The Judgment of the Court was delivered by
Dipak Kumar Sen, J.:— This is a consolidated reference under s. 256(1) of the I.T Act, 1961, arising out of the income-tax assessment of Messrs. Khandelwal Bros. Pvt. Ltd., Calcutta, in the assessment year 1965–66. The question referred at the instance of the assessee is as follows:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of Rs. 1,95,883 accrued to the assessee on account of devaluation of Indian rupee was business income?”
2. The question referred at the instance of Commissioner of Income-tax, West Bengal-I, Calcutta, is as follows:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of Rs. 1,95,883 on account of devaluation of Indian rupee did not accrue or arise to the assessee on 3rd November, 1964, when the assessee actually adjusted its account in respect of the sum due to the assessee from Messrs. K.A Export Corpn., New York?”
3. The facts found and/or admitted in the proceedings are shortly as follows:
The Indian rupee was devalued on the 16th September, 1949. At the end of the Diwali year 2006 corresponding to 21st October, 1949, i.e, the assessment year 1950–51, the assessee became and continued to be entitled to a sum of $1,08,540.20 from one K.A Export Corporation, New York, by way of commission equivalent to Rs. 3,60,624-12-3 under the rate of exchange prevailing prior to the said devaluation. In the same year, a sum of $5,477.67 was adjusted on account of certain expenses incurred by the assessee] during the period prior to devaluation. In the same year, one Khandelwal Refrigeration Corpn. Ltd., an allied concern, was amalgamated with the assessee. An amount of $36,968.08 standing to the debit of the said Messrs. K.A Export Corporation, New York, in the accounts of the said amalgamated company was adjusted in the accounts of the assessee after amalgamation in the same year. Thus, a sum of $1,40,030.61 became due to the assessee as aforesaid in the said accounting year from the said K.A Export Corporatian, New York.
4. In subsequent years, i.e, 1952–53 to 1954–55, 1957–58 and 1963–64, there were further adjustments in the said account by way of payments and receipts, whereafter a sum of $1,12,628.15 remained due to the assessee from the said Messrs. K.A Export Corporation, New York, in the assessment year 1963–64. In the assessment year 1952–53, there was a separate transaction between the assessee and Messrs. K.A Export Corporation, New York, relating to purchase of black pepper. K.A Export Corporation remitted a sum of $ 2,98,000 in favour of the assessee on a Telegraphic Transfer Account. There were disbursements in the said account and in the accounting year 1957–58, a sum of $1,46,321.24 became payable by the assessee to the said K.A Export Corpn., in this account.
5. The above two accounts, viz., the Commission account and the Telegraphic Transfer account, were finally adjusted with the sanction of the Reserve Bank of India, received on the 1st February, 1963. On the 3rd November, 1964, the assessee transferred the said sum of $1,12,628.15 due to it on the commission account to the Telegraphic Transfer account in adjustment of its dues. In this final adjustment an accretion of Rs. 1,95,883 was shown for the first time as a credit in the profit and loss account by reason of difference in exchange rate on account of devaluation.
6. In its income-tax assessment for the assessment year 1965–66, the corresponding accounting year ending on the 3rd November, 1964, the assessee claimed the said sum of Rs. 1,95,883 to be its casual income and not taxable. Alternatively, it was submitted that the said amount had accrued to the assessee immediately on devaluation of the Indian rupee and even if the same was held to be the business income of the assessee it could not be taxed in the assessment year 1964–65. The ITO held that the said surplus was not casual but a business income of the assessee and that the same having been received by the assessee in the accounting year in question by adjustment of accounts, if not by actual remittance, was taxable as business income in the said assessment year.
7. From the order of the ITO the assessee preferred an appeal to the AAC. The AAC held that the receipt of the surplus was clearly connected with the business of the assessee and that the profit arising from the devaluation of the rupee was a business income of the assessee. He held fur-ther that the sanction of the Reserve Bank of India for making necessary adjustments in the accounts having been received and the adjustments in fact having been made during the year under appeal the income had accrued to the assessee in the said year.
8. The assessee preferred a further appeal to the Tribunal. It was contended before the Tribunal that the surplus arising but of devaluation of the Indian rupee in the hands of the assessee was not taxable as it did not arise out of any business transaction. It was contended further that the sanction for the necessary adjustment having been given by the Reserve Bank of India on the 1st February, 1963, the income in any event would be deemed to have accrued on the 1st February, 1963, and, therefore, could not be taxed in the year in question. The revenue contended to the contrary.
