INDO BURMA PETROLEUM CO LTD Vs. COMMISSIONER OF INCOME TAX CENTRAL

JUDGEMENT

(1.) In this reference under Section 256(2) of tbe I.T. Act, 1961, as directed by this court, the Tribunal has referred the following three questions for the assessment year 1967-68 :

(2.) In order to appreciate these questions, it will be necessary to refer to certain facts as mentioned in the statement of case. But we will refer to certain summary of facts, because there is some suggestion by learned advocate for the assessee that the statement of case does not correctly summarise all the essential ingredients of the findings or of the facts admitted- It appears that during the year 1950, the assessee-company had received a sum of Rs. 97,01,124 from the Govt. of the U.K. by way of ex gratia grant, for the rehabilitation of its war-damaged industry in Burma. This amount was credited, according to the statement of case, to its capital reserve account. Learned advocate for the assepsee stresses the point that it was held as fixed assets. This reserve, subject to certain subsequent adjustments, had been permanently reflected in the company's investments in U.K. Govt. securities, B.O.C. (1954) shares and U.K. Municipal Corportion deposits. Subsequently, the company's investments in 2,01,886 shares of B.O.C. (1954) were disposed of indifferent years and the whole amount thereof was paid by the Government of Burma through B.O.C. in the U. K. The realisation was always treated for tax purposes as on capital account. The dividends received from B.O.C. shares as well as the profit from Burma operations were always repatriated to India and the Reserve Bank had never allowed to repatriate them to the U.K. According to the assessee, it had plans to invest these moneys in various capital projects in the U.K. as part of its expansion scheme and, therefore, these were kept, inter alia, in U.K. Govt. securities, Municipal Corporation deposits, etc., after obtaining the Reserve Bank of India's approval from time to time, pending finalisation of the negotiations. The company wrote on December 26, 1963, to the Ministry of Finance, Govt. of India, for retention of certain amounts in the U.K. In view of a certain controversy, though an extract of that letter has been set out in the statement of case, it is desirable to set out the said letter in extenso which appears at page 10 of the Paper Book being annex. "A" to the statement of case. The said letter, as stated hereinbefore, was dated December 26, 1963, and was addressed to the Secretary, Department of Economic Affairs, Ministry of Finance, Govt. of India, New Delhi. It stated as follows:

(3.) Out of the various projects, only the company's scheme for drilling operations was ultimately approved and finalised and for this the company obtained the Reserve Bank's approval to retain a sum of 1,50,000 in the U. K. for the purpose of finalising this project entirely out of the funds lying in the U.K. As the company's total funds in the U.K. was much higher, the Reserve Bank from time to time instructed it to repatriate funds to India which the Reserve Bank considered as surplus and this was duly effected by the company. As a result of these instructions, the company repatriated 20,204 being the balance fund lying in the U.K. as on 30th June, 1966, after retaining the moneys for commitments for U K. drilling and meeting expenses for Burma Denial Suits. The above amount was repatriated to India in July, 1966, shortly after the devaluation of the Indian Rupee in June, 1966. The assessee, as a result of the remittance and on account of the devaluation, realised an extra sum of Rs. 1,88,157 in terms of Indian currency. In fact, as per details furnished by the assessee, it is seen that it had earned an extra profit of Rs. 2,03,300 on account of devaluation from the funds lying in current accounts with the banks and deposits with the Municipal Corporation. The whole of this amount was originally offered for tax in the return filed by the assessee. Subsequently, a revised return was filed in which the company offered to tax only Rs. 35,143 as revenue profit and the balance of Rs 1,68,157 was offered as capital gains. The ITO treated the above amount of Rs. 1,68,157 also as a profit on revenue account on the ground that it consisted of various remittances made from India to the U.K. which remained unutilised in the assesscc's business there.