JUDGMENT
S.B. Sinha, C.J.
1.
All the references made at the instance of the
Revenue in terms of Sub-section (1) of Section 256 of the Income
Tax Act, 1961 (hereinafter referred to as, ‘the Act’) by the Income
Tax Appellate Tribunal, Delhi Bench ‘B’, New Delhi (hereinafter
referred to as ‘the Tribunal’) involving common questions of law and
fact were taken up for hearing together and are being disposed of
by this common judgment.
2. The questions, which have been referred for opinion of
this Court, are as follows:-
“1. Whether on the facts and in the
circumstances of the case, the Tribunal is
correct in law in upholding the order of the C.I.T.
(Appeals) in excluding the profits arising from
the sale of capital assets located outside India
from the world income?
2. Whether on the facts and in the
circumstances of the case, the Tribunal is
correct in law in upholding the order of C.I.T.
(Appeals) that the profit due to change in
exchange rate of the Australian Dollars is a
capital gain?”
3. However, in ITR No. 228 of 1983, only the second
question and in ITR No. 229 of 1983, only the first question has
been referred to this Court for its opinion.
4. The factual matrix of the matter is not in dispute. The
assessed is a non-resident company incorporated in Australia. Its
shares are owned by the Government of Australia and the assessed
carries on worldwide air-transport business and maintains the
centralized accounts in Australia. It had sold the aircrafts, which
were its capital assets. Such sales are effected outside India.
5. The question, which arises for consideration, is as to
whether the sale of such capital assets would be ‘income’
proportionately assessable in terms of the provisions of the Act?
6. Although the Inspecting Assistant Commissioner (in
short, ‘IAC’) held that the profits arising out of sale of capital assets
would come within the purview of income at the hands of the
assessed, the Commissioner of Income Tax (Appeals) (in short,
‘CIT(A)’) and the Tribunal held otherwise.
7. Mr. Sanjiv Khanna, the learned counsel appearing on
behalf of the Revenue, would submit that having regard to the
provisions contained in Sub-section (2) of Section 5 of the Act, such
income would be deemed to be an income arising in India.
8. The learned counsel would urge that as in terms of the
aforementioned provisions, the income derived by sale of capital
assets would come within the net of assessment as the same
accrued or arose or deemed to accrue or deemed to arise outside the
territorial jurisdiction of India, in view of the legal fiction created
and the same must be given its full effect.
9. The learned counsel would contend that the expression
‘attributable to’ is of wide amplitude and in support of the said
contention reliance has been placed on Cambay Electric Supply
Industrial Co. Ltd. v. Commissioner of Income Tax (1978) 113 ITR 84 and Commissioner
of Income Tax v. Sterling Foods, (1999) 237 ITR 579.
10. The learned counsel would contend that there does not
exist any dispute that having regard to its worldwide network, the
assessed had been having computation of worldwide profit and,
thus, is liable to pay ‘tax’ in terms of the Act.
11. The learned counsel would submit that having regard to
the provisions contained in Section 9 and Rule 10(1) of the Income
Tax Rules, 1962 (in short, ‘the Rules’), the sale of the capital assets
would also come within the concept ‘income’ inasmuch as capital
gains also come within the purview thereof. Reliance in this
connection has been placed on Union of India and Anr. v. A. Sanyasi
Rao & Ors., (1996) 219 ITR 330; Commissioner of Income Tax v. G.R. Karthikeyan, (1993) 201 ITR 866;
Father Epharam v. Commissioner of Income Tax, (1989) 176 ITR 78; and Emil Webber v.
Commissioner of Income Tax, (1993) 200 ITR 483.
12. The learned counsel would contend that there cannot
be any doubt whatsoever that the capital gains would be income
within the meaning of Section 9 of the Act, even if the sale of the
capital assets of the assessed takes place outside India.
