Case Note & Summary
The dispute arose from the assessment of income tax on the excess realisation by a bank following the devaluation of the Indian rupee on 6th June, 1966. The petitioner, State Bank of India, contested the Income Tax Officer's decision that treated the excess amount credited to the bank in foreign banks as taxable income. The bank argued that this profit was merely a windfall and not derived from its regular banking activities. The Income Tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal all upheld the taxability of the amount, leading to the bank's appeal to the Supreme Court. The Supreme Court examined whether the appreciation in value constituted trading receipts and thus revenue receipts under the Income Tax Act, 1961. The court noted that the bank's activities involved dealing in foreign exchange, and the increase in value was incidental to its banking business. The court referenced previous judgments to support its conclusion that profits arising from currency devaluation, when utilized in business, are taxable. Ultimately, the Supreme Court dismissed the appeal, affirming the High Court's ruling that the appreciation was indeed chargeable to income tax.
Headnote
A) Income Tax - Chargeability of Income - Excess Realisation on Devaluation - Income Tax Act, 1961, Section 5 - The High Court held that the appreciation in value represented trading receipts of the assessee and constituted revenue receipts chargeable to income-tax. The court reasoned that the profit was due to the devaluation of the rupee and was incidental to the banking business. Held that the appreciation was taxable (Paras 697-700).
Issue of Consideration
Whether the excess sum realised on the devaluation of the Indian rupee on 6th June, 1966 was income chargeable to income-tax
Final Decision
The Supreme Court dismissed the appeal, affirming the High Court's decision that the appreciation in value of Rs. 4,65,515 was chargeable to income tax under Section 5 of the Income Tax Act, 1961.
Law Points
- Income Tax
- foreign exchange business
- trading receipts
- revenue receipts
- devaluation of currency
- incidental income
