COMMISSIONER OF INCOME-TAX, MYSORE versus THE CANARA BANK LTD.

Citation: [1967] 1 S.C.R. 859 · Decided: 13-10-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

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A 
B 
c 
D 
E 
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COMMISSIONER OF INCOME-TAX, MYSORE 
v. 
THE CANARA BANK LTD. 
October 13, 1966 
(J.C. SHAH, V. RAMASWAMI AND V. BHARVAGA, JJ.) 
Indian Income-tax Act, 1922, s. 10-Appreciatkm in value of m.<mrJ 
remitted from Pakistan to India after 
devaluation of Indian Rupee hr 
1949-Amount of appreciation whether capital or revenue receipt. 
The respondent bank had its head office at Mangalore. It also opened 
a branch at Karachi in 1946. After the partition of India in 1947 the 
curiencies of the two countries continued to be at · par until there was 
a devaluation of the Indian Rupee in 1949. 
The new exchange ratio 
between the two countries was not determined until February 27, 1951. 
On this date it was agreed that a hundred Pakistani Rupees W•Te equh-alent 
to a hundred and forty-four Indian Rupees. 
On the dale of the devalua-
tion of the Indian Rupee the Karachi Branch of the Bank had with it 
a sum of Rs. · 3,97,221 belonging to its head office. Owing to the ditli-
culties of the currency situation it was impossible to remit the amount to 
the head effice for quite a long time. On July 1, 1953, the State Bank of 
Pakistan . permitted its remittance to India. In terms of Indian currency 
the said amount became equivalent to Rs. 5,71,038. The appreciation in 
the value of the money was claimed by the bank to be only a capital gain 
but the Income-tax Officer disallowed the claim holding that the apprecia.-
tion had resulted in a revenue receipt. Appeals before the Assistant Com-
missioner and the Appellate Tribunal were rejected. A reference was theil 
made to the High Court. According to the agreed statement of case the 
amount of Rs. 3,97,22t was 'blocked' and 'sterilised' for the period from 
the devaluation of the Indian Rupee up to the time of its remittance to 
India. The High Court took the view that the appreciaion of the value 
of the money did not arise in the course of the trading operation of the 
Bank and was not therefore taxable as a revenue receipt. The Commi>-
sioner of Income-tax appealed to this Court. 
HELD : The money in question changed its character of 'stock-in-tra<ill'. 
when it was 'blocked' and 'sterilised'. 
According to the finding of tl\e 
Tribunal it was not utilised for any internal banking operations in Pakis~ 
tan. The increment in the value of the money owing to the exchange 
ftuctuation was therefore rightly treated by the High Court to be , • 
capital receipt. [862 BJ 
G 
Case law referred to. 
H 
CivJL APPELLATE JURISDICTION: Civil Appeal No. 675 of 1965. 
Appeal from the judgment and order dated December 11, 1961 
of the Mysore High Court in I.T.R.C. No. 13 of 1959. 
R. M. Hazarnavis, R. Ganapathy Iyer and R. N. Sacl1they, 
for the appellant. 
· 
A. K. .SL•11, G. L. Sa11gl1i and B. R. Agarwal, for the respondent. 
860 
SUPREME COURT RJ!PORTS 
(1967) I S.C.R. 
The Judgment of the Court was delivered by 
Ramaswami, J. This appeal is brought, by certificate, from 
the judgment of the High Court of Mysore dated December I I, 1961 
in Income Tax Reference .Case No. 13 of 1959. The respondent 
(hereinafter referred to as the 'Bank') is a public limited company 
carrying on business of banking at its head office in Mangalorc 
and its branches in various places. It opened one branch in Karachi 
on November 15, 1946. After the partition of India in 1947, the 
currencies of the two dominions of India and Pakistan continued to 
be at par until there was a devaluation of the Indian Rupee on 
September 18, 1949. As Pakistan did not devalue her rupee, the 
old parity of the Pakistan and Indian Rupee ceased to exist. The 
exchange ratio between the two countries was not detennined until 
February 27, 1951. On this date it was agreed that a hundred 
Pakistani Rupees were equivalent to a huRdred 
and fortyfour 
Indian rupees. On the date of devaluation of the Indian Rupee 
the Karachi Branch of the Bank had with it a sum of Rs. 3,97,221/-
belonging to its head office. Owing to the difficulties of the cur-
rency situation it was impossible to remit the amount to the head 
office for quite a long time. On July I, 1953, the State Bank of 
Pakistan permitted its remittance to India. In terms of Indian 
currency the said amount became equivalent to Rs. 5,71,038/-. 
Thus there was an appreciation of the value of the amount remitted 
from the· Karachi branch and the Bank made a profit of 
Rs. 1,73,817/-. After making certain deductions, the head office of 
the Bank transferred a sum of 

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