9. After considering a number of reported decisions cited, the Tribunal held that the amount originally due to the assessee from the said K.A Export Corporation, New York, was on account of commission and as such it was a business receipt and retained such character throughout till the same was adjusted. Before the same was received by the assessee in India, the Indian rupee was devalued and, therefore, the surplus arising therefrom took the character of a revenue receipt. This surplus arose in the course of the trade of the assessee and thus constituted a trading profit. The Tribunal held further that as the sanction for the necessary adjustments was given by the Reserve Bank of India on the 1st February, 1963, the said income accrued to the assessee on that date and it could not be taxed in the assessment year in question but in the preceding assessment year 1964–65.
10. The questions mentioned hereinbefore have been referred as questions of law arising out of the aforesaid order of the Tribunal.
11. At the hearing, Mr. P.P Ginwalla, learned counsel for the assessee, contended that in the instant case it could not be said that the dollars receivable by the assessee from M/s. K.A Export Corporation, New York, were receivable as income in the relevant assessment year. Such balance had accrued to the credit of the assessee in the hands of its New York agents by the 21st October, 1949, and this must be deemed to be part of income earned even earlier. A trading accrual in foreign currency must be treated as income at the time of accrual. If there occurred a change in value of such currency in terms of the Indian rupee in the same year there will be a variation of such income. If there was any accretion, the surplus had to be taxed. On the other hand, if there was any depreciation, the shortfall had to be allowed as a loss. But onqe accrual takes place and the year passes; the accrual, whether taxed or not, ceases to be income in succeeding years and is converted into a business asset. It is for the assessee to decide how to use or utilize such a business asset. If the assessee so chooses, the accrual can be treated as his circulating capital and utilised in the usual course of his business. It was equally open to the assessee to treat the asset as his fixed capital by putting the same in a reserve fund or by earmarking it for purchase of capital goods. If the asset is treated as circulating capital of the assessee then a change in its value in any subsequent year will affect his business profits. But if it is not so treated or it forms part of the fixed capital of the assessee then a change in its value will not affect the income of the assessee. He submitted that there is no finding in the present case that the assessee had elected to treat the amount lying in the hands of its foreign agents as its circulating capital and, therefore, any accrual thereto by reason of exchange fluctuation could not be taxed.
12. Mr Ginwalla contended further that the amount of $36,968,08 which came to the assessee as a result of its amalgamation with Messrs. Khan-delwal Refrigeration Corporation Ltd. in any event could not be treated as part of its revenue receipts and must be treated as its capital. In support of this contention he cited Spicer & Pegler's “Book-Keeping and Accounts”, 16th edit., for the following passages (at page 317):
“It will be noticed that the Reserve and Profit and Loss Account balances of the transferor companies do not appear as such in the books of the transferee company, as they are not available for revenue purposes in the hands of that company, being represented by net assets purchased and paid for out of capital.”
(at page 323) on amalgamation of companies:
“Treatment of revenue balances and reserves.— The accumulated revenue balance and reserves of the vendor company should not be brought into the purchasing company's books, since they are not profits of the purchasing company, but are represented by assets which the company purchases and pays for.;”
13. Mr. Suhas Sen, learned counsel for the revenue, contended on the other hand that it was clearly seen from the accounts that the assessee was treating the fund accumulated in the hands of its agents in the U.S.A as part of its circulating capital and at all material times had been operating the same for the purpose of meeting its business expenses. He submitted that there was no finding that this fund had been earmarked for the purchase of any capital goods or that there was any attempt by the assessee to utilise any part thereof for the purchase of any capital goods.
14. A number of decisions were cited at the Bar in support of the respective contentions of the parties. The same are considered hereafter in their chronological order.
(a) Commissioner Of Income-Tax, Bombay v. Mogul Line Ltd., Bombay., [1962] 46 ITR 590 (Bom). In this case, the assessee carried on the business of plying ships on hire and had an agency at Karachi, West Pakistan. In September, 1949, Indian rupee was devalued. The assessee had a credit balance in its account in the books of his agent at Karachi. Following the devaluation the Pakistan authorities prohibited remittance from Pakistan to India, except of earnings after May, 1959, and, therefore, the balance in the assessee's account as on 30th April, 1950, remained unremitted to India. The assessee credited this balance show in Indian rupee to an account styled as “Pakistan Exchange Suspense Account” in its Indian balance-sheet as at 31st December, 1950. In the year ending 31st December, 1951, the assessee was assessed to income-tax in Pakistan for the assessment years 1947–48, 1948–49 and 1949–50. The debited Pakistan tax was in the assessee's “Pakistan Exchange Suspense Account”, resulting in a debit balance which was ultimately written off. In the same year, the ITO in India added back the surplus in the rupee value of the balance in the Pakistan account holding that the assessee had utilized the foreign balance for payment of its tax liability in Pakistan; and, therefore, had realised the profit resulting from exchange difference. The debit balance in the account claimed was however disallowed as it arose in respect of tax payment. The Tribunal upheld the contentions of the revenue.
