TMI Blog1985 (4) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... re supplying to the assessee on credit major part of the materials needed for such manufacture. The price of such materials was, however, payable by the assessee in pound sterling. The ITO found that as a result of the devaluation, the liability of the assessee under the outstanding bills of the foreign supplier was reduced by Rs. 2,86,101 and added the said amount to the income of the assessee for being brought to tax. Being aggrieved, the assessee preferred an appeal before the AAC who sustained the addition. There was a further appeal by the assessee to the Income-tax Appellate Tribunal. It was contended on behalf of the assessee before the Tribunal, inter alia, that : (a) any profit accruing or any loss resulting from devaluatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign supplier. The Tribunal held that no profit had accrued to the assessee during the relevant year on account of devaluation. The Tribunal deleted the addition. On an application of the Revenue under s. 256(1) of the I.T. Act, 1961, the following question stated to be a question of law arising out of its order has been referred by the Tribunal to this court for its opinion : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no trading profit consequent upon the devaluation of the pound sterling accrued to the assessee during the relevant previous year and, in that view, deleting the addition of Rs. 2,86,101 made in the assessment for the assessment year 1968-69 ? At the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repay the same in foreign currency after one year or earlier. The loan remained outstanding in the books of the assessee as on June 6, 1966, when the Indian rupee was devalued. In the relevant assessment year, the assessee debited its profit and loss account with an amount representing the extra money involved for repayment of the loan and claimed deduction of the amount. The ITO disallowed the claim. The successive appeals of the assessee to the AAC and the Tribunal were unsuccessful, The matter came up on a reference before this court and it was held that the extra expenditure was an expenditure in the nature of capital and the assessee could not claim it as a revenue loss. It was, however, held that as the assessee maintained its acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, on an appeal, however, held that it could not be said whether the loss suffered by the assessee was trading or a capital loss unless it was first determined whether the said amounts were held by the assessee on capital account or on revenue account or to put it differently as part of its fixed capital or circulating capital. The Supreme Court remanded the matter to the Tribunal with the following observation (p. 13): " The law may, therefore, now be taken to be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of this court, were also cited. The said decisions need not be considered further as the facts involved therein are different from the facts in the case before us and no new principles have been laid down therein. In the facts before us, the assessee whose accounts were maintained on mercantile basis obtained an advantage or a benefit in the assessment year involved as by reason of devaluation of pound sterling vis-a-vis the Indian rupee, its outstanding liability to be liquidated by payment in foreign currency was reduced in terms of the local currency. In other words, the liability of the assessee to pay for the price of the materials obtained on credit was reduced. Necessarily, this had to be reflected in its accounts. In Sutlej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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