Janarthanam, J. - (1.) SARATHY Palayacot Co., Cuddalore, is a registered firm. It has a branch at Singapore. It manufactures goods at Madras and effects sale of its products at Singapore, through its branch there.
(2.) IN computing the income of the previous year ended April 13, 1974, corresponding to the assessment year 1975-76, the assessee's assessable profits at the branch at Singapore were to the tune of 1,07,339 Singapore dollars, which were converted in INdian currency at Rs. 244 per hundred Singapore dollars and valued at Rs. 1,69,143 in the profit and loss adjustment statement. The Income-tax Officer was of the view that the conversion should have been at the rate of Rs. 387 per hundred Singapore dollars, which were prevalent during the said period and he accordingly made an addition of Rs. 1,53,494. On appeal, the Commissioner of Income-tax (Appeals)-III, Madras 34, noted that there was an Instruction No. 1154, dated March 10, 1978, issued by the Central Board of Direct Taxes to the effect that in respect of the income, which has accrued, arisen or received prior to November 1, 1977, the rate of exchange provided in Rule 115 of the Income-tax Rules, 1962, before its amendment, was to be applied and that the rule at that time required conversion, by taking 1 sterling = Rs. 18 and (2) U. S. $ 1= Rs. 7.50. He accordingly directed the Income-tax Officer to apply the provisions contained in Rule 115 of the rules and recompute the total income. The Revenue appealed. But the Appellate Tribunal declined to interfere, because it was not possible to appreciate the reason why the Revenue should appeal against a direction to follow the instructions given by itself. In other words, the Appellate Tribunal refused to entertain the appeal on this point, as it was not maintainable, a position which is in conformity with the decision of the Supreme Court in Varghese (K.P.) v. ITO [1981] 131 ITR 597, 612. The merits of the case was not therefore discussed by the Tribunal. On these facts, the question as below has been referred to this court under Section 256(2) of the Income-tax Act, 1961 (Act No. 43 of 1961) : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in directing the Income-tax Officer to apply the provisions contained in Rule 115 for conversion of the Malaysian dollars into Indian rupees ?"
(3.) ARGUMENTS of Mr. S.V. Subramaniam, learned senior standing counsel for income-tax cases, representing the Revenue, and Mr. R. Kannan learned counsel appearing for the assessee, were heard. The old Rule 115 of the Rules reads as under : "115. Rate of exchange for conversion into rupees of income expressed in foreign currency.--The rates of exchange for the calculation of the value in rupees of any income shall be as follows : (a) in respect of income accruing or arising or deemed to accrue or arise to the assessee or received or deemed to be received by him or on his behalf before the 6th day of June, 1966- (i) 1 sh. 6. d - Re. 1 ; (ii) U.S. $1 = Rs. 4.762 ; (b) in respect of income accruing or arising or deemed to accrue or arise to the assessee or received or deemed to be received by him or on his behalf on or after the 6th day of June, 1966- (1) where such income accrues or arises or is deemed to accrue or arise to the assessee or is received or deemed to be received by him or on his behalf- (i) before the 19th day of November, 1967, 1 sterling = Rs. 21 ; (ii) after the 18th day of November, 1967, 1 sterling - Rs. 18 ; (2) U. S. $ 1 = Rs. 7. 50." The old Rule 115 was substituted by a new rule in its place by the Income-tax (Seventh Amendment) Rules, 1990, with effect from April 1, 1990, and the new rule so amended runs as under : "115. (1) The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date. Explanation.--For the purposes of this rule,-- (1) 'telegraphic transfer buying rate' shall have the same meaning as in the Explanation to Rule 26 ; (2) 'specified date' means- (a) in respect of income chargeable under the head 'Salaries', the last day of the month immediately preceding the month in which the salary is due, or is paid in advance or in arrears ; (b) in respect of income by way of 'interest on securities', the last day of the month immediately preceding the month in which the income is due ; (c) in respect of income chargeable under the heads 'Income from house property', 'Profits and gains of business or profession' (not being income referred to in Clause (d)) and 'Income from other sources' (not being income by way of dividends and 'interest on securities'), the last day of the previous year of the assessee ; (d) in respect of income chargeable under the head 'Profits and gains of business or profession' in the case of a non-resident engaged in the business of operation of ships, the last day of the month immediately preceding the month in which such income is deemed to accrue or arise in India ; (e) in respect of income by way of dividends, the last day of the month immediately preceding the month in which the dividend is declared, distributed or paid by the company ; (f) in respect of income chargeable under the head 'Capital gains', the last day of the month immediately preceding the month in which the capital asset is transferred. Provided that the specified date, in respect of income referred to in Sub-clauses (a) to (f) payable in foreign currency and from which tax has been deducted at source under Rule 26, shall be (the date on which the tax was required to be deducted under the provisions of the Chapter XVIIB). (2) Nothing contained in Sub-rule (1) shall apply in respect of income referred to in Clause (c) of the Explanation to Sub-rule (1) where such income is received in, or brought into India by the assessee or on his behalf before the specified date in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973)." ;