judgement:
CIVIL APPEALS Nos. 118 to 121 of 1952.
(Appeals under article 133 (1) (c) of the Constitution of India from the Judgment and Order dated the 10th August, 1950, of the High Court of Judicature, Punjab at Simla (Khosla and Kapur JJ.) in Civil Miscellaneous Nos. 256, 260, 261 and 262 of 1950).
Dr. Balkshi Tek Chand (T. N. Sethi, with him) for the appellants.
M.C. Setalvad, Attorney General for India (Porus A. Mehta, with him) for the respondents.
January, 22.
The Judgment of the Court was delivered by MUKHERJEA J.
These four consolidated appeals, which have come before us, on a certificate granted by the High Court of Punjab under article 133 (1)(c)of the Constitution, are directed against one common judgment of a Division Bench of that court dated the 10th August, 1950, by which the learned Judges dismissed four analogous petitions, presented on behalf of the different appellants, claiming reliefs under articles 226 and 227 of the Constitution, in respect of certain income tax investigation proceedings commenced against them under Act XXX of 1947.
It appears that a partnership firm carrying on business under the name and style of K.S. Rashid & Son was started on the 5th of May, 1934, the partners being three in number to wit K.S. Rashid Ahmed, Saeed Ahmed, his son, and Mrs. Zafar Muhammed, his mother Mrs. Zafar Muhammed died on the 7th of January, 1946, and as a result of her death the partnership stood dissolved.
Immediately on the day following, 740 that is to say on the 8th of January, 1946, a new firm was started bearing the same name, with the two surviving partners of the original firm and one Saeeda Begum, a daughter of K.S. Rashid, as the third partner.
On the 31st of December, 71947, the Central Government referred the cases of this firm, as well as of the individuals constituting it, to the Income taxInvestigation Commission for enquiry and report under section 5of Act XXX of 1947, presumably on the ground that there had been substantial evasion of payment of income tax in these cases.
The authorised official appointed under section 5 (4)(3) of the Act, who figures as respondent No. 2 in all these appeals, in due course started investigation in these cases and the appellants ' complaint is, that contrary to the provisions of the Act, he extended his investigations to a period subsequent to the 31st March, 1943, up to which date the income tax assessment in all these cases was completed.
A petition embodying this complaint was made to the authorised official on the 8th of April, 1949, but no order was passed on the petition, as the Commission was expecting an early change of law in this respect.
The law was amended by an Ordinance dated the 5th of July, 1949, but the appellants still contended that the amendment was neither retrospective in its operation, nor did it enable the authorised official to carry on his investigation beyond the 31st March, 1943.
The account books, however, were shown to the official under protest.
On the 17th September, 1949, three applications were filed before the Commission, one with regard to the affairs of Mrs. Zafar Muhammed stating that no investigation could take place in regard to her as she was already dead;the second with regard to the affairs of Saeeda Begum on the ground that she being a new partner and not having been assessed before, was not subject to 'the jurisdiction of the Commission; while the third application was to the effect that the new firm, which came into existence on the 8th of January, 1946, could not have its affairs enquired into at all under the provisions of the Act.
After that, in June, 1950, four miscellaneous petitions were filed, (being C.M. Gases Nos.
259 to 262 741 of 1950) on behalf of the appellants, before the High Court of Punjab, and the prayers made therein were of a three fold character.
It was prayed in the first place that a writ of prohibition might be issued to the Commission and the authorised official directing them not to proceed with the investigation of cases referred to the Commission under section 5 of Act XXX of 1947.
The second prayer was for a writ in the nature of certiorari for quashing the proceedings already commenced.
The third and the alternative claim was that the proceedings before the Commission might be revised under article 277 of the Constitution and suitable orders passed as the justice of the case would require.
Upon these petitions, rules were issued on the 25th of July, 1950, after a report from the Investigation Commission had been called for.
On behalf of the respondents, who resisted these petitions, certain preliminary points were raised in bar of the petitioners" claim.
It was contended in the first place that the petitioners being assessees belonging to U.P., their assessments were to be made by the Income tax Commissioner of that State and the mere fact that the location of the Investigation Commission was in Delhi would not confer jurisdiction upon the Punjab High Court to issue writs under article 226 of the Constitution.