On a reference, the Bombay High Court held that the Pakistan asset which had increased in value in terms of the Indian rupee had no doubt been utilised but such utilisation did not result in the accrual of a taxable profit to the assessee, there was no actual conversion of the Pakistan money into Indian rupee and no surplus was actually received by the assessee. The High Court observed as follows (p. 599):
“It is undisputed that if the foreign fund is allowed to remain unused where it lies, the mere circumstance that there has been fluctuation in the currency resulting either in appreciation or depreciation of the fund in terms of the coin of another country will not result either in profit or loss to the fund-holder. If the fund is utilised in the course of trade for a trading purpose, there can be no doubt that there would be realisation of the profit on exchange, and the profit would be taxable. If, on the other hand, the fund is used not for a business operation or for the purpose of trade, but for a non-business operation, there may not be a taxable profit arising on its utilisation. In the present case, the fund was utilised for the payment of income-tax which was not a business operation…The payment of the Pakistan fund held by the assessee to the income-tax authorities, therefore, cannot be said to be an operation either of a factual or constructive conversion of the currency of one country into the currency of another country and, moreover, no trading or business operation was involved in the siid payment.”
(b) Hindustan Aircraft Ltd. v. Commissioner Of Income-Tax, Mysore., [1963] 49 ITR 471 (Mys). The facts in this case were that the assessee in the course of its business under took to repair and overhaul at its Bangalore factory aircrafts belonging to foreigh companies, the assessee's charges being payable in dollars to be deposited in the assessee's bank in America. On the 19th September, 1949, when the Indian rupee was devalued, dollars held by the assessee in the U.S.A and shown in the books of the assessee at the old rate wasrevalued. The appreciation in the rupee value in the said account was sought to be taxed as the business income of the assessee. There was a reference to the Mysore High Court on the question whether the surplus were receipts arising from business. It was found as a fact that the dollar holdings had been built up by receipts and also of remittances by the assessee and was utilised in the assessee's business for the payment of the salaries of foreign personnel or for purchase of spare parts. It was contended that though the dollars had been received in the course of business, the increase in their value in terms of Indian rupee by devaluation could not be receipts arising from business. The High Court held that receipts in the course of business and accretion to such receipts must be treated in the same way.
(c) Cit, Bombay City v. Tata Locomotive & Engineering Co., Ltd., [1966] 60 ITR 405 (SC). The facts in this case were that the assessee manufactured loco motive boilers and locomotives and for that purpose had to make purchases of plant and machinery in foreign countries. In 1949, the assessee remitted dollars to its purchasing agents in New York for purchase of capital goods and for meeting other expenses in connection therewith.
As sole selling agents of another foreign concern the assessee had also received dollars as reimbursement for expenses incurred in India on behalf of the said foreign principal as also on account of commission earned. The said amounts in dollars were paid to the purchasing agent of the assessee in New York and with the sanction of the exchange control authorities kept with the said agents for purchase of capital goods as aforesaid.
On the 16th September, 1949, as a result of devaluation of the pound sterling, dollar appreciated in value compared to the rupee. American goods having become more expensive in terms of rupees and the Government of India having imposed restrictions on imports from U.S.A, the assessee with the permission of the Reserve Bank of India repatriated the accumulated dollars initwo instalments in December, 1949, and October, 1950, respectively. This resulted in a rupee surplus in the hands of the assessee and the question irose whether it should be taxed as profits arising incidentally to the carrying on of business. On a reference, the Bombay High Court held that the amounts in the hands of purchasing agents of the assessee were fixed capital retained for the specific purpose of purchasing capital goods with permission of the Reserve Bank of India and accrual thereto would not be a taxable revenue receipt. On further appeal, the Supreme Court affirmed the decision of the High Court and observed as follows (p. 410):
“There is no doubt that the amount…………(commission) was a revenue receipt in the assessee's business of commission agency. Instead of repatriating it immediately, the assessee obtained the sanction of the Reserve Bank to utilise the commission in its business of manufacture of locomotive boilers and locomotives for buying capital goods. That was quite an independent transaction, and it is the nature of this transaction which has to be determined. In our view it was not a trading transaction in the business of manufacture of locomotive boilers and locomotives; it was clearly a transaction of accumulating dollars to pay for capital goods, the first step to the acquisition of capital goods.”
