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TMI Blog1966 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia in 1947, the currencies of the two Dominions of India and Pakistan continued to be at par until there was a devaluation of the Indian rupee on September 18, 1949. As Pakistan did not devalue her rupee, the old parity of the Pakistan and Indian rupees ceased to exist. The exchange ratio between the two countries was not determined until February 27, 1951. On this date it was agreed that a hundred Pakistani rupees were equivalent to a hundred and forty-four Indian rupees. On the date of devaluation of the Indian rupee the Karachi branch of the bank had with it a sum of Rs. 3,97,221 belonging to its head office. Owing to the difficulties of the currency situation it was impossible to remit the amount to the head office for quite a long ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the profit of the bank on account of fluctuation of exchange arose in the course of trading operations of the bank or whether it was incidental to any such trading operation. If by virtue of exchange operations profits are made during the course of business and in connection with business transactions, the excess receipts on account of conversion of one currency into another would be revenue receipts. But if the profit by exchange operations comes in, not by way of business of the bank, the profit would be capital profit. In the present case, the High Court has found, after an analysis of the relevant facts, that the appreciation of the money did not arise in the course of any trading operation. In the year 1949 when there was a deva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the old balance of Rs. 3,97, 221 could not be utilised as per instructions of the State Bank of Pakistan ". According to the agreed statement of the case, the amount of Rs. 3,97,221 was " blocked " and " sterilised " for the period from the devaluation of the Indian rupee up to the time of its remittance to India. In the context of these facts, the High Court took the view that the appreciation of the value of the money did not arise in the course of the trading operation of the bank and was not therefore taxable as revenue receipt. On behalf of the appellant Mr. Hazarnavis submitted that the Appellate Tribunal was wrong in holding that there was blocking or sterilisation of the amount. Learned counsel said that the balance-sheets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essarily follow that the increment due to the fluctuation in the exchange rate was due to trading operations in the carrying on of the banking business. On the contrary, it has been found by the Appellate Tribunal that the amount of Rs. 3,97,221 was " a blocked " and " sterilised " balance and the bank was unable to deal with that amount or use it for any banking purpose between September, 1949, and July, 1953, when it was finally remitted to India. In our opinion, the money changed its character of " stock-in-trade ". when it was " blocked " and " sterilised " and the increment in its value owing to the exchange fluctuation must be treated as a capital receipt. It has also been found by the Appellate Tribunal that the said amount of Rs. 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracter would not be altered by the circumstance of the Governmental controls requisitioning the dollars. Mr. Hazarnavis also referred to the decision in Landes Brothers v. Simbson where a similar view was taken. On the contrary, counsel for the respondent relied upon the decision in Mckinlay v. H. T. Jenkins & Son Ltd. in which it was held that the profit by exchange operations would be capital profit if the profit did not come in by way of business but by means of an investment in foreign currencies. In that case, a British company, carrying on business in marble, bought Italian liras in advance with which to pay in Italy for marble to be purchased there. But before the time came for purchase, finding that the lira had appreciated, it sol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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