Law: Income Tax Act, 1961

Section: 45

Income-tax----Capital gains---Non-resident---Computation of capital gains---Purchase and sale of shares of Indian company---Sale proceeds received in Indian currency and remitted to U.S.A. in foreign currency---Rule 115 was not applicable---Capital gains had to be computed in Indian currency---Indian Income Tax Act, 1961, S.45---Indian Income Tax Rules, 1962, 8.115. Rule 115 of the Income Tax Rules, 1962, prescribes the rate of exchange for conversion into rupees of income expressed in foreign currency. It has no application to income expressed in Indian rupees. The assessee was a non-resident company. On February 19, 1968, the assessee acquired 3,600 shares in an Indian company in United States currency at the face value of Rs.1,000. On April 21, 1978, the assessee sold 600 shares to another non-resident company. The sale proceeds were received by the assessee in Indian currency and remitted to the United States in foreign- currency. Before the Income-tax Officer, the assessee disclosed in its return an income in the sum of 5,084 U.S. Dollars as taxable capital gains and on the basis of Rule 115 of the Income Tax Rules, 1962, after conversion of the foreign currency into Indian currency, arrived at a figure of Rs.42,447 as the capital gains. The Income-tax Officer overruled the assessees claim by holding that the capital gains arose to the assessee immediately. on the sale of the shares in India, and that the cost of acquisition of 600 shares was Rs.6 lakhs, and the sale consideration as approved by the Reserve Bank of India by its letter, dated April 15, 1978, was at the rate of Rs:1,800 per share. On this basis, the Income-tax Officer assessed Rs.4,80,000 as the capital gain. The Tribunal allowed the assessees appeal and held that the capital gain was only Rs.42,687. On a reference: Held, that the transaction was in Indian currency, the sale proceeds were received by the assessee in Indian currency and subsequently converted into. U.S. currency and remitted to the assessee. The income accrued to the assessee when the sale took place in India in Indian currency. Therefore, while computing the capital gain one had to reduce the cost of shares from the sale…

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