TMI Blog1981 (9) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant's trading transactions. On June 6, 1966, the Govt. of India devalued the rupee in terms of the pound sterling. It is alleged that as a result of the said devaluation of the rupee, the sterling value of the appellant's trading assets and liabilities in India as reflected in its London accounts suffered a reduction of pounds 54,897 which represented loss on the appellant's net current assets, as distinguished from its capital or fixed assets. The appellant's head office profit and loss account for the concerned year ended on 31st December, 1966, accordingly, contained a debit entry of pounds 54,897 in respect of the said loss. The aforesaid loss was treated by the appellant as an allowable charge in the computation of the appellant's income for the relative assessment year 1967-68. But in making the assessment, the ITO, 'E' Ward, Companies District 11, Calcutta, the respondent No. 2, disallowed the said claim on the ground that there could not be a presumption that the assessee suffered any loss on the devaluation of the rupee. On appeal by the appellant, the AAC upheld the said view of the ITO on the ground that the assessment in India was concerned with the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e currency was a trading loss and should have been allowed by the Revenue. In support of this contention, the learned counsel has placed much reliance on a decision of the Supreme Court in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC). In that case, Bhagwati J., speaking for the court, observed as follows (p. 13) : " The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. " Further, it has been observed by the Supreme Court that it would not be correct to say that where a loss arises in the process of conversion of foreign currency which is part of the trading assets of the assessee, such loss cannot be regarded as a trading loss, because the change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roved that such loss has been occasioned directly as a result of devaluation. As has been stated already, the business of the appellant was carried on in India and the income from such business accrued to the appellant in India. It is also not disputed that an account was maintained by the appellant in India. The devaluation of the Indian rupee had no direct impact on the profit or loss of the business carried on in India inasmuch as the assessment was also made in India. The devaluation of the Indian rupee would have resulted in a loss in the appellant's trading business if the assessment had been made in London. In our opinion, when the business is carried on and profits and gains of such business accrue to the assessee in the same country where the assessment is made for the purpose of payment of income-tax, the question of devaluation has no bearing whatsoever; but where a business is carried on in one country and the assessment is made in another country, the question of devaluation of the currency of the country where the business is carried on will be relevant in assessing the profit or loss of the assessee from such business. The contention on behalf of the appellant that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court case show that on account of the appreciation of the Indian rupee the assessee had suffered loss in India, where the assessment was made, of the income of the assessee that arose in Pakistan. If there had been no repatriation of the said sums of money by the assessee to India, there could be no question of the assessee suffering any loss. In case there had been a profit on account of further devaluation of Indian rupee, the assessee could not claim that, as its accounts were maintained in Pakistan in Pakistani currency, it had suffered loss rather than any profit on account of devaluation. So, in our opinion, the question whether the appreciation or depreciation of a foreign currency has occasioned any loss to an assessee or not will depend on the place of assessment and the place where the income accrues to the assessee. If the business is carried on in one country and the assessment is made in another country, the question of appreciation or depreciation of currency of the country where the business is carried on will be relevant for the purpose of considering the profit or loss of the assessee. But where, as in the instant case, the business is carried on in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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