Law: Income Tax Act, 1961

Section: 256

(a) Income-tax----Income---Addition to income--Assessee taking up contract works abroad-¬Assessee receiving advances to be adjusted against running bills of assessee-¬Assessee converting into Indian Rupees foreign currency lying in reserve for account purposes at end of year at prevailing exchange rate---Till amount lying in reserve was adjusted against future bills it did not belong to assessee---Such amount not income liable to tax. The assessee had taken up some contract works in the Middle East countries. Against such contracts, advances were received by the assessee which had to be adjusted against the running bills submitted by the assessee from time to time. At the end of the accounting year relevant to the assessment year 1979-80, certain foreign currency had remained in reserve and for account purposes, the assessee converted them into Indian rupees at the prevailing exchange rate. The Income-tax Officer brought such amount to tax in the hands of the assessee. On appeal, the Appellate Assistant Commissioner deleted the addition on the ground that the credit balance in the foreign exchange reserve account did not represent any profit or gain under the Income Tax Act, 1961. The Tribunal affirmed the order of the Appellate Assistant. Commissioner. On a reference: Held, affirming the decision of the Tribunal, that the amount lying in the foreign exchange reserve account did not belong to the assessee. It was part of the amount received by the assessee from the parties in the Middle East by way of advance to be adjusted against the running bills, Till the amount was adjusted against the running bills, it did not belong to the assessee. The conversion into Indian rupees at the end of the year was only for account purposes. The amount could not be regarded as income of the assessee till it was adjusted against the future bills. Therefore, the Tribunal was justified in deleting the addition of Rs.4,59,098 from the income of the assessee. (b) Income-tax--- ----Investment allowance---New industrial undertaking---Business of construction---Not an industrial undertaking entitled to .investment allowance---Indian Income Tax Act, 1961, S. 32-A(2)(b)(iii). Tribunal…

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