The second objection was that the Act itself being of a special nature which created new rights and liabilities, the remedies provided for in the Act itself for any breach or violation thereof were the only remedies which could be pursued by the aggrieved parties and article 226 or 227 of the Constitution would not be available to the petitioners.
The third ground taken was that the court could not give relief to the petitioners because of sections 5(3) and 9 of Act XXX of 1947.
These contentions found favour with the learned Judges who heard the petitions, and although they did not express any final opinion on the third point raised they dismissed the applications of the petitioners on the first two grounds mentioned above.
It is against these orders of dismissal that the present appeals have been taken to this court and Dr. Tek Chand, who appeared on behalf of the appellants, has assailed the 742 propriety of the decision of the High Court both the points.
So far as the first, point is concerned, which relates to the question of jurisdiction of the Punjab High Court to issue writs of certiorari or prohibition in these cases, the learned Judges based their decision entirely upon the pronouncement of the Judicial Committee in the well known case of Ryots of Garabandho vs ' Zamindar of Parlakitnedi(1).
The question for consideration in that case was, whether the High Court of Madras had jurisdiction to issue a writ of certiorari in respect of an order passed by the Collective Board of Revenue, as an appellate authority, in certain proceedings for settlement of rent between the Zamindar of Parlakimedi and the Ryots of certain villages within his estate situated in the district of Ganjam which was wholly outside the limits of the Presidency town of Madras.
The question was answered in the negative.
The Judicial Committee laid down that the three Chartered High Courts of Calcutta, Madras and Bombay had powers to issue, what were known as the high prerogative writs, as successors to the Supreme Courts which previously exercised jurisdiction over these Presidency Towns; but the exercise of the powers under the Charter was limited to persons within the ordinary original civil jurisdiction of the three High Courts, and outside that jurisdiction it extended only to 'British subjects ' as defined in the Charter itself.
It was held that the Supreme Court of Madras had no jurisdiction under the Charter which created it to correct or control a country court of the the East India Company deciding a dispute between Indian inhabitants of the Ganjam district about the rent payable for land in that district; and no such power was given by any subsequent legislation to its successor, the High Court .
A contention seems to have been raised on behalf of the appellants that the jurisdiction to issue writs could be rounded on the fact that the office of the Board of Revenue, which was the appellate authority in the matter of settlement of rents, was located within the town of Madras (1) 70 I.A. 129.
743 and the order complained of was made in that town and reliance was placed in this connection upon the case of Nundo Lal Bose vs The Calcutta Corporation (1), where a certiorari was issued by the Calcutta High Court to quash an assessment made by the Commissioners of the town of Calcutta on a certain dwelling house.
This contention was repelled by the Judicial 'Committee with the following observations: "The question is whether the principle of that case can be applied in the present case to the settlement of rent for land in Ganjam, merely on the basis of the location of the Board of Revenue, as a body which is ordinarily resident or located within the town of Madras, or on the basis that the order complained of was made within the town.
If so, it would seem to follow that the jurisdiction of the High Court would be avoided by the removal of the Board of Revenue beyond the outskirts of the town, and that it would never attach but for the circumstance that an appeal is brought to, or proceedings in revision taken by, the Board of Revenue.
Their Lordships think that the question of jurisdiction must be regarded as one of substance, and that it would not have been within the competence of the Supreme Court to claim jurisdiction over such a matter as the present by issuing certiorari to the Board of Revenue on the strength of its location in the town.
Such a view would give jurisdiction to the Supreme Court, in the matter of the settlement of rents for ryoti holdings in Ganjam between parties not otherwise subject to its jurisdiction, which it would not have had over the Revenue Officer who dealt with the matter at first instance.
" It is on the basis of these observations of the Judicial Committee that the learned Judges have held that the mere location of the Investigation Commission in Delhi is not sufficient to confer jurisdiction upon the Punjab High Court to issue a writ in the present case.
It is said that the petitioners are assessees within the U. P State and their original assessments were made by the Income tax Officers of that State.
(1)I.L.R. II Cal.
275 744 The subsequent proceedings, which had to be taken in pursuance of the report of the Investigation Commission, would have to b.e taken by the Income tax authorities in the U.P., and if a case had to be stated, it would be stated to the High Court at Allahabad.
