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TMI Blog1978 (3) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... own in para. 2 thereof an amount of Rs. 16,534 as "surplus amount received" due to devaluation of amount due from parties. The assessee on May 11, 1965, placed an order with an American firm through Messrs. Gerdau India Corporation, 23/33, Sembudoss Street, Madras, for the supply of 80-82 Purity Pesticide known as " Zinab" weighing 7.8 tons. The goods were imported to the Madras Port in February, 1966, and the said goods were found to be sub-standard by the Madras Customs authorities, as a result of which the consignment was returned to the supplier in U.S.A. Out of the letter of credit opened with Canara Bank, Madras, for Rs. 30,000 on September 10, 1965, a sum of Rs. 24,300 being the actual value of the goods was remitted by the bank on J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of that case are: The assessee-firm carried on the business of manufacturing and selling tea-chest fittings and battery covers and for that purpose it imported tin sheets from London. Upon arrival of the goods, it was found that more than half of the quantity was rusty. The goods were insured with an insurance company at London and the assessee had entered into an agreement with the insurer whereby the latter had agreed to accept the rusty sheets on discount. In accordance with the said agreement, the insurer, issued a cheque drawn in favour of the assessee on a bank in London. Within a fortnight of the receipt of the cheque, the rupee was devalued and the assessee realised an excess amount of Rs. 13,455.75. The question arose whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omotive and Engineering Co. Ltd. [1966] 60 ITR 405 and CIT v. Canara Bank Ltd. [1967] 63 ITR 328. Under s. 10(3) of the Act, receipts which are of a casual and non-recurring nature are exempt from taxation unless they are ; (1) capital gains chargeable under the provisions of s. 45, or (2) receipts arising from business or the exercise of a profession or occupation, or (3) receipts by way of addition to the remuneration of an employee. Section 2(13) of the Act defines "business" as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Now, we have to examine whether the transaction constituting the receipt of the surplus amount represents part and parcel of the business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a reference, the High Court held that the surplus attributable to $ 36,123 was an accretion to the assessee's fixed capital and was not liable to tax. On appeal, the Supreme Court held that the act of retaining the moneys in U.S.A. for capital purposes after obtaining the sanction of the Reserve Bank was not a trading transaction in the business of manufacture of locomotive boilers and locomotives, that it was clearly a transaction of accumulating dollars to pay for capital goods, the first step to the acquisition of capital goods, and that the surplus attributable to $ 36,123 was capital accretion and not profit taxable in the hands of the assessee. While holding so, the Supreme Court observed that if it were part of a trading transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent from the main business of the asssssee and it was under those circumstances, this receipt was held not to be included in the receipts from the business within the meaning of s. 10(3)(ii) of the Act. Hence, we are unable to agree with Mr. K. Srinivasan that CIT v. Union Engineering Works [1976] 105 ITR 311 (Ker) would be applicable to the facts of the present case. It may be noted here that the Kerala High Court in Bank of Cochin Ltd. v. CIT [1974] 94 ITR 93, which has been distinguished in Union Engineering Works' case [1976] 105 ITR 311 (Ker), has held with reference to the facts therein, that the business of the assessee being a banking business and as a part of its banking business it was purchasing cheques, payment orders and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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