13. The learned counsel would argue that for the purpose of
answering the question, a converse case may be taken into
consideration inasmuch had the sale of the aircrafts took place in
India, the proportionate income could have been assessed in
Australia upon setting off the amount of tax paid in India. Reliance
in this connection has been placed on K.V.A.L.M. Ramanathan
Chettiar v. Commissioner of Income Tax, Madras, (1973) 88 ITR 169.
14. Mr. Anoop Sharma, the learned counsel appearing on
behalf of the assessed, on the other hand, would point out that the
capital assets of the respondent were purchased outside India.
15. The sale of such capital assets, the learned counsel
would contend, being not connected with the business activity of the
assessed and the transaction of sale and purchase of the capital
assets having taken place outside India, no part of income can be
said to have accrued within India and thus it has rightly been held
by the CIT (A) and the Tribunal to be not ‘income’ arising in course
of business in India.
16. The learned counsel would submit that in a case of this
nature, Section 9 of the Act will have no application. In support of
the said contention, reliance has been placed on Commissioner of
Income Tax v. Quantas Airways Ltd., (2001) 251 ITR 264; Commissioner of Income Tax,
Punjab v. R.D. Aggarwal & Co. and Anr., (1965) 56 ITR 20; Carborandum Co. v.
Commissioner of Income Tax, Madras, (1977) 108 ITR 335; and Commissioner of Income
Tax, A.P. v. Toshoku Ltd., (1980) 125 ITR 525.
17. On the second question, reliance has been placed by
the learned counsel on Commissioner of Income Tax, Bombay City I
v. Tata Locomotive & Engineering Co. Ltd., (1966) 60 ITR 405; Sutlej Cotton Mills Ltd. v.
Commissioner of Income Tax, West Bengal, (1979) 116 ITR 1; South India Shipping
Corporation Ltd. v. Addl. Commissioner of Income Tax, Madras, (1979) 116 ITR 819; and Commissioner of Income Tax v. Arvind Mills Ltd., (1992) 193 ITR 255
.
18. Before adverting to the questions involved, we may
notice the relevant provisions of the Act and the Rules, which are as
under:-
“Section 2. In this Act, unless the context otherwise
requires,–
…..
(13) “business” includes any trade, commerce
or manufacture or any adventure or concern in
the nature of trade, commerce or manufacture;
(14) “capital asset” means property of any kind
held by an assessed, whether or not connected
with his business or profession, but does not
include-
(i) any stock-in-trade, consumable stores or
raw materials held for the purposes of his
business or profession;
(ii) personal effects, that is to say, movable
property (including wearing apparel and
furniture, but excluding jewellery) held for
personal use by the assessed or any
member of his family dependent on him.
…..
(24) “income” includes-
(i) profits and gains;
….. ….. ….. ….. …..
(vi) any capital gains chargeable under
Section 45;
Section 5. Scope of total income
(1) Subject to the provisions of this Act, the
total income of any previous year of a person
who is a resident includes all income from
whatever source derived which-
(a) is received or is deemed to be received in
India in such year by or on behalf of such
person; or
(b) accrues or arises or is deemed to accrue
or arise to him in India during such year;
or
(c) accrues or arises to him outside India
during such year:
Provided that in the case of a person not
ordinarily resident in India within the meaning of
Sub-section (6) of Section 6, the income which
accrues or arises to him outside India shall not
be so included unless it is derived from a
business controlled in or a profession set up in
India.
(2) Subject to the provisions of this Act, the
total income of any previous year of a person
who is a non-resident includes all income from
whatever source derived which-
(a) is received or is deemed to be received in
India in such year by or on behalf of such
person; or
(b) accrues or arises or is deemed to accrue
or arise to him in India during such year.
Explanation 1.–Income accruing or arising
outside India shall not be deemed to be received
in India within the meaning of this section by
reason only of the fact that it is taken into
account in a balance-sheet prepared in India.
Explanation 2.–For the removal of doubts, it is
hereby declared that income which has been
included in the total of a person on the basis
that it has accrued or arisen or is deemed to
have accrued or arisen to him shall not again be
so included on the basis that it is received or
deemed to be received by him in India.