Taking, therefore, as the Privy Council had said, that, the question of jurisdiction is one of substance, it was held that no jurisdiction in the present case could be vested in the Punjab High Court, for that jurisdiction could be avoided simply by removal of the Commission from Delhi to another place.
This line of reasoning does not appear to us to be proper and we do not think that the decision in the Parlakimedi 's case(1) is really of assistance in determining the question of jurisdiction of the High Courts in the matter of issuing writs under article 226 of the Constitution.
The whole law on this subject has been discussed and elucidated by this court in its recent pronouncement in Election Commission vs Venkata Rao(2 ) where the observations of the Judicial Committee in Parlakimedi 's case, upon which reliance has been placed by the Punjab High Court, have been fully explained.
It is to be noted first of all, that prior to the commencement of the Constitution the powers of issuing prerogative writs could be exercised in India only by the High Courts of Calcutta,, Madras and Bombay and that also within very rigid and defined limits.
The writs could be issued only to the extent that the power in that respect was not taken away 'by the Codes of Civil and Criminal Procedure(3) and they could be directed only to persons and authorities within the original civil jurisdiction of these High Courts.
The Constitution introduced a fundamental change of law in this respect.
As has been explained by this Court in the case referred to above, while article 225 of the Constitution preserves to the existing High Courts the powers and jurisdictions which they had previously, article 226 confers, on all the High Courts, new and very wide powers (1) 70 I.A. 139.
(1) ; (3) Vide in this connection Besant vs Tire Advocate General of Madras.
46 I.A. 176.
745 in the matter of issuing writs which they never possessed before.
"The makers of the Constitution" thus observed Patanjali Sastri C.J. in delivering the judgment of the court, "having decided to provide for certain basic safeguards for the people in the new set up, which they called fundamental rights, evidently thought it necessary to provide also a quick and inexpensive remedy for the enforcement of such rights, and, finding that the prerogative writs, which the courts in England had developed and used whenever urgent necessity demanded immediate and decisive interposition, were peculiarly suited for the purpose, they conferred, in the State 's sphere, new and wide powers on the High Courts of issuing directions, orders, or writs primarily for the enforcement of fundamental rights, the power to issue such directions, etc. 'for any other purpose ' being also included with a view apparently to place all the High Courts in this country in somewhat the same position as the Court of King 's Bench in England.
" There are only two limitations placed upon the exercise of these powers by a High Court under article 226 of the Constitution; one is that the power is to be exercised "throughout the territories in relation to which it exercises jurisdiction", that is to say, the writs issued ' by the court cannot run beyond the territories subject to its jurisdiction.
The other limitation is that the person or authority to whom the High COurt is empowered to issue writs "must be within those territories" and this implies that they must be amenable to its jurisdiction either by residence or location within those territories.
It is with reference to these two conditions thus mentioned that the jurisdiction of the High Courts to issue writs under article 226 of the Constitution is to be determined.
The observations of the Judicial Committee in Parlakimedi 's case(1) have strictly speaking no direct bearing on the point.
It is true as the Privy Council said in that case that the question of jurisdiction must be regarded as one of substance, but the meaning and implication of this observation could be ascertained only with reference to the context of (1) 701.
A. 129.
11 95 S.C. 1./59 746 the facts and circumstances of that case.
As was pointed out by this court in the case referred to above(1): "Their Lordships considered, in the peculiar situation they were dealing with, that the mere location of the appellate authority alone in the town of Madras was not a sufficient basis for the exercise of jurisdiction whereas both the subject matter, viz., the settlement of rent for lands in Ganjam, and the Revenue Officer authorised to make the settlement at first instance were outside the local limits of the jurisdiction of the High Court.
If the Court in Madras were recognised as having jurisdiction to issue the writ of certiorari to the appellate authority in Madras, it would practically be recognising the court 's jurisdiction over the Revenue Officer in Ganjam and the settlement of rents for lands there, which their Lordships held it never had.
That was the 'substance ' of the matter they were looking at.
" In our opinion, therefore, the first contention raised by Dr. Tek Chand must be accepted as sound and the view taken by the Punjab High Court on the question of jurisdiction cannot be sustained.
So far as the second point is concerned, the High Court relies upon the ordinary rule of construction that where the legislature has passed a new statute giving a new remedy, that remedy is the only one which .could be pursued.
