1994 (3) TMI 2 - HC - Income Tax

Summary

Issues involved:
The judgment pertains to the assessment year 1967-68 and involves the taxation of surplus arising on repatriation of funds from the United Kingdom to India due to devaluation of the rupee. The main issue is whether the surplus amount is a capital receipt not liable to tax or a revenue receipt.

Details of the Judgment:

The assessee-company held shares in limited companies in the United Kingdom as investments from 1947 onwards, with dividend income accumulated in a current account in the UK. The accumulated funds were used for purchasing rights shares and invested in call deposits in UK banks. Due to rupee devaluation in June 1966, the assessee repatriated funds to India in October 1966, resulting in a surplus of Rs. 1,72,676.

The Income-tax Officer treated the surplus as income of the assessee, but on appeal, the Commissioner of Income-tax and the Tribunal held that the surplus arose from dividend income abroad and confirmed the tax liability. The question referred to the High Court was whether the surplus amount was a capital receipt not liable to tax.

The High Court analyzed previous Supreme Court judgments in similar cases, emphasizing the distinction between capital and revenue receipts. It cited cases such as CIT v. Tata Locomotive and Engineering Co. Ltd., CIT v. Canara Bank Ltd., and Sutlej Cotton Mills Ltd. to establish principles regarding the taxability of gains from foreign currency fluctuations.

The High Court concluded that the surplus amount in this case was capital in nature, not arising from trading activities but from appreciation in the value of funds held for investment purposes. It emphasized that the profit did not result from business transactions but from the devaluation of the rupee, making it a capital receipt not subject to tax.

The Court also noted that all receipts are not automatically taxable as income, requiring the Revenue to establish the nature of the receipt. Citing relevant case law, the Court upheld that the surplus amount in this case was a capital receipt and ruled in favor of the assessee, holding that it was not liable to tax.

Therefore, the High Court answered the question in the affirmative and in favor of the assessee, deciding that the surplus amount was a capital receipt and not subject to tax. No costs were awarded in the circumstances.