1984 (8) TMI 104 - AT - Income Tax

Summary

Issues:
1. Interpretation of Rule 115 of the IT Rules for conversion of foreign exchange into Indian rupees.
2. Whether the amendment to Rule 115 has retrospective effect.
3. Jurisdiction of the CIT under section 263 of the IT Act.

Analysis:
1. The appeal involved the interpretation of Rule 115 of the IT Rules regarding the conversion of foreign exchange into Indian rupees for the assessment year 1977-78. The CIT contended that the conversion rate should have been lb1 equal to Rs. 18 instead of Rs. 15.13 as done by the IAC (Assessment). The assessee argued that the amended Rule 115, effective from 1st Nov. 1977, applied to their case, and the correct rate was Rs. 15.13. The Tribunal agreed with the assessee, holding that Rule 115 is procedural and the amendment applied to assessments made after 1st Nov. 1977. Therefore, the CIT's order was deemed incorrect, and the appeal was allowed.

2. The key issue was whether the amendment to Rule 115 had retrospective effect. The departmental representative argued that the amendment, effective from 1st Nov. 1977, did not apply to the assessment year 1977-78. However, the Tribunal determined that the amendment was procedural, not substantive, and was intended to apply to assessments made after the effective date. Citing a Special Bench decision, the Tribunal concluded that the correct conversion rate used by the IAC (Assessment) was in accordance with the amended Rule 115, and the CIT's order under section 263 was unjustified.

3. The jurisdiction of the CIT under section 263 of the IT Act was also a significant aspect of the appeal. The CIT had directed the IAC (Assessment) to convert the income at a different rate, considering the original assessment order as erroneous and prejudicial to revenue. However, the Tribunal found that the CIT's order was based on an incorrect interpretation of Rule 115 and lacked merit. Consequently, the Tribunal canceled the CIT's order and allowed the appeal filed by the assessee company.

This detailed analysis of the judgment highlights the critical issues of interpretation of Rule 115, the retrospective effect of its amendment, and the jurisdiction of the CIT under section 263, providing a comprehensive understanding of the legal reasoning and decision-making process involved in the case.