Law:

Section:

JUDGMENT Viswanatha Iyer, J.- Two questions have been referred to this court for decision which are as follows: "(i)Whether, on the facts and in the circumstances of the case, the sum of Rs. 4,65,515, being profit arising on the devaluation of the Indian rupee on 6th June, 1966, was income chargeable to income-tax? (ii)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in rejecting the assessee's claim to deduct an amount of Rs. 52,935 being loss arising on the valuation of closing stock of Government securities, in determining its total income for the assessment year 1967-68?" The assessee is a banking company and, as part of banking business, has been purchasing cheques, payment orders, mail transfers, demand drafts, bills and other negotiable instruments drawn in foreign currencies and, sometimes, foreign currencies themselves from its clients. These foreign exchange assets are subsequently sold or encashed through the assessee's correspondent-banks in the foreign countries concerned and the proceeds credited to the current account of the assessee with the correspondent-banks concerned. These bank balances are periodically transferred to India. During the accounting year ending December 31, 1966, the Indian rupee was devalued on 6th June, 1966. At the time of the devaluation the assessee's accounts with the correspondent-banks in foreign countries stood credited with the sale proceeds of negotiable instruments and foreign currencies, as mentioned above. Consequent on devaluation, the value of these, in terms of the Indian rupee, registered a substantial increase to the extent of Rs. 4,65,515. This excess realisation on devaluation was treated by the Income-tax Officer as the income of the assessee during the accounting year. The assessee claimed that the profit derived on the devaluation of the Indian rupee was in the nature of a windfall, that it had nothing to do with the business carried on by it and that it was solely due to an act of the Government in fixing the value of the Indian rupee in terms of the foreign currencies and in the circumstances the profit was not liable to tax. This was not accepted by…

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