(d) Commissioner Of Income Tax, Mysore v. Canara Bank Ltd., [1967] 63 ITR 328 (SC), where the facts were that at the devaluation of the Indian rupee in September, 1949, the assessee, a banking company, had an accumulated balance at its Karachi Branch which could not be remitted to India on account of regulations of the Pakistan authorities till the 1st July, 1953. In the relevant assessment year, the assessee claimed the surplus resulting from such remittance after the 1st July, 1953, as a capital gain and not taxable. On a reference, the High Court reversed the decision of the revenue authorities below and held that the said surplus was not assessable to income-tax. On further appeal, the Supreme Court found that in 1949 at the time of devaluation the assessee was not carrying on any business in foreign exchange. The money in the Karachi branch was not being utilised, employed or used in any banking operations or any other business but had been kept idle only for remittance to India subject to permission of the authorities. The said amount was blocked and sterilised at the material time.
On such facts the Supreme Court held that the money in Pakistan, though initially stock-in-trade of the bank, changed its character when it was blocked and sterilised and its increase in value was owing to exchange fluctuation and not due to any trading operation of the assessee and must be treated as a capital receipt.
(e) CIT v. Mehboob Pvt. Productions Ltd., [1969] 74 ITR 676 (Bom). In this case, the assessee, a film producer, used to distribute films for exhibition in India and Pakistan. The assessee had a distribution office at Karachi which used to send regular statements of accounts to the assessee in India who made corresponding entries in its Indian books of account after converting the figures into Indian currency at the current rate of exchange.
During the relevant year, Pakistan devalued her currency and the assessee became entitled to receive from Pakistan a lesser amount in terms of Indian rupees. The Tribunal allowed the claim of the assessee for the loss on the ground that when profits had accrued to the assessee on conversion of Pakistan currency into Indian currency, the same had been taxed and, therefore, when there was a loss on similar conversion, the same must be allowed as a business loss. On a reference, the Bombay High Court held that the nature of the amount standing to the credit of the assessee in the books of the distributing agents at Karachi would determine the question. The assessee had included the amount in its account and offered the same for taxation. Thereafter, the amount ceased to bear the character of business profits. There was no evidence that the said amount which was lying idle with the distributing agents was utilised or intended to be utilised for the purpose of the assessee's business. The High Court held that the-amount was an asset of capital nature and the loss incurred was a capital loss and not allowable.
(f) Sutlej Cotton Mills Ltd. v. CIT, [1971] 81 ITR 641 (Cal). The facts in this case were that the assessee, a cotton mill company with its head office in India, had mills in West Pakistan. In the accounting year ending on the 31st March, 1954, the profits of the assessee arising in Pakistan converted into rupees at the prevailing exchange rates were included in the assessee's total income in India. During the assessment year 1957–58, the assessee obtained permission of the Reserve Bank of Pakistan to remit a sum out of its Pakistan profits in the said accounting year ending 31st March, 1954. But at the then prevailing exchange rates the assessee received a lesser amount. Similarly, for the assessment year 1959–60, the assessee claimed to have suffered a loss by reason of the transfer of Pakistan profits in the accounting year ending on the 31st March, 1955. The claims for losses were disallowed by the revenue authorities. The question whether the assessiee's claim, for the exchange loss in the said assessment years was allowable as a deduction was referred to this court. Following the decision of the Bornbay High Court in Mehboob Productions (P.) Ltd., [1969] 74 ITR 676 and the decisions of the Supreme Court in Badridas Daga v. Commissioner Of Income Tax, [1958] 34 ITR 10 and in Commissioner Of Income Tax, U.P, Lucknow v. Nainital Bank Ltd., [1965] 55 ITR 707, this court rejected the claim of the assessee and held that devaluation was an act of the State and also that of a sovereign power. Such an act was extrinsic to and had no connection with the business of the assessee who, therefore, could not claim a business loss. The court, however, observed as follows (p. 662)”,
“But, then again, in limited circumstances and on particular facts, even such a devaluation may permit a loss or a profit to be allowed for or taxed…………there cannot be a cut and dried formula and a dogma in this respect to say that under no circumstances an exchange loss either for devaluation or due to any other cause can ever be allowed in computing profit. Whether it will be allowed or not is to be determined by the basic tests laid down by the Supreme Court, that it is a loss which springs directly or indirectly from the business itself and/or incidental to it.”
