S.C.Sen, J. - (1.) The Tribunal has referred to this court, the following question of law under Section 256(1) of the Income-tax Act, 1961 ("the Act") : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the loss in exchange on remittance of profits amounting to Rs. 3,27,978 in the case of R. A. No. 116 (Cal.) of 1983/Rs. 3,61,739 in the case of R. A. No. 114(Cal.) of 1983 was not allowable deduction in computing the business income liable for taxation ?"
(2.) The facts as stated by the Tribunal are as under : The assessees are non-resident companies and certain profits earned by them had to be transmitted to the United Kingdom. The calculation of the profits was initially made on the basis of the exchange rate prevailing at the time of declaration thereof. At the time of remittance of these profits, the exchange rate having varied, the assessees claimed losses of Rs. 3,27,978 and Rs, 3,61,739 consequent thereto. According to the Income-tax Officer the losses did not relate to the assessee's business and were, therefore, not allowable. On appeal, it was argued on behalf of the assessees that the remittances of profits did relate to their business and it was contended that the profits for the years 1972 to 1975 had been taxed by covering the profits in pound sterling and at the then prevailing rate of exchange wherein one pound was equal to Rs. 19. Subsequently, there was a devaluation of the rupee and one pound became equal to Rs. 15. The Commissioner (Appeals) was, however, of the opinion that the loss or gain arising out of conversion of the assessee's assets and liabilities as on the first day of the accounting year was a notional loss or gain, as the case may be. He consequently rejected the claims of the assessee made in this behalf. On second appeal before the Tribunal, the claims were again rejected by the Tribunal with the following observation : "Here, the income has been earned in India and is to be assessed in India. The whole of that was in rupees. Converting it into pound sterling may be a feature of the assessee's business for purpose of calculating the profits of its head office. But we are not concerned with the profits or losses on transmission of the rupees because they arise after the income had been actually earned. From the point of view of income-tax, what is to be taxed is the income earned in India and not the income that ultimately is received by the assessee's head office in the U. K. When the actual profits were taxed in the earlier years the rupee was taken as the basis and if the devaluation had taken place in these years and pounds had to be converted into rupees naturally the incomes would have been much higher. In any case the loss or profit would be suffered and gained by the assessee after the ascertainment of the profits in the course of transmission to the U. K. and we are not concerned with what the assessee actually received there. In view of the reasoning given by the authorities below and the aforesaid discussion we are of the opinion that there is no force in these appeals which are accordingly dismissed."
(3.) The principles stated by the Tribunal find support from a Division Bench decision of this court in the case of Namdang Tea Co. Ltd. v. CIT [1982] 138 ITR 326. There, on similar facts, it was held by a Division Bench of this court that where the business of the assessee was carried on in India and the income from the business accrued to the assessee in India, the. devaluation of the Indian rupee had no direct impact on the profit and loss of the business carried on in India inasmuch as the assessments were also made in India.;