It is said that the Taxation on Income (Investigation Commission) Act, 1947, itself provides a remedy against any wrong or ' illegal order of the Investigating Commission and under section 8 (5) of the Act, the aggrieved party can apply to the appropriate Commissioner of Income tax to refer to the High Court any question of law arising out of such .order and thereupon the provisions of sections 66 and and 66 A of the Indian Income tax Act shall apply with this modification that the reference shall be heard by a Bench of not less than three Judges of the High Court.
We think that it is not necessary for us to express any final opinion in this case as to whether section 8 (5) of the Act is to be regarded as providing the only remedy available to the aggrieved party and that it excludes altogether the remedy provided for (1) A.I.R. z953 S.C. 310, 214; ; 747 under article 226 of the Constitution.
For purposes of this case it is enough to state that the remedy provided for in article 226 of the Constitution is a discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere.
So far as the present case is concerned, it has been brought to our notice that the appellants before us have already availed themselves of the remedy provided for in section 8(5) of the Investigation Commission Act and that a reference has been made to the High Court of Allahabad in terms of that provision which is awaiting decision.
In these circumstances, we think that it would not be proper to allow the appellants to invoke the discretionary jurisdiction under article 226 of the Constitution at the present stage, and on this ground alone, we would refuse to interfere with the orders made by the High Court.
Dr. Tek Chand argues that the Income tax authorities have not referred all the matters to the High Court which the appellants wanted them to do.
But for this there is a remedy provided in the Act itself and in case a proceeding occasions a gross miscarriage of justice, there is always the jurisdiction in this court to interfere by way of special leave.
In the result, we dismiss the appeals but in the circumstances of the case make no order as to costs. ' Appeals dismissed.

summary/full:
The Punjab High Court has jurisdiction to issue a writ under article 226 of the Constitution to the Income tax Investigation Commission located in Delhi and investigating the case of the petitioner under 5 of the Taxation on Income (Investigation Commission) Act, 1947, although the petitioners were assessees within the U.P. State and their original assessments were made by the Income tax authorities of that State.
Article 226 of the Constitution confers on all the High Courts new and very wide powers in the matter of issuing writs which they never possessed before.
There are only two limitations placed upon the exercise of such powers by a High Court; one is that the power is to be exercised "throughout the territories in relation to which it exercises jurisdiction", that is to say, the writs issued by the court cannot run beyond the territories subject to its jurisdiction.
The other is that the person or authority to whom 739 the High Court is empowered to issue writs "must be within those territories" and this ,implies that they must be amenable to its jurisdiction either by residence or location within those territories.
The remedy provided in article 226 of the Constitution is a discretionary one and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere.
Ryots of Garabandho vs Zamindar of Parlakimedi (70 I.A. 129) and Election Commission v; Saka Venkata Subba Rao ; referred to.


judgement:
Appeal No. 236 of 1965.
Appeal from the judgment and order dated August 30, 1961.
of the Bombay High Court in Income tax Reference No. 12 of 1959.
A. V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for the appellant.
N. A Palkivala, T. A. Ramachandran, J. B. Dadachanji, O. C. Mathur and Ravinder Narain for the respondent.
The Judgment of the Court was delivered by Sikri, J.
This appeal by certificate granted by the High Court of Judicature at Bombay under section 66 A(2) of the Indian Income Tax Act, 1922, hereinafter referred to as the Act, is directed against its judgment in a reference made to it by the Income Tax Appellate Tribunal.
The following two questions were referred (1)Whether on the facts and in the circumstances of the case, the surplus or difference arising as a result of devaluation in the process of converting dollar currency in regard to the sum of $36,123/02 repatriated to India was profit which was taxable in the hands of the assessee ? (2)Whether the said sum of $36,123/02 having been taxed in the relevant earlier years, the surplus or difference in dollar exchange account arising by reason of the repatriation thereof as a result of devaluation was rightly taken as profit taxable ? The relevant facts and circumstances, as stated in the Statement of the Case, are as follows : The respondent, Tata Locomotive and Engineering Co. Ltd., hereinafter referred to as the assessee, is a limited company registered under the Indian Companies Act (VII of 1913), and has its registered office at Bombay.
The main business of the assessee is the manufacture of locomotive boilers and locomotives.