Section 9. Income deemed to accrue or arise in India.
(1) The following incomes shall be deemed to
accrue or arise in India-
(i) all income accruing or arising, whether
directly or indirectly, through or from any
business connection in India, or through
or from any property in India, or though
or from any asset or source of income in
India, or through the transfer of a capital
asset situate in India:
Explanation.–For the purposes of this clause-
(a) in the case of a business of which all the
operations are not carried out in India,
the income of the business deemed under
this clause to accrue or arise in India
shall be only such part of the income as is
reasonably attributable to the operations
carried out in India;
(b) in the case of a non-resident, no income
shall be deemed to accrue or arise in India
to him through or from operations which
are confined to the purchase of goods in
India for the purpose of export;
(c) in the case of a non-resident, being a
person engaged in the business of
running a news agency or of publishing
newspapers, magazines or journals, no
income shall be deemed to accrue or arise
in India to him through or from activities
which are confined to the collection of
news and views in India for transmission
out of India;
(d) in the case of a non-resident being-
(1) an individual who is not a citizen of
India; or
(2) a firm which does not have any
partner who is a citizen of India or who is
resident in India; or
(3) a company which does not have
any shareholder who is a citizen of India
or who is resident in India,
no income shall be deemed to accrue or arise in
India to such individual, firm or company
through or from operations which are confined to
the shooting of any cinematograph film in India;
Section 22. Income from house property
The annual value of property consisting of
any buildings or lands appurtenant thereto of
which the assessed is the owner, other than
such portions of such property as he may
occupy for the purposes of any business or
profession carried on by him the profits of which
are chargeable to income-tax shall be chargeable
to income-tax under the head “Income from
house property”.
Section 45. Capital gains
(1) Any profits or gains arising from the
transfer of a capital asset effected in the previous
year shall, save as otherwise provided in Sections
54, 54B, 54D, 54E, 54EA, 54F, 54G and
54H, be chargeable to income-tax under the
head “Capital gains”, and shall be deemed to be
the income of the previous year in which the
transfer took place.”
“Rule 10. Determination of income in the case of
non-residents.
In any case in which the Assessing Officer
is of opinion that the actual amount of the
income accruing or arising to any non-resident
person whether directly or indirectly, through or
from any business connection in India or
through or from any property in India or though
or from any asset or source of income in India or
through or from any money lent at interest and
brought into India in cash or in kind cannot be
definitely ascertained, the amount of such
income for the purposes of assessment to
income-tax may be calculated:–
(i) at such percentage of the turnover so
accruing or arising as the Assessing
Officer may consider to be reasonable, or
(ii) on any amount which bears the same
proportion to the total profits and gains of
the business of such person (such profits
and gains being computed in accordance
with the provisions of the Act), as the
receipts so accruing or arising bear to the
total receipts of the business, or
(iii) in such other manner as the Assessing
Officer may deem suitable.”
19. The expression ‘income’ in terms of the interpretation
clause as mentioned above in Sub-section (24) of Section 2 of the
Act would include profits and gains and any capital gains
chargeable under Section 45 of the Act.
20. Section 5 of the Act provides for the scope of the total
income, but the said provisions are subject to other provisions of
the Act, which would include Sub-section (2) thereof.
21. In case of a non-resident, it would include all income
from whatever source derived, which is received or is deemed to be
received in India in such year by or on behalf of such person or
accrue or arise or is deemed to accrue or arise to him in India
during such year.
22. What would be the scope of the legal fiction created in
terms of Section 5 of the Act, as specified in Section 9 of the Act?
23. Such income, as noticed hereinbefore, must arise or
accrue (i) from any business connection in India, or (b) from any
property in India, or (c) from any asset or source of Income in India,
or (d) through the transfer of a capital asset situate in India. The
income in question had not arisen from business connection in
India or from any asset or source of income in India or through
transfer of a capital asset situate in India.
24. The only question, therefore, remains for consideration,
is as to whether the purported ‘income’ arises through or from any
business connection in India.
