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2015 (5) TMI 553 - HC - Income TaxComputation of capital loss - Whether the assessee’s claim that there was a loss and/or it was a capital loss is legally tenable? - amounts accruing, during the assessment year, to the assessee from bonds issued to it, by the Central Government, in lieu of the debt amounts payable to it for services under contract to the Iraqi Government - Held that:- Holding of amounts in foreign currency for diverse reasons by itself cannot be determinative of its character. As held in Sutlej Cotton (supra), appreciation or depreciation in foreign currency value upon conversion would be either trading profit or trading loss. However, the exception to this is that if foreign exchange currency is kept as capital asset or fixed capital - in such event, the gain or loss would be of capital nature. In the present instance, the amounts as indicated earlier were payable for services provided by way of projects executed by the assessee in Iraq. The Iraqi Government’s inability to pay due to sanctions imposed by it and the subsequent Central Government’s negotiating an arrangement for its payment through bonds that were to mature in future - with interest did not in any way alter their character or convert them into capital assets as the assessee argues. Rather, this Court is also of the opinion that the analogy of bad debts and their reduction from the revenue receipts in a given year and its converse treatment - by virtue of Section 36(1)(vii) is apt to the circumstance of the case. The assessee’s claim of capital loss, based on indexed treatment of capital gain is therefore insubstantial and unfounded on any principle. - Decided in favour of the Revenue
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