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TMI Blog1962 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... audi Arabian Airlines and Messrs. Arabian American Oil Co. In respect of those contracts, the said two clients of the assessee had to pay their dues in dollars to the company's bank in America. On September 19, 1949, the Indian rupee was devalued and, at that time, the assessee held with its bankers in the U.S.A. a sum of $ 1,98,202.75. These dollars were originally valued in the books of the assessee at the old rate of exchange, i.e., ₹ 3.33 per dollar. On account of devaluation of the rupee, the exchange rate was fixed at ₹ 4.75 per dollar. Consequent upon that, when the dollar balances were valued at the new rate of exchange there was an appreciation in their rupee value to the extent of ₹ 2,80,639. The Income-tax Officer held that the gain in question is liable to tax. He rejected the assessee's contention that the same was exempt from tax under section 4(3)(vii) as the accretion in question was a mere windfall. It was also contended before the Income-tax Officer without success that it was unfair to tax the company on a mere book entry. Those very contentions were raised before the Appellate Assistant Commissioner. The Appellate Assistant Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true the Judicial Committee attempted a narrower definition in Commissioner of Income-tax v. Shaw Wallace & Co., [1932] 2 Comp. Cas. 276; 59 I.A. 206 by limiting income to 'a periodical monetary return "coming in" with some sort of regularity, or expected regularity, from definite sources' but, in our opinion, those remarks must be read with reference to the particular facts of that case. The nonrecurring aspect of this kind of receipt was considered by the Privy Council in The King v. B.C. Fir & Cedar Lumber Co., [1932] A.C. 441, 448 and we do not think their Lordships had in mind a case of this nature when they decided Shaw Wallace and Company's case, [1932] 2 Comp. Cas. 276; 59 I.A. 206." Hence the real question for decision in this case is whether those receipts "arose from business". "Business" is defined in section 2(4) as including " any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture." Even a single transaction may constitute "business" under the definition; it is not essential that there should be a series of transactions. As held by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;receipts" is an irrelevant circumstance; it has to be considered as a part and parcel of the "receipts". Once the "receipts" are held to have arisen from business, there can be no exemption under section 4(3)(vii). The contention advanced on behalf of the assessee while highlighting the casual and non-recurring aspect of the "receipts" completely overlooked the other requisite that the "receipts" in question should not have arisen from business. Section 4(3)(vii) as noticed earlier lays down two conditions to entitle the exemption provided therein. When a claim for exemption is made, the authorities will have to ask themselves only two questions, viz.: (1) whether the "receipts" in question arose in the course of business; and (2) were they casual and non-recurring in nature. Hence, we are unable to accede to the contention of the learned counsel for the assessee that we should draw a line between the "receipts" proper and the accretion thereto. Assistance had been sought by the counsel on either side from decided cases. But no case directly bearing on the point under consideration was brought to my notice. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company received that sum in advance. Since the marble to be supplied by it had to be purchased in Italy on some future date, that sum of money was invested in lire at a favourable rate. But, before the company found it necessary to purchase the marble, the lire had risen as against sterling, and that opportunity was seized by the company to make a quick profit by selling the lire. The company again purchased lire for the purchase of the marble for which they paid less than the sum at which they sold the lire when they made their exchange profit. Rowlatt J. held that the profit was not a revenue profit but a capital, and the reason he gave in support of his view was that since the foreign currency was bought purely as a speculation and not as consumable stock, any profit made was in the nature of an appreciation of a temporary investment and was therefore a capital profit. But, he proceeded to observe thus, at page 405: "It was, as I say, a mere appreciation of something which they had got in hand, and I think the Commissioners were bound to hold (because I see no evidence at all to the contrary) that it was not merged in a business of the company. It may be that, if the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bought dollars in the United Kingdom through its bankers who remitted them to banking accounts of the company in the United States, and it was the practice of the company to accumulate a large holding of dollars each year before the leaf season commenced. The company never bought dollars for the purpose of resale as a speculation. On the outbreak of war, in September, 1939, the appellant company, at the request of the Treasury, stopped all further purchases of tobacco leaf in the United States, and as a result, the company had on hand a holding of dollars which had been accumulated between January and August, 1939. On 30th September, 1939, the company was required under the Defence (Finance) Regulations, 1939, to sell its surplus dollars to the Treasury, and, owing to the rise which had occurred in the dollar exchange, the sale resulted in a profit for the company. This profit was included in assessments upon the company to income tax under Schedule D, Case 1, and to National Defence Contribution. On appeal to the Special Commissioners, the company contended that, in the events which had happened, the profit was a realised appreciation of a temporary investment in foreign currenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Commissioners, that the transaction of selling the coal which was no longer required was a transaction on revenue account. It seems to me, if I may say so, that that decision was manifestly right." Dealing with Mckinlay's case [1926] 10 Tax Cas. 372, this is what his Lordship observed [1943] 25 Tax Cas. 292, 301-2: "Rowlatt J.'s own view of his decision in that case, and the grounds of it, are referred to by him in Thompson's case [1927] 12 Tax Cas. 1091. In Thompson's case [1927] 12 Tax Cas. 1091 Rowlatt J. said that Mckinlay's case [1926] 10 Tax Cas. 372 was decided by him on the footing that the original purchase of the lire had been 'a speculation'. It is, perhaps, fair to say that the case stated in Mckinlay's case [1926] 10 Tax Cas. 372 does not appear to contain any basis for a finding that the original purchase was a speculation. It does not appear that that was the intention of the original purchase, so far as the case stated shews. But, however that may be, that was Rowlatt J.'s own view; and on that basis, in my opinion, no criticism could be made of the decision in Mckinlay's case [1926] 10 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. But the banker has always to keep enough cash or easily realisable securities to meet any probable demand by the depositors. No doubt there will generally be loans to persons of undoubted solvency which can quickly be called in, but it may be very undesirable to use this second line of defence. If as in the present case some of the securities of the bank are realised in order to meet withdrawals by depositors, it seems to their Lordships to be quite clear that this is a normal step in carrying on the banking business, or, in other words, that it is an act done in 'what is truly the carrying on' of the banking business. This, it appears to their Lordships, is the more appropriate and satisfactory ground for dealing with the question arising in the present case." This decision shows that the expression "arising from business" found in section 4(3)(vii) should not be construed narrowly. Various other English decisions have been read to us, but on issues not ad idem with the one we are concerned in this case. To my mind they do not throw any light on the point on which our decision is called for. They can only stimulate the mind, but cannot serve as p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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