25. The expression ‘business connection’ has not been
defined in the Act. In absence of any definition, the ordinary
meaning of the said expression must be taken recourse to.
26. The meaning of expression “business”, according to
Collins Cobuild English Language Dictionary 1991 Edn., is as under:-
“…..’Business’ is work relating to the
production, buying and selling of goods or
services;
AND/OR
“‘Business’ is the activity of buying, selling
or exchanging goods in deal with people or
companies.”
27. Rule 10(2) of the Rules more or less uses the same
expression as has been used in Section 9 of the Act. The assessed
carried on business of operating air-transport business. The
business activity of the assessed for the purpose of the Act must be
held to be confined to the transport of passengers.
28. Section 9(i) of the Act per se can be said to have any
application in the instant case inasmuch as the answer to the
question referred has to be made in terms of Section 9 of the Act
alone. The explanation (a) appended to Clause (i) of Sub-section (1)
of Section 9 of the Act will not be much significance inasmuch as
the same is confined to a case where all operations of the business
are carried out in India and only in that event, that part of income
as is reasonably attributable to the operations carried out in India
can be treated to be income arising in India. In that view of the
matter, the meaning of expression “attributable to” is held to have a
wide expression. Thus, the decision in Sterling Foods’s case (Supra)
cannot be said to have any application in the instant case.
Therein a question arose whether the assessed was entitled to use
the import entitlements itself or sell the same to others and/or
whether sale of such import entitlements would be profit and gain in
the context of Section 80HH of the Act and it was held that the
expression “attributable to” would be of wider import. This Court is
not concerned with the question raised therein.
29. There cannot be any doubt that capital gain may be an
income, but, in our opinion, the same would have been so, if the
transaction would have taken place either in India or through or
from any property in India or from any asset or source of income in
India or through the transfer of the capital asset situate in India.
30. The assessed only had some part of its business
operation in India. Its capital assets have nothing to do with its
business connections in India. The words ‘business connection’ for
the purpose of Sections 5 and 9 of the Act must be kept confined to
profits arising out of business. When an income accruing or arising
from a business by reason of a legal fiction becomes assessable, it
must be held that the same must be kept confined to receipts out of
the business and not out of the sale of capital assets.
31. In R.D. Aggarwal & Co.’s case (Supra), it has been
held:-
“… The expression “business connection”
pustulates a real and intimate relation between
trading activity carried on outside the taxable
territories and trading activity within the
territories, the relation between the two
contributing to the earning of income by the
non-resident in his trading activity. In this case
such a relation is absent.”
32. In Carborandum Co.’s case (Supra), it has been held:-
“… The High Court was wrong in its view that
activities of the foreign personnel lent or deputed
by the American company amounted to a
business activity carried on by that company in
the taxable territory. The finding of the Tribunal
in that regard was specific and clear and was
unassailable in the reference in question. The
American company had made the services of the
foreign personnel available to the Indian
company outside the taxable territory. The latter
took them as their employees, paid their salary
and they worked under the direct control of the
Indian company. The service rendered by the
American company in that connection was
wholly and solely rendered in the foreign
territory. Even assuming however, that there was
any business connection between the earning of
the income in the shape of the technical fee by
the American company and the affairs of the
Indian company, yet no part of the activity or
operation could be said to have been carried on
by the American company in India. And in the
absence of such a sustainable finding by the
High Court the provisions of Section 42, either of
Sub-section (1) or of Sub-section (3), were not
attracted at all.”
33. Yet again in Toshoku Ltd.’s case (Supra), the matter
has been discussed in the following terms:-
“… It is urged that the commission amounts
should be treated as incomes deemed to have
accrued or arisen in India as they, according to
the department, had either accrued or arisen
though and from the business connection in
India that existed between the non-resident
assesseds and the statutory agent. This
contention overlooks the effect of Clause (a) of the
Explanation to Clause (i) of Sub-section (1) of Section 9 of the
Act which provides that in the case of a
business of which all the operations are not
carried out in India, the income of the business
deemed under that clause to accrue or arise in
India shall be only such part of the income as is
reasonably attributable to the operations
carried out in India. If all such operations are
carried out in India, the entire income accruing
there from shall be deemed to have accrued in
India. If, however, all the operations are not
carried out in the taxable territories, the profits
and gains of business deemed to accrue in
India through and from business connection in
India shall be only such profits and gains as are
reasonably attributable to that part of the
operations carried out in the taxable territories.
