Law:

Section:

Income or capital-----   -----Money remitted to America and income earned there retained in America for purposes of purchase of capital goods-Devaluation-Impossibility of purchasing capital goods-Sale of foreign exchange-Profit whether income or capital.   The assessee was a company which manufactured locomotives and locomotive boilers. For the purpose of purchasing capital goods required for its manufacturing activities, the assessee appointed one T as its purchasing agent in the United States of America, and with the permission of the Reserve Bank remitted $33,850 to the agent. As the selling agent for B in America the assessee earned commission (on which the assessee paid tax on the accrual basis) and also spent the amounts to meet the expenses of their local representative. With the permission of the Reserve Bank the commission due from B and the amounts by way of reimbursement of the expenses of the representative were retained in the U.S.A. in the assessee's account with the purchasing agent T solely for the purchase of capital goods. Out of the remittances the assessee had spent $30,283 and the balance in its accounts with T stood , at $48,572 on September 16, 1949. The amount was composed of $3,567 being the balance of the remittances, $8,882 representing amounts reimbursed by B and $36,123 representing commission received and retained in America. On September 16, 1949, there was a devaluation in the pound sterling and in the rupee and as a result American goods became more expensive than before. The Government also imposed restrictions on the import of goods from the U. S. A. As further purchase of capital goods from America was rendered impossible the assessee, with the permission of the Reserve Bank, repatriated to the country the entire balance in America. In the process of converting the balance into rupee currency the assessee gained a surplus of Rs.70,147. The Appellate Tribunal held that $3,567, representing the balance of remittances and $8,882 reimbursed by B alone were held for capital purposes and that that portion of the surplus of Rs. 70,147 attributable to $36,123 representing commission received in America must be included…