Law:

Section:

Section 41(2) of the Income-tax Act, 1961 - Balancing charge - Assessee, a shipping company, paid brokerage for sale of ships and also incurred travelling expenses for arranging delivery of ships - Whether these amounts could be deducted from excess of sale price over written down value taxable under section 41(2) - Held, yes - assessee-company whose previous year ended on 31-12-1967, sold a ship for £ 96,000 in June 1967 and as per agreement received £ 54,000 up to November 1967 when pound sterling was devalued - Balance amount was payable in installments in next two years - Whether entire consideration of £ 96,000 was 'money payable' on date of agreement and was convertible for assessment at the pre-devaluation rate of exchange - Held, no - Whether installments which fell due after devaluation were to be converted at post-devaluation rate of exchange - Held, yes FACTS The assessee, a shipping company, sold two of its ships by an agreement executed in June 1967. The written down value of the ships at the time of sale was nil. The first ship was sold to a foreign firm for a consideration of £ 96,000 of which a certain amount was payable forthwith. The balance amount of £ 48,000 was payable in four six-monthly instalments. However, before the installments fell due, pound sterling was devalued in November 1967 and its exchange value came down from Rs. 21 to Rs. 18 per pound. Against the amount assessable under section 41(2) the assessee claimed the deduction of three amounts on account of (i) devaluation loss, (ii) brokerage, and (iii) travelling expenses for arranging delivery of one of the ships. The ITO disallowed the exchange loss but allowed the other two deductions. On appeal, the AAC, relying upon the Mysore High Court decision in Raja Bai Nikkam v. CIT [1967] 65 ITR 496 , not only rejected the claim for exchange loss, but also held that the other two deductions had been wrongly allowed by the ITO. On second appeal, the assessee, inter alia, contended that only an amount of £ 48,000 was taxable in the relevant assessment year and that the balance which was receivable in the following two years, was taxable in those years. The Tribunal rejected this…

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