TMI Blog1986 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... he total receipts in the hands of the assessee amounted to sale price arising out of trading activity and as such was taxable as revenue receipt ? 4. If the answer to above questions Nos. 1, 2 and 3 is in the affirmative, whether the Tribunal was justified in rejecting the alternative claim of the assessee that the excess of Rs. 41,586.42 referable to unrealised outstanding balance as on the opening day of the accounting year of Rs. 71,199.81 was not in the nature of capital accretion and hence not liable to be taxed as revenue receipt ?" It appears that there is a mistake in framing question No. 4. The assessee's contention is that excess amount of Rs. 41,586.42 was in the nature of capital accretion and, therefore, the question as framed is not correct. We reframe it as under: " If the answer to above questions Nos. 1, 2 and 3 is in the affirmative, whether the Tribunal was justified in rejecting the alternative claim of the assessee that the excess of Rs. 41,586.42 referable to unrealised outstanding balance as on the opening day of the accounting year of Rs. 71,199.81 was in the nature of capital accretion and hence not liable to be taxed as revenue receipt ? " Facts le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence exempt under section 10(3) of the Act as it stood at the relevant time. The Incometax Officer was of the view that the claim made by the assessee was frivolous. He found that what the assessee had received was only the sale price of the goods sold and that as a result of devaluation of the Indian rupee, it had received larger amount in terms of the Indian rupees. As observed by the Tribunal, in substance, what the Income-tax Officer held was that the assessee's case was covered by clause (ii) of section 10(3) and, therefore, the receipts even if they were of casual and non-recurring nature, since they arose from the business, were not exempt from payment of tax. In the appeal preferred by the assessee, the Appellate Assistant Commissioner held that the receipts in question arose out of the business transactions and the element of casualness as sought to be urged on behalf of the assessee was totally absent. He further held that there was no substance in the alternative contention of the assessee that the receipts were of capital nature. The assessee carried the matter in further appeal before the Tribunal. Same contentions which were raised before the Appellate Assistant Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are of a casual and non-recurring nature, unless they are- (i) capital gains, chargeable under the provisions of section 45, or (ii) receipts arising from business or the exercise of a profession or occupation, or (iii) receipts by way of addition to the remuneration of an employee." In our opinion, the assessee's contention cannot be accepted. The income which arose to the assessee as a consequence of devaluation has arisen during the course of trade and is a trading profit inasmuch as the amount is a part of sale proceeds. It is true that the increase in the sale proceeds was because of devaluation which had no direct connection with the trading activity of the assessee, but it cannot be gainsaid that as result of the devaluation, the assessee became entitled to receive a larger amount or price in terms of rupees for the goods sold and the income which the assessee derived as a result thereof directly arose in the course of the trade and constitutes a trading profit. A similar view was taken by the Kerala High Court in M. Shamsuddin Co. v. CIT [1973] 90 ITR 323. The assessee in that case was a firm owning cashew factories and it exported cashew kernels to foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and that they were taxable as revenue receipts. It was next contended that in any case, the amount of Rs. 41,586 which was relatable to the preceding year could not be treated as trading receipt. The assessee maintains accounts on the mercantile system. The sale proceeds in the preceding year in terms of rupees came to Rs. 71,192 which were debited to the respective accounts of the purchasers in U.S.A. At the end of the year of account, that is, March 31, 1966, this amount of Rs. 71,192 became a debt due to the assessee from the purchasers in U.S.A. This amount was shown along with sundry debts in the balance sheet of the assessee. It was submitted that debts due to the assessee acquired the character of capital asset and, therefore, any accretion to it would necessarily be of capital nature. It is not disputed that the amount of Rs. 41,586 received by the assessee in the year under consideration was relatable to sale proceeds of Rs. 71,192 of the preceding year. It is submitted that this excess or additional amount of Rs. 41,586 which the assessee received as a result of devaluation of the Indian rupee towards the sale proceeds of the preceding year is an accretion to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds were, in fact, received in the year under consideration and since there was devaluation of the Indian rupee, the assessee received Rs. 41,586 in excess towards the sale proceeds of Rs. 71,199 debited to the respective accounts of the purchasers in the U.S.A. in the preceding year. It was urged that the debts due to the assessee at the end of the year of account are capital assets of the assessee and, therefore, the excess or additional amount received by the assessee should be treated as accretion to its capital assets and, consequently, that amount was not taxable as revenue receipt. We do not find any substance in the contentions raised on behalf of the assessee. The sale price due to the assessee from the purchasers including foreign purchasers would become a debt due to the assessee at the end of the year of account, but it is not correct to say that such debt would become capital asset of the nature as urged on behalf of the assessee. Such debt would no doubt be an asset of the assessee, but it would be a current or business asset as distinguished from a fixed asset. Debt due from purchaser representing unpaid sale price has the same character as stock-in-trade. Both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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