TMI Blog1985 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... d. This appeal arises by special leave against the judgment and decision of the High Court of Kerala at Ernakulam dated January 25, 1973, in Income-tax Reference No. 31 of 1971. The assessee, previously the Bank of Cochin Ltd., a banking company, as part of its banking business, had been purchasing cheques, payment orders, mail transfers, demand drafts, bills and other negotiable instruments drawn in foreign currencies and sometimes foreign currencies themselves from its clients. These foreign exchange assets were subsequently sold or encashed through the assessee's correspondent-banks in the foreign countries concerned and the proceeds credited to the current account of the assessee with the correspondent-banks concerned. Consequent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. On appeals, the Appellate Assistant Commissioner as well as the Appellate Tribunal came to the same conclusion. Under section 256(1) of the Income-tax Act, 1961 (hereinafter called "the Act "), two questions were referred to the High Court: " (i) Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,65,515, being profit arising on the devaluation of the Indian rupee on June 6, 1966, was income chargeable to income-tax ? (ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in rejecting the assessee's claim to deduct an amount of Rs. 52,935 being loss arising on the valuation of closing stock of Government securities in determining its total income for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue. If that is the position, then under section 5 of the Income-tax Act, 1961, it would be, in the case of an assessee who was a resident and ordinarily resident of India, assessable. The assessee showed this amount of Rs. 4,65,515 as appreciation on devaluation of the rupee. It is further recorded in the findings of the Income-tax Officer as follows: " Shri V. 0. John, learned advocate for the bank, filed its objections in his letter dated December 20, 1967. He stated 'cheques, payment orders, mail transfers, demand drafts, bills drawn in India and other negotiable instruments drawn in foreign currency and sometimes foreign currency itself are purchased from various parties and sent to correspondent-banks in foreign countries for credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's total income for the assessment year 1968-69. Therefore, the conduct and the treatment by the assessee of the result of appreciation or depreciation in value of sterling assets held by an assessee who is a resident and ordinarily resident of India must be considered to be the income of the assessee ancillary or incidental to the carrying on of the business of banking. It was held by this court in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) that where profit or loss arose to an assessee on account of appreciation or depreciation in the value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency was held by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trade, but for non-business operation, like payment of income-tax in the foreign country, there was no profit and the difference in the exchange value could not be assessed to income-tax. The Division Bench of the Bombay High Court further observed that the matter of taxability could not be decided on the basis of the entries which the assessee might choose to make in his account, but had to be decided in accordance with the provisions of law. What would determine the taxability is not whether the assessee has shown particular item as a profit or loss in the accounting year, but whether the said item could be regarded either as a profit or loss under the provisions of the Act. But as the court emphasised that if the foreign currency, has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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