For the purpose of this manufacturing activity the assessee had to make purchases of plant and machinery, etc., in various countries including the U.S.A.
The assessee 2 3 7 appointed M/s Tata Inc., New York, as its purchasing agent in the U.S.A. With the sanction of the Exchange Control Authorities a remittance of $33,830 was made in 1949 to Messrs. Tata Inc., New York for the purpose of purchasing capital goods from the U.S.A. and meeting other expenses connected therewith.
The assessee was also the selling agent of Baldwin Locomo tive Works, for the sale of their products in India, and in connection with the sale of the products of Baldwin Locomotive Works in India the assessee had to incur expenses on their behalf in India.
These expenses were re imbursed to the assessee by Baldwin Locomotive Works in the U.S.A. by paying the amount due to Messrs. Tata Inc., New York.
The amount so paid to Tata Inc. was retained in the assessee 's account with Messrs. Tata Inc. for purchase of capital goods.
As the sole selling agent the assessee was entitled to com mission from Baldwin Locomotive Works.
The commission pay able to the assessee in dollars was not actually sent from the U.S.A. to India, but with the sanction of the Exchange Control Authorities was made over to the assessee 's purchasing agents, Messrs. Tata Inc., New York.
The reason why this was done was explained in the assessee 's letter dated October 26, 1948, to the Reserve Bank of India.
In it the assessee stated, inter alia, as follows : "It would be more convenient if the amount of commission payable to us periodically be deposited into our account with our representative, Messrs. Tata Inc., New York, opened with reference to your letter FC.BY.
7031/74/46 dated 2nd October, 1946, as the same would go to reduce the amount of remittance to be made from here in recoupment of that amount from time to time.
These amounts will be utilised solely for the purposes detailed in our letter to you TC 679 dated 15th August, 1946.
" The purposes referred to in the said letter of August 15, 1946, were purchase of capital goods.
The amount received as commission was taxed in the relevant assessment years on the accrual basis and tax has been paid.
On September 16, 1949, there was a balance of $48,572/30 in the assessee 's account with Messrs. Tata Inc. made up as under (1) Remittances from Bombay $33,850 00 Less : Dollars spent in the U.S.A. for capital $30,282.
96 purposes $3,567.04 238 (2) Amount reimbursed by Baldwin Loco $8,882.24 motive Works against funds made available to its representatives in India (3) Commission actually received from Baldwin Locomotives Works and retain $36,123.
ed in the U.S.A. TOTAL $48, 572.30 On September 16, 1949, the pound sterling was devalued.
Prior to the devaluation the rate of exchange between rupee and dollar was Rs. 3.330 per dollar and on devaluation the rate became Rs. 4.775 per dollar.
The result was that the assessee found it more expensive to buy American goods and as the Government of India also imposed some restrictions on imports from the U.S.A., the assessee decided to repatriate the dollars and for the purpose applied to the Reserve Bank of India on December 17, 1949.
The Reserve Bank of India gave permission and a sum of $40,000 was repatriated to India.
Under similar circumstances in October, 1950, a sum of $9,500 was repatriated to India.
Though the two remittances from the U.S.A. to India of $40,000 and $9,500 fell into different accounting years, the case proceeded before the Income tax authorities as well as before the Tribunal on the footing that the two remittances be considered as falling in the accounting year ended March 31, 1950 for the purpose of the appeal before the Tribunal.
The remittances of $49,500 includes the sum of $48,572/30 that was held by the assessee on September 16, 1949.
This repatriation of the sum of $48,572/30 gave rise to a sum of Rs. 70,147 as surplus in the process of converting dollar currency into rupee currency.
The Income tax Officer assessed the amount of Rs. 70,147 on the ground that it represented profits that arose to the assessee "incidentally to its carrying on the business".
The Income tax Officer observed : "Whether the funds were sent to America with the object of purchasing of capital equipment or for the purchase of stores, or for reimbursement of revenue expenditure there need not be distinction that only such portion of the profits arising on funds remitted for revenue expenditure only has to be treated as revenue and the balance should be treated as capital.
" The Appellate Assistant Commissioner substantially affirmed the odrer of the Income tax Officer except that he reduced 239 the amount by Rs. 6,894.
