Law:

Section:

Section 45 of the income-tax act, 1961-Capital gains-Chargeability of-Assessee-company holding licence to import machinery, entered into a forward contract with state bank to obtain requisite amount of sterling at appropriate time-Following devaluation reserve bank raised certain objection regarding assessee's impugned contract but later approved it-But, assessee's licence having expired, state bank cancelled impugned contract and paid to assessee certain sum being difference in exchange rate-Whether aforesaid amount taxable under section 45-Held, on facts, no Facts The assessee, a manufacturer of jute goods, was granted an import license on 8-10-1964 (valid for two years from the date of its issue) to import certain machinery. On 27-1-1967, it placed orders with a UK company for supply of machinery. Further, in order to safeguard the financial deal, the assessee had entered into a forward contract with the State Bank of India for the purchase of pounds roughly equivalent to the cost of the machinery for which the assessee was required to make the payment in Sterling. The assessee did not advance any sum to the bank against the aforesaid contracts. However, following devaluation of the rupee, the cost of the machinery increased by about 57 per cent. After the devaluation, the State Bank informed the assessee that the Reserve Bank of India had raised certain objections regarding the booking of the foreign exchange. However, the Reserve Bank of India approved the foreign exchange contract in May 1967, but by that time the import licence granted to the assessee by the Government had expired. On 16-12-1968, the bank cancelled the outstanding balances of the contracts and credited the assessee's account with a sum of Rs. 3,13,651, being the difference in exchange rate, viz., the contract rate and the then prevailing TT buying rate less charges on the periodical extension of the contracts arranged by its foreign department. For the assessment year 1969-70, corresponding to the accounting period ended 31-3-1969, the assessee claimed that the sum of Rs. 3,13,651 did not constitute its income. The ITO, however, taxed it as assessee's business receipt. On appeal, the AAC…

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