If no operations of business are carried out in
the taxable territories, it follows that the income
accruing or arising abroad through or from any
business connection in India cannot be deemed
to accrue or arise in India (See CIT v. R.D.
Aggarwal and Co. and
Carborandum Co. v. CIT which are decided on the basis of Section 42 of
the Indian I.T. Act, 1922, which corresponds to
Section 9(1)(i) of the Act.]”
34. In Quantas Airways Ltd.’s case (Supra), a Division
Bench of this Court observed:-
“… For the purpose of determination of
income in the case of non-residents, the
modalities to be followed is the percentage of
turnover so accrued or arisen as the Income-tax
Officer may consider to be reasonable or on any
amount which bears the same proportion to the
total profits and gains of the business of such
person, as the receipt so accruing or arising
bears to the total receipts of the business or in
such other manner as the Income-tax Officer
may deem suitable.
In the case at hand, there is no dispute
that the assessed as well as the assessing
authorities have gone by the proportion method,
the income which has been treated as accruing
or arising from the business carried out in India
as an airliner. It has to be noted that no income
can be said to have accrued or arisen, either
directly or indirectly, either through or from any
asset or source of income in India. It is not
shown as to how the assessed had or was in
receipt of any income through or from any
money lent at interest and brought in India
either in cash or in kind. The assessed has also
not received any income from any income from
any transfer of capital assets situate in India.
The income of business which can be treated as
deemed income under Section 9 must be one
which has accrued or arisen in India and the
same forms part of the income derived from
business carried out in India.”
35. Legal fiction, as is well known, should not be extended
beyond its object and purport. It shall not be applied beyond the
purpose for which it was created.
36. In D.K. Jain and Ors., etc. v. State of Haryana and Ors., 1995 LAB.I.C. 722, it
was observed that in the case of Bengal Immunity Co. Ltd. v. State of
Bihar and Ors., , it was held:-
“Whichever view is taken of the
Explanation it should be limited to the purpose
the Constitution makers had in view when they
incorporated it in Clause (1). It is quite obvious that
it created a legal fiction. Legal fictions are
created only for some definite purpose.”
37. In Commissioner of Sales Tax, U.P. v. Modi Sugar Mills
Ltd., , it was observed:-
“A legal fiction must be limited to the
purposes for which it has been created and
cannot be extended beyond its legitimate field.”
38. In Braithwaite & Co. (India) Ltd. v. The Employees’
State Insurance Corporation, , it was held:-
“A legal fiction is adopted in law for a
limited and definite purpose only and there is no
justification for extending it beyond the purpose
for which the legislature adopted it.”
39. It is now well-settled principles of law that a statute
should be construed firstly having regard to the literal meaning,
which can be assigned thereto. Having regard to the purport and
object thereof, if the words “business connection in India” were wide
enough to cover all transactions including transactions in capital
assets, in our opinion, there was no reason for the Parliament to
specifically include income (a) through or from any property in
India, (b) through or from any asset or source of income from India
and (c) through or from sale of capital asset situate in India.
40. The very fact that in terms of Section 9 of the Act, the
transfer of capital asset situate in India has brought within the
purview of the deemed income under Section 9 of the Act and Rule
10(2) of the Rules, the intention of the Parliament was not to bring
within its purview any income derived out of sale or purchase of a
capital asset effected outside India.
