- (1.) THE facts leading to this reference under S. 256(1) of the INCOME TAX ACT, 1961, can be briefly stated. The assessee is a foreign incorporated company doing business in cloth. The assessment year in question is the year 1967 -68 and the corresponding previous year is the year ended on December 31, 1966. The assessee was exporting cloth to England and America. It exported goods valued at 723 pound to England and $ 1,561 to the United States of America before 6th June, 1966. On that date, the Indian rupee was devalued. The result was that the company received in terms of rupees a sum of Rs. 26,757 as the price of the goods sold by it instead of Rs. 16,998 which it would have received had there been no devaluation. The assessee claimed before the ITO and the AAC and the Tribunal that the excess amount realised by it was a capital receipt, but the ITO treated the excess receipt as business profit. The Tribunal observed that the surplus or excess was an integral part of the sale transactions which was a routine day to day operation of the carrying on of the assessee's business. It had nothing to do with the permanent framework or the fixed apparatus or the structure of the assessee's business. The amount was, therefore, held to have been rightly included as business profit in the hands of the assessee.
(2.) THEREAFTER , at the instance of the assessee, the following question of law has been referred to us for decision : "Whether, on the facts and in the circumstances of the case, the surplus of Rs. 9,758 realised by the assessee as a result of devaluation of the Indian rupee was a business profit or a capital gain ?" It appears to us that the answer given by the Tribunal is the only answer that can be given on the facts and circumstances of the present case. The excess amount received by the assessee was the excess price received by it in respect of the sale of its stock -in -trade. It was an integral part of the routine operations of the assessee's business. It is not the assessee's case that this amount had been segregated or that it had been sterilised or utilised in any other manner such as, for example, for capital investment or otherwise. Recently, in the case of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC), the Supreme Court, after reviewing the earlier decisions, has summarised the position thus (p. 13) : "The law is well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business."
(3.) THE Tribunal, therefore, came to the right conclusion. Shri Bishamber Lal, counsel for the assessee, invited our attention to the decision of the Kerala High Court in CIT vs. Union Engineering Works 1976 CTR (Ker) 45 : (1976) 105 ITR 311 (Ker). In that case, the assessee -firm which carried on business of manufacturing and selling tea chest fittings and battery covers imported certain raw material which were found to be in damaged condition. The goods had been insured with an insurance company. The assessee entered into an agreement with the insurer whereby it was agreed to accept the rusty sheets at a discount and, according to the agreement, the insurer issued a cheque drawn in favour of the assessee on a bank in London which the assessee received on May 26, 1966. But a few days thereafter on June 6, 1966, the Indian rupee was devalued and the assessee received an amount of Rs. 13,455.75 in excess of what it would have got if the amount had been realised immediately on the receipt of the cheque. The Kerala High Court held that the amount settled with the insurer did not include any excess profit and the profit that arose was wholly due to devaluation. We do not think that this decision is of any help to Mr. Bishamber Lal. The Kerala High Court has in this judgment referred to its two earlier decisions in Shamshuddin's case (1973) 90 ITR 323 and in the case of Bank of Cochin (1974) 94 ITR 93. Shamshuddin's case (supra) directly applies here. In that case, the amount received represented the sale consideration of the goods in respect of which the assessee was carrying on a trade and the Kerala High Court held that the excess received by the assessee was a receipt arising from business and consequently a trading receipt. Similarly, in the case of Bank of Cochin, the bank which was dealing in foreign exchange purchased cheques, demand orders and other documents and in the process made an excess realisation on devaluation. That was also held to be part of the trading receipts of the assessee. The case of the present assessee is on all fours with those considered by the Kerala High Court in Shamshuddin's case.;