(g) M. Shamsuddin & Company v. Commissioner Of Income-Tax, [1973] 90 ITR 323 (Ker). Here, the assessee carried on business of export of cashewnuts and used to enter into forward contracts of sale with foreign buyers in the course thereof. In all transactions, including the forward contracts, the price was quoted in dollars. On the 6th June, 1966, when the Indian rupee was devalued the assessee was entitled to receive dollars for exports actually effected before that date and also on account of forward contracts entered into earlier and by reason of the devaluation the assessee received a greater amount in rupees and a surplus accrued in the hands of the assessee. In the assessment in the relevant year the assessee claimed that the surplus due to devaluation was casual and not taxable. The ITO held that the profits arose out of the trading activities of the assessee and assessed the entire amount. The AAC and the Tribunal upheld the assessment. On a reference, the Kerala High Court, following Hindustan Aircraft Ltd., [1963] 49 ITR 471 (Mys), held this surplus to be a trading profit as it represented part of the sale proceeds. It was found that the assessee had become entitled to receive a larger amount in terms of rupees as price of the goods.
(h) Bank of Bank Of Cochin Ltd. v. Commissioner Of Income-Tax, Kerala, [1974] 94 ITR 93 (Ker). In this case, the assessee used to purchase cheques, payment orders, mail transfers, demand drafts, bills and other negotiable instruments drawn in foreign currencies and also actual foreign currency in the course of its banking business. Such assets were utilized or negotiated in foreign countries, the proceeds being credited to the assessee with the correspondent banks. Periodically, foreign balances used to be transferred to India. During the relevant accounting year ending 31st December, 1966, the Indian rupee was devalued. Consequent thereto, the value of the assessee's existing foreign balance increased in terms of Indian rupee. The assessee claimed that the surplus or profit was in the nature of a windfall having nothing to do with its business. It was solely due to an act of the Government and was, therefore, not liable to tax. The revenue authorities rejected such contention. On a reference, the High Court distinguished Canara Bank Ltd., [1967] 63 ITR 328 (SC) on facts and held that the assets involving foreign exchange which appreciated on devaluation were stock-in-trade of the assessee at the relevant time and the appreciation in the value thereof represented trading receipts of the assessee. The contentions of the revenue were upheld.
15. English decisions cited at the Bar were as follows:
(a) Landes Brothers v. Simpson, [1934] 19 TC 62 (KB)
16. The facts in this case were that the appellants, who carried on business as fur and skin merchants and agents, were appointed the sole commission agents of a foreign company for sale in Great Britain and elsewhere of furs exported from Russia. It was a term of the agency that the assessee would advance to its principal a part of the value of each consignment. All transactions between the assessee and its principals were conducted on dollar basis, and owing to fluctuations in the rate of exchange between the dates when advances in dollars were made by the assessee to its principals and the dates when the assessee recouped themselves for the advances on the sale of the goods, profit accrued to the appellants on the conversion of repaid advances into sterling. On these facts, it was held that the surplus arose djirectly from the trade or business and was assessable to tax.
(b) Imperial Tobacco Co. v. Kelly, [1943] 25 TC 292 (CA). In this case, the assessee, who was a tobacco manufacturer, used to purchase large quantity of tobacco leaf in the United States through its buying organisation in that country. To finance the purchases and expenses the assessee used to buy and accumulate dollars each year before the commencement of the tobacco leaf season. At the outbreak of war in September, 1939, at the request of the Treasury, the assessee stopped further purchases in the United States and on the 30th September, 1939, as required under the Defence (Finance) Regulations, 1939, the assessee sold its surplus dollars to the Treasury. Owing to a rise of value of the dollar in the meantime, the sale of the dollars resulted in a profit. The assessee contended that this profit did not arise from its trade and should not be included for tax. It was held that the profit made by compulsory sale of surplus dollars to the Treasury must be computed in the assessee's trade profits. The assessee had collected dollars in the course of its trade and, though the profit arose incidentally, the money being a part of the assessee's circulating capital, the profit was to be taxed as a trading receipt.
