Bombay H.C : Whether, on the facts and in the circumstances of the case, the surplus of Rs. 1,13,745 realised by the assessee on the devaluation of the rupee is taxable as a revenue receipt?

The assessee was doing business in copper bars. He imported two consignments of copper bars from the United States of America. The value thereof was U. S. dollars 35,411. They were shipped by the vessel “Steel Vendor”. It sailed via Karachi and the copper bars were, in September, 1965, seized by the Pakistani authorities due to the hostilities then current between Pakistan and India as being articles destined for an enemy port.

2. The assessee had paid sums of Rs. 1,59,449 in September and November, 1965, and a further sum of Rs. 25,000 in April, 1966, towards the price of the copper bars. The amounts which had originally been debited to a bank deposit account were, upon the seizure as aforesaid, transferred to an insurance claim account and the assessee lodged a claim with the insurers of the copper bars. After negotiations, the assessee received from the insurers, in full satisfaction of the claim, an amount of Rs. 2,92,433. The amount was received after June 6, 1966, when the rupee had been devalued.

3. The assessee claimed before the ITO that the excess amount of Rs. 1,13,745 resulting from the devaluation was not income and, therefore, not taxable. The ITO rejected that contention and brought the said amount to tax on the ground that it was a trading receipt. In the assessee’s appeal, the AAC accepted the contention raised by the assessee but, in the Revenue’s appeal therefrom, the Tribunal reversed the AAC’s order holding that the said amount was a trading receipt.

4. Out of the judgment of the Tribunal, the following question is referred : “Whether, on the facts and in the circumstances of the case, the surplus of Rs. 1,13,745 realised by the assessee on the devaluation of the rupee is taxable as a revenue receipt?”

5. Our attention was drawn by learned counsel for the assessee to this Court’s judgement in CIT vs. Mehboob Productions (P) Ltd. (1969) 74 ITR 676 (Bom), in support of the submission that the said amount was not taxable. On the other hand, Mr. Jetley, learned counsel for the Revenue, brought to our attention this Court’s judgment in CIT vs. IBM World Trade Corporation (1986) 52 CTR (Bom) 64:(1986) 161 ITR 673 (Bom), and he submitted that the said amount represented a trading receipt and that it was, therefore, taxable.

6. In IBM World Trade Corporation’s case (supra), the Division Bench (of which one of us, Bharucha, J. was a member) set out the applicable judgments, particularly that of the Supreme Court in Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155:(1979) 116 ITR 1 (SC). It was noted there that it was not the factor or the circumstance which caused the loss that was material but whether there was a loss which had been occasioned in the course of carrying on of the business or was incidental to it. Whether the loss was a trading loss or not would depend upon the answer to the question whether the loss was in respect of a trading asset or capital asset.

7. The Tribunal has found that the assessee’s business was in copper bars. They were trading assets. They were seized and the insurers paid for them. The said amount was part of that payment. The Tribunal rightly held that the said amount was a trading receipt. Applying the test set out above, it must be held that the Tribunal was also right in taking the view that the said amount was taxable.

8. The facts in the case of Mehboob Productions (P) Ltd. (supra) to which learned counsel for the assessee made reference were different. The monies which had been earned as profits had been assessed and had borne tax in Pakistan and had been left there with the assessee’s distributing agent as an asset. In these circumstances, the loss sustained by the assessee on account of devaluation was held to be a loss in the nature of a capital asset.

9. In the result, the question is answered in the affirmative and in favour of the Revenue.

No order as to costs.

[Citation :182 ITR 490]