Ajit K. Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1977-78, the following questions of law have been referred to this court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss of Rs. 1,71,066 incurred by the assessee-company due to fluctuation of exchange rates in remittance of profit from India to its U. K. office was not an allowable deduction in its income-tax assessment for the assessment year 1977-78 ?
(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss of Rs. 368 incurred by the assessee-company in remittance of dividend was not an allowable deduction in the income-tax assessment ?
(3.) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, in computing long term capital gains arising out of the transfer of the original shares, the cost of acquisition of the original shares should be taken at the average cost determined by spreading over the actual cost of the original shares over the original shares and the bonus shares ?" 2. The first dispute covered by the first question relates to the assessee's claim of Rs. 1,71,066 representing the loss on the remittance of its profits to the U. K. The registered office of the assessee is situated in the U. K. But it had income by way of profits and gains from business in India. To the extent to which the assessee required the funds for the purpose of carrying on its business in India, it retained the requisite amount, and remitted the balance to its head office. In the course of this remittance, the assessee incurred a loss on account of difference in exchange rate. This was disallowed by the Inspecting Assistant Commissioner and the Commissioner of Income-tax (Appeals) on the ground that it was not laid out for the purpose of earning income. 3. The assessee came up in second appeal before the Tribunal and the Bench confirmed the orders of the authorities below with the following observations : "5. We have considered the rival submissions and the facts and circumstances of the case. In the case of Sutlej Cotton Mills Ltd. the Supreme Court has held that, where the profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by him, 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 its circulating capital. But, if, on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. We are of the view that the principles laid down by the Supreme Court in the abovementioned case do not advance the case of the assessee, but actually support the departmental contention. It is relevant to note that the surplus profit remitted by the assessee-company to its head office in the U. K. was not required by the company for the purpose of its working capital in India. It is, therefore, clear that the amount remitted by the company to the U. K. did not represent a part of its trading asset or as part of its circulating capital embarked in the business. It cannot also be said that the surplus funds remitted by the company were held by it in India on revenue account. Hence, following the principles laid down by the Supreme Court in the abovementioned case, it would follow that the loss on account of the remittance of the surplus funds through fluctuations in exchange rates cannot be regarded as a trading loss or as a loss incidental to the carrying on of business by the assessee-company. It is also relevant to mention that the surplus funds were remitted by the company to the U. K. for the purpose of distribution by way of dividends or for investment outside India. The loss arising from such remittance cannot, therefore, be regarded as a loss on revenue account incurred by the company in the carrying on of its business. We, therefore, agree with the conclusion of the income-tax authorities that the loss on account of remittance claimed by the company cannot be regarded as an admissible deduction in the computation of its taxable profits. The decision of the Calcutta High Court in the case of Tingree Tea Co. Ltd. [1971] 79 ITR 294, relied upon by learned counsel for the assessee, is not relevant for the purpose of the present appeal as the question under consideration before us was not considered by the Calcutta High Court in the said case,";