(c) Davies v. Shell Co. of China Ltd., [1951] 32 TC 133 : [1952] 22 ITR (Supp.) 1 (CA). The assessee, in this case, sold and distributed petroleum products in China. The local agents of the assessee in China were required to deposit with the assessee sums usually in Chinese dollar repayable on the termination of the agency. After hostilities commenced between China and Japan in 1937, the assessee transferred such deposits from China to England and kept the amounts in sterling. Ultimately, in 1941, the assessee decided to close its operations in China and refund the deposits. By reason of depreciation in the value of Chinese dollar vis-a-vis the sterling in the meantime, a surplus Accrued in the hands of the assessee after the deposits were refunded in I Chinese dollars. This was sought to be taxed in the hands of the assessee las its trading profit. The Court of Appeal upheld the decision of the Special Commissioners that the profit resulting from change in the rate of exchange was a capital profit and not subject to income-tax.
17. As laid down by the Supreme Court in Canara Bank Ltd., [1967] 63 ITR 328, in order to determine whether a surplus arising from exchange fluctuations is taxable as income or not in any particular case, the facts have to be carefully considered and there is no general principle which can be applied to all cases. In that vigw of the matter, the following salient facts in the instant case, as have been found by the Tribunal, have to be rioted.
(a) The foreign exchange originally accumulated from receipts on account of commission from the foreign constituents of the assessee, viz., Messrs. K.A Export Corporation, New York.
(b) The asssesee became entitled to receive this amount by October, 1949, i.e, in the assessment year 1950–51.
(c) In the very same year there was an adjustment in this account and over $5,000 were adjusted against expenses incurred during the period prior to devaluation, i.e, prior to September, 1949.
(d) The amount standing to the credit of Khandelwal Refrigeration Corporation Ltd. merged in this account in the assessment year 1952–53.
(e) Thereafter, there were more or less continuous operations in this account by way of adjustments, payments and receipts up to the year 1965–66 when finally the balance in this account was adjusted against the amount payable to Messrs., K.A Export Corporation on the transaction relating to black pepper.
18. From the above facts, it appears to us that the assessee accumulated this fund out of its trade receipts whereafter it was used throughout as its circulating capital and was available for the purpose of meeting the assessee's business expenses. Therefore, any accretion in the value of this fund as a result of devaluation or exchange fluctuation must be held to be in the nature of a trading accrual. The observations of the Supreme Court in Tata Locomotive & Engineering Co. Ltd., [1966] 60 ITR 405 is clearly applicable in these facts and we hold that this fund represented the circulating capital in the hands of the assessee and not its fixed capital.
19. In our opinion, however, the surplus accrued to the assessee at the time of devaluation and not at the subsequent adjustment of the accounts of the assessee or at the time when the assessee obtained the sanction of the Reserve Bank of India to adjust its two accounts. We direct the Tribunal to ascertain the exact amount of foreign exchange receivable by the assessee on the 16th September, 1949, and calculate the surplus accordingly.
20. It has also been contended by Mr. Suhas Sen for the revenue that the assessee had shown in its accounts that the surplus arose in the year relevant to the assessment year 1965–66 and not earlier. In our view, the way an accrual is shown in the accounts is of little consequence. The assessee's accounts were kept on mercantile basis and this surplus should have been taxed in the hands of the assessee in the accounting year it arose or accrued and became receivable by the assessee and not when it was shown to have accrued. Mr. Sen has further contended that the surplus would arise only on repatriation and in this case it is in the year when the Reserve Bank sanctioned the adjustment of the account that the surplus accrued to the assessee. We are again unable to accept this contention. Unrepatriated dollars which accumulated to the credit of the assessee in a foreign country were trading assets or commodity of the assessee. Like any other trading asset or commodity at the end of every accounting year, it ought to have been valued and on such valuation the surplus, if any, would be found to have accrued in the year in question. For the aforesaid reasons, we answer the question referred at the instance of the assessee in the affirmative to the extent as indicated above and in favour of the revenue. The Tribunal will compute the profit on the total amount of dollars receivable by the assessee on the date of the devaluation. We answer the question referred at the instance of the revenue in the affirmative and against the revenue. We make it clear that the surplus or profit arose or accrued consequent to the devaluatibn in the accounting year when the devaluation took place. In the facts and circumstances of this case, there will be no order as to costs.
C.K Banerji, J.:— I agree.