9911796707
TMI Blog1980 (1) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... m in Ceylon. He has a house property in India and also in Ceylon. He has also income by way of salary earned abroad. From an extract of the period of stay in India filed by the representative of the assessee before the ITO, it was seen that during the seven years preceding the previous year for the assessment year 1972-73, the assessee was in India for 890 days, and under s. 6(6)(a) if the assessee's stay in India during the above-said period was 730 days or more, his status was that of an ordinarily resident person. The ITO, therefore, took the status of the assessee as an ordinary resident. The assessee returned the Indian property income at a minus figure of Rs. 3,506. In other words, there was a loss under the head " property ". His f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years on accrual basis and that the current profit also was taxed on the same basis. The claim of the assessee before the Tribunal was that when a smaller sum was received than what was taxed in the earlier years, then there would be a loss which should be allowed as deduction. In the opinion of the Tribunal, since the income derived from the foreign firm was from business, the character of the income in the hands of the recipient was also under the head " Business " and that the real income theory would be applicable to the assessee. The remittances were taken to involve certain expenditure in reaching the destination, i.e., from Ceylon to India. Even if it was not officially incurred, according to the Tribunal, the assessee might have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79] 116 ITR 1. In that case, the assessee, a limited company, had a cotton mill in West Pakistan carrying on business of manufacturing and selling cotton fabrics. From this business, there was a substantial profit of Rs. 1,68,97,232, which was assessed in the year 1954-55. Subsequently, a sum of Rs. 37,50,000 was remitted to India and on account of the variation in the exchange rate, the actual amount that reached India was smaller and the assessee thus suffered a loss of Rs. 11 lakhs. The question was whether this difference was liable to be allowed as deduction. The Supreme Court enunciated the principle in two or three passages which we may quote with profit here. At page 7, after referring to the decision of the Court of Appeal, in Gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the Supreme Court in the following words at page 8 (of 116 ITR) : " Since the dollars were purchased for the purpose of carrying on the business as sole commission agents and as an integral part of the activity of such business, it was held that the profit arising on retransfer or re-exchange of dollars into sterling was a trading profit falling within Case I of Schedule D." Thereafter, reference was made to another decision in Imperial Tobacco Co. Ltd. v. Kelly [1943] 25 TC 292 (CA). In that case, the assessee bought American dollars for the purpose of purchasing in the United States tobacco leaves. Before the purchase could be effected, war broke out and the assessee had, therefore, at the request of the treasury in Britain, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Now, in the present case, no finding appears to have been given by the Tribunal as to whether the sums of Rs. 25 lakhs and Rs. 12,50,000 were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of the fixed capital or of circulating capital embarked and adventured in the business in West Pakistan. If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of Rs. 11 lakhs and Rs. 5,50,000 resulting to the assessee on remission of those two amounts to India, on account of alteration in the rate of exchange, would be a tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f monies thought it fit to remit funds to India. The loss was personal. The learned counsel for the assessee put forward the proposition that wherever there is a loss on remittances from a person who earned monies abroad, then the loss must be allowed as a deduction. We are unable to accept this wide proposition. As pointed out earlier, the loss must be incidental to the business before it is considered for the purpose of assessment. If it has nothing to do with a business, then it cannot feature in the computation of income. When once the decision is reached that the loss was incidental to the business, then the further circumstance of the loss being on capital or revenue account would arise for consideration. As, in the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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