1962 (6) TMI 53 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 1,92,136 is liable to be taxed.
2. Applicability of section 4(3)(vii) of the Indian Income-tax Act, 1922.
3. Nature of the receipts in question-whether they are casual and non-recurring.
4. Whether the receipts arose from business activities.

Issue-Wise Detailed Analysis:

1. Whether the sum of Rs. 1,92,136 is liable to be taxed:
The primary issue referred to the court was whether the sum of Rs. 1,92,136, resulting from the appreciation of dollar holdings due to the devaluation of the Indian rupee, is liable to be taxed. The court examined the facts and circumstances of the case, including the nature of the receipts and their connection to the assessee's business activities.

2. Applicability of section 4(3)(vii) of the Indian Income-tax Act, 1922:
The court analyzed whether the receipts in question could be exempted under section 4(3)(vii), which provides exemption for casual and non-recurring receipts that do not arise from business. It was established that for the exemption to apply, the receipts must be both casual and non-recurring, and not arise from business activities.

3. Nature of the receipts in question-whether they are casual and non-recurring:
There was no dispute regarding the casual and non-recurring nature of the receipts, as this finding by the lower tribunals was accepted by the department. The court focused on whether these receipts arose from business activities, as this was the crux of the matter for determining tax liability under section 4(3)(vii).

4. Whether the receipts arose from business activities:
The court found that the dollar holdings were built up through business transactions, including payments from clients and remittances for business purposes. These holdings were used to pay salaries of American technicians and purchase spare parts, indicating that the receipts arose from business activities. The court rejected the assessee's argument that the appreciation in the value of the dollar holdings should be treated separately from the original receipts. The court emphasized that section 4(3)(vii) concerns the source of the acquisition and not subsequent fluctuations in value. Therefore, the appreciation in the value of the dollar holdings was considered part and parcel of the business receipts.

The court referred to various precedents, including the Supreme Court decision in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, which established that even non-recurring receipts arising from business are taxable. The court also examined English cases such as McKinlay v. H.T. Jenkins and Sons Ltd. and Imperial Tobacco Co. (of Great Britain and Ireland) Ltd.'s case to draw parallels and distinguish the facts.

Ultimately, the court concluded that the sum of Rs. 1,92,136, resulting from the appreciation of dollar holdings due to the devaluation of the rupee, arose from business activities and was therefore liable to be taxed. The court answered the question in the affirmative, ruling in favor of the revenue and against the assessee. The assessee was ordered to pay the costs of the revenue, with an advocate's fee of Rs. 250.

Conclusion:
The court held that the sum of Rs. 1,92,136 is liable to be taxed as it arose from business activities, and the exemption under section 4(3)(vii) of the Indian Income-tax Act, 1922, was not applicable. The decision was unanimous, with both judges concurring.