He was of the view that the permission of the Reserve Bank by itself did not convert the true nature of the amount lying there.
He was further of the view that the amounts available for remittance consisting of the commission and the reimbursement of expenses by Baldwin Locomotive Works were acquired in the ordinary course of business of the sole selling agency of Baldwin Locomotive Works, and, therefore.
any exchange profit on such amounts which formed part of the assets employed as circulating capital in trade did arise directly in the course of business and formed part of the trading receipts.
The Tribunal held that the sums of $3,567/04 and $8,882/24 included in the sum of $48,572/30 were held by the assessee for capital purposes and hence any profit that arose to it as a result of its conversion into rupee currency on account of appreciation of the dollar, in relation to the rupee, must be held on capital account and, ' accordingly, the Tribunal excluded ' profits attributable to these amounts.
But regarding the sum of $36,123/02 the Tribunal held that it would not be justified in coming to the conclusion that there was any constructive remittance, first in the direction the U.S.A. to India and then of an equivalent sum from India to the U.S.A.
It further held that "the amount was earned as commission.
It was received in dollars and was retained in that form for the changed purpose under the authority of the Reserve Bank of India.
When the Company found that the purpose for which it was to be used failed, viz., acquisition of capital equipment etc.
, it requested the Reserve Bank of India to permit it to bring to India, vide assessee 's letter dated 17 12 1949 where it sought Reserve Bank 's permission to bring $40,000 to India and referred to in paragraph above.
This permission was granted by the Reserve Bank.
Dollars were changed into rupees and money received here.
Hence before there was actual remittance of $40,000 from the U.S.A. to India, there was reconversion, the purpose having failed, of the sum if there was initial conversion as contended by Mr. Chokshi.
" In the alternative, the Tribunal held that "as and when the commission was earned in dollars, the Company did bring it into its account books in the rupee currency at the then prevailing rate of exchange but the commission amount physically remained in the U.S.A. and when occasion arose to bring it physically to India it had to be converted into rupee currency and this conversion was necessarily incidental to the asssessee 's business as selling agents of the foreign entity the Baldwins.
Hence whatever the profit the Company made on such exchange of the commission earned by it in the course of its 2 4 0 selling agency business must be brought to tax as a trading profit made by it incidentally in the course of that business.
" The High Court answered the two questions in the negative.
It held that although the character of the commission earned was at the inception that of income, but when the assesee appropriated that sum for the specific purpose of purchasing capital goods with the permission of the Reserve Bank of India, the initial character of this sum underwent a change and it assumed the character of fixed capital of the Company.
This character was retained right up to September 16, 1949 when the pound sterling was devalued, and it did not undergo any change till the benefit accrued on this amount to the assessee company as a result of change in the exchange rate.
The High Court further held that "there is no evidence in this case nor a finding recorded by the Tribunal that the assessee company had at any time decided not to utilise these amounts for the purpose of purchasing capital goods, and, therefore, repatriated these amounts to India." The High Court further held that the sum of $36,123 02 was "part of its fixed capital and remained so till the date it was repatriated to India.
The surplus or difference arising as a result of devaluation in the process of converting these dollars into rupee currency in repatriating them to India was an accretion to its fixed capital and was not, therefore, liable to tax.
" The High Court felt that the ratio of the decision in Davies vs The Shell Company of China(1) supported the view it had taken.
The learned counsel for the revenue, Mr. A. V. Viswanatha Sastri, contends that if the commission had been allowed to remain in the U.S.A. up to September 16, 1949, and it had been repatriated on September 17, 1949, the assessee would have been liable to tax on the profits received as a result of devaluation.
He says that if this is so, the permission of the Reserve Bank and the decision of the Company to hold it to buy capital goods does not make any difference.
He further says that the fact that the assessee credited the rupee equivalent of this sum in his books and paid tax on the basis of accrual does not also make, any difference.
The learned counsel for the assesee, Mr. Palkhiwala, on the other hand contends that the assessee is not a dealer in foreign exchange and it had not acquired or held foreign exchange for revenue purposes or for purposes incidental to trading operations.
He says that "when foreign currency is kept or used on capital account e.g. to acquire capital assets, and not as circulat (1) 22 I.T.R. Supp.
1. 2 4 1 ing capital, the profit made on realisation is capital appreciation, even though the foreign currency may have been originally acquired as a revenue receipt.