41. In Dalmia Cement (Bharat) Ltd. v. Galaxy Traders &
Agencies Ltd. and Ors., , while interpreting Section 38 of the
Negotiable Instruments Act, it was held:-
“3. The Act was enacted and Section 138
thereof incorporated with a specified object of
making a special provision by incorporating a
strict liability so far as the cheque, a negotiable
instrument, a concerned. The law relating to
negotiable instruments is the law of commercial
world legislated to facilitate the activities in trade
and commerce making provision of giving
sanctity to the instruments of credit which could
be deemed to be convertible into money and
easily passable from one person to another. In
the absence of such instruments, including a
cheque, the trade and commerce activities, in the
present day world, are likely to be adversely
affected as it is impracticable for the trading
community to carry on with it the bulk of the
currency in force. The negotiable instruments
are in fact the instruments of credit being
convertible on account of legality of being
negotiated and are easily passable from one
hand to another. To achieve the objectives of the
Act, the legislature has, in its wisdom, thought it
proper to make such provisions in the Act for
conferring such privileges to the mercantile
instruments contemplated under it and provide
special penalties and procedure in case the
obligations under the instruments are not
discharges. The laws relating to the Act are,
therefore, required to be interpreted in the light
of the objects intended to be achieved by it
despite there being deviations from the general
law and the procedure provided for the redressal
of the grievances to the litigants. Efforts to
defeat the objectives of law by resorting to
innovative measures and methods are to be
discouraged, lest it may affect the commercial
and mercantile activities in a smooth and
healthy manner, ultimately affecting the
economy of the country.”
42. Furthermore, it is well known that in case of any doubt
or dispute and if two interpretations are reasonably possible, the
constructions, which would favor the assessed and which has been
acted and accepted by the Revenue should be given effect to. (See
Birla Cement Works v. Central Board of Direct Taxes and Ors., .
43. It is also well known that requirements in fiscal statutes
are required to be strictly complied with. ( See Excise
Superintendent, Warangal Distt. Warangal and Ors. v. Deluxe Bar,
Kazipet, Warangal and Ors., .
44. Yet again in Reva Investment Pvt. Ltd. v. Commissioner
of Gift Tax, Gujarat II, , it has been held:-
“10. Ordinarily, a gift is a transfer of property
without consideration; but for the purpose of
the Act a transfer for inadequate consideration
is to be deemed to be a gift under Section
4(1)(a). By the inclusive definition in Section
2(xii) of the Act a “deemed gift” is also a gift.
The provision of deemed gift in Section 4(1)(a) is
intended to bring within the purview of the tax
such transactions, which are entered between
the parties to evade the tax.
11. The question, which arises for
determination in this case, is whether the
transaction made by the assessed can be said
to be a “deemed gift” under Section 4(1)(a) of
the Act. For invoking the deeming provisions of
Section 4(1)(a) of the Act enquiries have to be
made regarding–(i) the existence of a “transfer
of property”, and (ii) the extent of consideration
given i.e. whether the consideration is
adequate. It is necessary for the assessing
officer to show that the property has been
transferred otherwise than for adequate
consideration. The finding as to inadequacy of
the consideration is the essential sine qua non
for application of the provisions of “deemed
gift”. The provision is to be construed in a
broad commercial sense and not in a narrow
sense. In order to hold that a particular
transfer is not for adequate consideration the
difference between true value of the property
transferred and the consideration that passed
for the same must be appreciated in the context
of the facts of the particular case. If the
transaction involves transfer of certain property
in lieu of certain other property received then
the process of evaluation of the two items of
property should be similar and on such
evaluation if it is found that there is appreciable
difference between the value of the two
properties then the transaction will be taken as
a “deemed gift” to the extent as provided in the
section. It is to be found that the transaction
was on inadequate consideration and the
parties deliberately showed the valuation of the
two properties as the same to evade tax. Such
a conclusion cannot be drawn merely because
according to the assessing officer there is some
difference between the valuation of the property
transferred and the consideration received.”
45. In the aforementioned backdrop, the decisions cited by
Mr. Sanjiv Khanna may be considered.
