NDLI: Sutlej Cotton Mills Ltd Vs. Commr. of Income Tax, West Bengal, Calcutta

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Income Tax Act 1922
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Indian Income-tax Act, 1922 (11 of 1922)
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Allowed
Headnote	Income Tax Act, 1922-Secs. 10(1), 10(2) - Loss occasioned on account of devaluation - Whether deductible as revenue expenditure - Circulating capital and fixed capital.The assessee is a Limited Company having its Head Office in Calcutta.It has inter alia a Cotton Mill situated in West Pakistan where it carries on business of manufacturing and selling cotton fabrics. For the accounting year relevant to the assessment year 1954-55, the assessee made a large profit in the unit in West Pakistan. The Pakistan profit, according to the official rate of exchange, which was then prevalent, namely, 100 Pakistani rupees being equal to 144 Indian rupees amounted to Rs. 1,68,97,232 in terms of Indian rupees. Since the assessee was taxed on accrual basis, the sum of Rs. 1,68,97,232 representing the Pakistani profit was included in the total income of the assessee for the assessment year 1954-55 and the assessee was taxed accordingly after giving double taxation relief in accordance with the bilateral agreement between India and Pakistan. On 8th August, 1955, the Pakistani rupee was devalued and parity between Indian and Pakistani rupee was restored. The assessee thereafter succeeded in obtaining the permission of the Reserve Bank of Pakistan to remit a sum of Rs. 25 lakhs in Pakistani rupees out of the Pakistani profit for the assessment year 1954-55. The profit of Rs. 25 lakhs in terms of Pakistani rupees had been included in the total income of the assessee for the assessment year 1954-55 as Rs. 36 lakhs in terms of Indian rupees according to the then prevailing rate of exchange !and, therefore, when the assessee received the sum of Rs. 25 lakhs on remittance of the profit of Rs. 25 lakhs in Pakistani rupees during the assessment years 1957-58, the assessee suffered a loss of Rs. 11 lakhs, in the process of conversion on account of appreciation of the Indian rupee qua Pakistani rupee. Likewise, in the assessment year 1959-60, a further sum of Rs. 12,50,000 was remitted by the assesse to India out of the Pakistani profit for the assessment year 1954-55 and suffered a loss of Rs. 5,50,000. The assessee claimed in its assessment for the year 1957-58 and 1959-60 that these losses of Rs. 11 lakhs and Rs. 5,50,000 should be allowed in computing the profit from business. The Income Tax Officer and the Tribunal disallowed the claim. On a reference to the High Court, the High Court took the view that no loss was sustained by the assessee on remittance of the amounts from West Pakistan and that in any event, the loss could not be said to be a business loss because it was not a loss arising in the course of business of the assessee but it was caused by devaluation which was an act of State. The High Court accordingly answered the question in favour of the Revenue and against the assessee.
Judge	Honble Mr. Justice P.N. Bhagwati
Neutral Citation	1978 INSC 190
Petitioner	Sutlej Cotton Mills Ltd
Respondent	Commr. Of Income Tax, West Bengal, Calcutta
SCR	[1979] 1 S.C.R. 976
Judgement Date	1978-09-27
Case Number	1847-1848

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