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TMI Blog1978 (3) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... se of jute in London from Pakistan in 1965, and opened a letter of credit there covering the price of the said jute in favour of the intending seller. Thereafter, hostilities broke out between India and Pakistan, the contract could not be performed and the letter of credit remained unoperated. There was devaluation of the Indian rupee in June, 1966, and by reason of the unoperated letter of credit, W.F. Ducat Co. received a sum of Rs. 1,52,710 in excess over the amount originally deposited by them in rupees. This surplus was passed on to the account of the assessee and included by the assessee in its own profit and loss account in the accounting year ending 31st March, 1968. In its assessment for the said accounting year, being assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection with and in the course of the business carried on by the assessee through its agents had, therefore, been rightly taxed as business profits. The Tribunal dismissed the appeal of the assessee. From this order of the Tribunal, the following question has been referred at the instance of the assessee : "Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,52,710 was the income of the assessee and liable to tax in the assessment year 1968-69?" Mr. S. R. Banerjee, learned advocate for the assessee, has contended before us at the hearing that mere receipt of a surplus resulting from devaluation and without any volition or activity on the part of the assessee will not resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the sense that it was not associated or connected with the business or trade of the assessee. Upholding the contentions of the revenue this court observed that exchange loss due to fluctuations in the international money market and the currencies of different States may arise in different circumstances and context and no general rule could be laid down as to whether such fluctuations necessarily resulted in a profit or loss to a business. The basic test laid down by the Supreme Court would have to be applied to the facts in each case to find out whether the loss sprang directly or indirectly from the business or was incidental thereto. (b) M. Shamsuddin Co. v. CIT [1973] 90 ITR 323 (Ker). The facts in this case were that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case were that the assessee carried on the business of manufacture of locomotive boilers and locomotives. With the sanction of the exchange control authorities it had remitted to its agent in the U.S.A. dollars for the purpose of purchasing capital goods and for meeting other expenses. The assessee had also acted as the sole selling agent of a U.S.A. concern for sale of their products in India. In that connection, the assessee had incurred expenses on behalf of their foreign principal in India and had also earned some commission. With the sanction of the exchange control authorities the amounts paid in reimbursement of the said expenses incurred and the said commission earned were retained with the agent of the assessee in the U.S.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. This changed the character of the fund, which became capital in nature. The Supreme Court affirmed the judgment of the High Court. Mr. Banerjee also cited CIT v. Union Engineering Works [1976] 105 ITR 311 (Ker). In this case, an amount had been received by the assessee on an insurance policy on account of damage caused to certain goods which were insured. By reason of devaluation the amount paid in foreign currency resulted in a surplus in the hands of the assessee. It was found that the payment was in settlement of a claim for damages which did not include any extra profit. The Kerala High Court held that the excess was in the nature of a windfall unconnected with the business of the assessee. Drawing inspiration from the above auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank accounts in the U.S.A. In this manner, large holdings of dollars were accumulated by the assessee each year before the tobacco leaf season commenced. At the out-break of the world war in September, 1939, the assessee had similarly accumulated dollars. At the request of the British Treasury the assessee refrained from purchasing tobacco leaf and later, under the Defence Regulations, the accumulated dollars were sold to the Treasury. Exchange rates having fluctuated in favour of dollar in the meantime, such sale resulted in profits to the assessee. It was held that this profit made on sale of surplus dollars to the Treasury was part of the profits of the assessee's trade even though the sale was compulsory and was liable to be taxed as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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