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TMI Blog1973 (1) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... encies themselves from its clients. These foreign exchange assets are 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. These bank balances are periodically transferred to India. During the accounting year ending December 31, 1966, the Indian rupee was devalued on 6th June, 1966. At the time of the devaluation the assessee's accounts with the correspondent-banks in foreign countries stood credited with the sale proceeds of negotiable instruments and foreign currencies, as mentioned above. Consequent on devaluation, the value of these, in terms of the Indian rupee, registered a substantial increase to the extent of Rs. 4,65,515. This excess realisation on devaluation was treated by the Income-tax Officer as the income of the assessee during the accounting year. The assessee claimed that the profit derived on the devaluation of the Indian rupee was in the nature of a windfall, that it had nothing to do with the business carried on by it and that it was solely due to an act of the Government in fixing the value of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, of the view that there could be no doubt that the appreciation in value amounting to Rs. 4,65,515 represented part of the trading receipts of the assessee and accordingly constituted a revenue receipt in the hands of the assessee. The first question referred to above arises out of this conclusion. The second question sought to be raised by the assessee is in respect of an alleged loss of Rs. 52,935 on the revaluation of its holding of Government securities. The facts relating to this question are briefly is follows : As on the last day of the accounting year relevant to the assessment year 1967-68, viz., December 31, 1966, the assessee valued the Government securities held by it and as the market price of these securities on that date was less than the cost price, this difference amounting to Rs. 52,935 was taken as loss arising from the valuation of the closing stock of securities. This amount was adjusted by the assessee in its balance-sheet against the devaluation profit of Rs. 4,65,515, referred to earlier, and the balance of Rs. 4,12,580, remaining after such adjustment was credited to the reserve account along with other appropriations. In the return filed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation of closing stock could be changed by an assessee, provided such change in method is regularly followed, subsequently such a change could be allowed only in respect of the closing stock of stock-in-trade in which the assessee regularly deals. In the circumstances, the Tribunal held that the value of these securities should only be equated with the value of cash holdings of the assessee and, there could be no question of valuing them at the end of each year at the market rate as in the case of stock-in-trade in which a trader deals. In this view of the matter the Tribunal held that the alleged loss on the revaluation of securities was rightly disallowed by the authorities below in computing the total income. On this finding the second question referred to above arises for determination. The assessee has repeated his contention before this court that the excess realisation of Rs. 4,65,515 on devaluation cannot be treated as a revenue receipt but only as a casual receipt in the nature of a windfall by virtue of the devaluation. The business of the assessee being a banking business and as part of its banking business it was purchasing cheques, payment orders and mail transfers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other foreign currencies never ceased to be the stock-in-trade at the time when devaluation of the Indian rupee was announced and, therefore, the appreciation in the value of the sale proceeds of these assets which was the stock-in-trade of the assessee represented the trading receipts of the assessee only. The principle of the decision of this court in Al. Shamsuddin & Co. v. Commissioner of Income-tax is also applicable to the facts of this case. In the light of these decisions and the finding of fact arrived at by the Tribunal, the conclusion that this sum of Rs. 4,65,515 constituted the business income in the year of account has to be sustained. The second question relates to the disallowance of a sum of Rs. 52,935 being depreciation in the value of certain securities held by the appellant. The Tribunal found that the holdings of the assessee in Government securities are only to ensure the availability of easily realisable funds in case of need even though in the balance-sheet this has been treated as investments. The Tribunal also found that the fact that in any particular year there has not been any purchase or sale of securities does not conclusively prove that the securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is legally incorrect. It is true that till December 31, 1966, the assessee was valuing the securities at cost price in the profit and loss statement. But, after that year, what has been done by the assessee is to adopt the mode of valuation of the closing stock at cost or market price whichever is lower. The mode of valuation of a closing stock can be changed by the assessee provided such changed method is regularly followed subsequently. It is true that the assesee has adopted the market value of these securities as on December 31, 1966, in the balance-sheet and in the balance-sheets for the subsequent years ending December 31, 1967, and December 31, 1968, the cost price as at the end of the accounting year has been taken as the value of these securities at the end of the previous year. But the Tribunal failed to note that the market prices of the securities as on the last date of the subsequent years were higher than the cost price as could be seen from the following chart given by the Tribunal in its order : ----------------------------------------------------------------------------------------------------------------------------------------------- Accounting Securities Secu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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