46. In A. Sanyasi Rao’s case (Supra) and G.R.
Karthikeyan’s case (Supra), the Apex Court was considering the
meaning of the word “income” in the context of Entry 82 List I of the
7th Schedule of the Constitution of India. Interpretation of an entry
should be brought based is a well known concept, but the same
would not having regard to the specific provisions contained in the
Act be brought into services for the purpose of construction word
“income” used in other context.
47. In Father Epharam’s case (Supra), a Division Bench of
the Karnataka High Court was considering the meaning of the word
“income” having regard to the scheme of Sections 2(24), 4 and 10 of
the Act. The question, which arose for consideration, was “receipts at
the hands of the assessed were referable to his occupation or vocation
or not”. The said decision, therefore, was rendered in the affirmative
in fact situation obtaining therein and no dicta has been laid down
therein, which has a direct nexus with the subject matter of the
present case.
48. In G.V.K. Industries Ltd. and Anr. v. Income Tax Officer and
Anr., (1997) 228 ITR 564, a Division Bench of the Andhra Pradesh High Court was
interpreting the provisions of Clause (vii)(b) of Sub-section (1) of
Section 9 of the Act, which shows that income by way of fees for
technical services payable by a person, who is a resident, would be
an income. In that case, the question arose as to whether the
person residing in India has any business connection with it as a
non-resident as an agent.
49. In K.V.A.L.M. Ramanathan Chettiar’s case (Supra), the
assessed was doing money-lending business, although in Malaya as
well as in India. Therein the Apex Court held that a sum of
Rs. 1,92,816/- had suffered double taxation, in this case, the
question of set off does not arise.
50. In Commissioner of Income Tax v. Bharat Heavy
Electricals Ltd., (1999) 239 ITR 756, a Division Bench of this Court was concerned with
a question as to whether a particular expenditure is capital or
revenue in nature. Thus, the same has no application in the case at
hand.
51. For the reasons aforementioned, we are of the opinion
that the first question must be answered in the affirmative, in
favor of the assessed and against the Revenue.
52. So far as the second question is concerned, having
regard to the answer to the question No. 1, the same does not
subsist.
53. The said question, however, is also covered in Tata
Locomotive & Engineering Co. Ltd.’s case (Supra) ; Sutlej Cotton Mills
Ltd.’s case (Supra) ; Arvind Mills Ltd.’s case (Supra) and a recent
decision of this Court in Bharat Heavy Electricals Ltd.’s case (Supra)
therein the question, which arose for consideration, inter alia was:-
“1. Whether, on the facts and in the
circumstances of the case, the Appellate
Tribunal was justified in law in upholding the
deletion of the disallowance of Rs. 7,65,21,000/-
on account of additional liability on the change
of rupee-rouble parity ratio?”
54. The aforesaid question was answered stating:-
“… Thus, the answer to the first question
whether the additional liability which the
assessed had incurred on account of change in
the rupee-rouble parity ratio would necessarily
depend on the answer to the question whether
the additional liability pertains to the trading
asset or capital asset. In the statement of the
case, the Tribunal has stated that the fact that
the claim in question related to the increase in
the existing liabilities outstanding against the
assessed in respect of the supply of material
made by the USSR on deferred credit facility
basis was not disputed. As noticed above, even
the stand of the Assessing Officer was that even
if the money was originally related to raw
material inputs from the USSR but it changed its
character when it was blocked under the
deferred payment account, giving also an
enduring advantage to the assessed. We find
that the said findings, which are pure findings of
fact, are not sought to be challenged as perverse
in the proposed question. Therefore, in the
present case, admittedly the initial liability arose
on account of purchase of new material, a
trading debt, and after it had arisen, nothing
happened to divest it of the character of a
trading debt. In this view of the matter, applying
the principles of law adumbrated in Sutlej Cotton
Mills’ case , we are of the
opinion that the Tribunal came to the correct
conclusion that the additional liability incurred
by the assessed on the change of the rupee-rouble
parity ratio was allowable as a trading
liability.”
55. These references are accordingly disposed of without
any order as to costs.