" A number of cases have been cited before us, but it seems to us that the answer to the questions depends on whether the act of keeping the money, i.e. $36,123 02 for capital purposes after obtaining the sanction of the Reserve Bank was part of or a trading transaction.
If it was part of or a trading transaction then any profit that would accrue would be revenue receipt; if it was not part of or a trading transaction then the profit made would be a capital profit and not taxable.
There is no doubt that the amount of $36,123.02 was a revenue receipt in the assessee 's business of commission agency.
Instead of repatriating it imme diately the assessee obtained the sanction of the Reserve Bank to utilise the commission in its business of manufacture of locomotive boilers and locomotives for buying capital goods.
That was quite an independent transaction and it is the nature of this transaction which has to be determined.
In our view it was not a trading transaction in the business of manufacture of locomotive boilers and locomotives; it was clearly a transaction of accumulating dollars to pay for capital goods, the first step to the acquisition of capital goods.
If the assessee had repatriated $36,123.02 and then after obtaining the sanction of the Reserve Bank remitted $36,123.02 to the U.S.A., Mr. Sastri does not contest that any profit made on devaluation would have been a capital profit.
But, in our opinion, the fact that the assessee kept the money there does not make any difference especially, as we have pointed out, that it was a new transaction which the assessee entered into, the transaction being the first step to acquisition of capital goods.
In the view we have taken it is really not necessary to discuss cases cited at the Bar because none of the cases are exactly in point.
In our view the High Court was right in answering the questions in the negative.
In the result the appeal fails and is dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
The assessee was a limited company with its registered office at Bombay.
Its main business was the manufacture of locomotive boilers and locomotives, and for that purpose the assessee had to make purchases of plant and machinery, in various countries including the U.S.A. The assessee appointed M/s. Tata Inc., New York, as its purchasing agent in the U.S.A.
The assessee was also the selling agent of Baldwin Locomotive Works, U.S.A., for the sale of their products in India, and the commission payable to the assessee as their sole selling agent was made over to the assessee 's purchasing agent in Now York with the sanction of the Reserve Bank and for the purchase of capital goods.
This amount was taxed in the relevant assessment years on the accrual basis and the ix was paid.
On 16th September 1949, the pound sterling was devalued and the rate of exchange between rupee and dollar which was Rs. 3.33 per dollar before devaluation, became Rs. 4.775 per dollar thereafter, On 'hat date, there was in the assessee 's account with the purchasing agent a sum of $ 36,123.02 representing the commission received from Baldwin locomotive Works.
With the permission of the Reserve Bank this sum was repatriated to India in 1950 and the change in the exchange rate gave these to a surplus in rupees.
The Income tax Officer, the Appellate Assisant Commissioner and the Appellate Tribunal held that this surplus amount was liable to tax.
The High Court, on a reference, held that the sum was not taxable in the hands of the assessee.
In appeal to this Court, it was contended that the assessee was liable 3 tax because; (i) if the commission bad been allowed to remain in the J.S.A. up to 16th September 1949 and had been repatriated on 17th September, the assessee would have been liable to tax and therefore the Permission of the Reserve Bank and the decision of the assessee to hold to buy capital goods did not make any difference; and (ii) the fact hat the assessee credited the rupee equivalent of the sum in his books and paid tax on the basis of accrual did not also make any difference to the ssessee 's liability.
HELD:The High Court was right in deciding in favour of the assessee.
The assessee 's liability to tax would depend on whether the 'act of seeping the money for capital purposes after obtaining the sanction of he Reserve Bank was part of or a trading transaction.
The amount no doubt, was a revenue receipt in the assessee 's business of commission agency.
But instead of repatriating it immediately, the assessee obtained the sanction of the Reserve Bank to utilize the commission for buying capital goods, and that was an independent transaction.
It was not a 236 trading transaction but was a transaction of accumulating dollars to pay for capital goods, the first step to the acquisition of capital goods.
if the assessee had repatriated the amount and then, after obtaining the sanc tion of the Reserve Bank, remitted it to the U.S.A. any profit made on devaluation would only be a capital profit.
therefore, the fact that the assessee kept the money b e n the U.S.A. did not make any difference under the circumstances.
[241 B P]