shamsuddin Co. v. CIT [1973] 90 ITR 323. That was a case in which for cashew kernels exported by the assessee-firm and in respect of forward contracts, price used to be fixed in dollars and at the time of payment the assessee would receive the rupee equivalent of the price. After the devaluation of the Indian currency on 6th Jane, 1966, the assessee earned a profit of Rs. 2,54,862 which the ITO held to be a taxable profit. This view was confirmed in appeal. On a reference, the Kerala High Court held that the result of the devaluation was that the assessee became entitled to receive a larger price in terms of rupees for the goods and that was directly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the price received and the fact that More amount was received on account of devaluation made no difference to the nature of the receipt, in our view. We may point out that in Sree Hanuman Trading Company's case [1980] 125 ITR 1(Ker), in which Shamsuddin's case [1973] 90 ITR 323 (Ker) was followed, the decision in Union Engineering Works case [1976] 105 ITR 311 (Ker), has been cited but has been distinguished on the ground that the facts and the nature of the payment were totally different and the principle laid down therein had no application to the case in the decision of Sree Hanuman Trading Company. The decision in Union Engineering Works case obviously runs counter to the decision in Shamsuddin's case on principle. If that decision lays down that the excess which accrues in the hands of the assessee as a result of devaluation, amounts to a windfall, assuming that such amount is a windfall, in our view, the real nature of that receipt, though it was a business windfall, would be of a revenue nature and not a casual receipt. The other decision on which reliance is placed by Mr. Pandit is in CIT v. Canara Bank Ltd. [1967] 63 ITR 328 (SC). If the facts of that case are appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
