Law:

Section:

Section 28(i) of the income-tax act, 1961-Business income-Assessee-firm exported garments and sold them through foreign branch which maintained accounts in dollars and remitted to head office in india its foreign exchange profits after conversion into rupees-On devaluation of indian rupee, assessee's foreign branch saved certain sums on its remittances to its head office in india-Whether rupee equivalent of such surplus was taxable as trading receipt of assessee-Held, on facts, yes Facts The assessee-firm, with head office in India, had a branch in Penang through which it was exporting goods. The Penang branch maintained its accounts in terms of Malaysian dollars, which was the local currency in Penang. What the Penang branch did was to enter the cost of the goods received from India in terms of dollars. After sales, which yielded Malaysian dollars, the Penang branch made remittances to the head office in India after converting the dollars into, rupees. On the devaluation of rupee on 6-6-1966, the Penang branch saved 59,455 Malaysian dollars on its remittances to the head office in India. While closing the accounts for the relevant accounting year and making out its trading results in the foreign branch as well in the head office, the assessee showed separately the amount of Rs. 1,44,845 as exchange profit, representing the equivalent of 59,455 dollars. Instead of bringing the said amount to the profit and loss account, the assessee straightaway carried the amount to the capital. The ITO treated the said sum as part of the assessee's taxable trading profits. The assessee claimed that it was a mere windfall or casual receipt and not liable to be assessed as part of its taxable income. On appeal, the Tribunal held that the impugned amount represented short-term capital gains and directed the ITO to modify the assessment accordingly. On reference: Held Exchange fluctuations in the trading results have become a normal incident of exporters and importers, commercial houses and multi-nationals engaged in international trade and commerce. Since goods and merchandise had to be purchased and sold across national frontiers only in terms of currencies of one or the other…

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