STATE BANK OF INDIA versus COMMISSIONER OF INCOME TAX, ERNAKULAM

Citation: [1985] SUPP. 3 S.C.R. 694 · Decided: 31-10-1985 · Supreme Court of India · Bench: V.D. TULZAPURKAR · Disposal: Dismissed

Judgment (excerpt)

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B 
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D 
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694 
STATE llAlil OF DlDIA 
Vo 
COMMISSIONER OF IN<DlE Ult, EllNWII AM 
ocroBER 31, 1985 
(V.D. TlJLZAPUR!<AR AND SABYASACHI MllKHABJI, JJ,] 
Income Tax Act, 1961 ~ s.5 - Foreign exchange bueineae -
Devaluation of Indian rupee -
Appreciation in value - Whether 
trading receipts and exigible to income tell· 
The aaaeaaee-Banlr. was l!l!llllpmated with the appellat-luk. 
Al part of its banking bueineaa the aaae11ee bad been d•lfna in 
foreign eschange. Conaequant upon the devaluation of the Indian 
rupee the 811lOUOts credited to the uaeoaee in the foreip hanlta 
regiatered an increaae. Thia ezceas realiution on devaluation 
waa treated by the IDCOme-tax Officer aa income of the um•ru 
rejecting it• plea that the profit waa in the nature of a 
windfall, 
The 
Inc~ Officer'a order war 
confirmed by the 
Appellate Alriatant Coamd.Hioner, the Appelhte Tribunal. and in 
the reference by the High Court. 
Di811lia1ing the appeal of the aa1ea1ee to thia Court on the 
question; Whether the exceaa 1um realiaed on the devaluation of 
the Indian rupee on 6th June, 1966 wu incme charaeal>le to 
iacme-t.u:, 
BEUi : 1. The High Court wu right in holdill& that the 
appreci.ation in value represented tradina receipt• of the 
uaeosee and, thenfore, COD1tituted 'revenue receipt•' in ita 
hands which were chargeable to ~. 
[697 F) 
Sutlej Cotton Milla Ltd. Vo ,.,_,,111oner of Iw-'fa. 
'lleet lleDgal, 116 I.T,Jl, 1 and c-iuioaer of Tnc<r 
Tm< ..-, 
'l'o lll>pl Lhae Ltd. Boabay, 46 I,T,Jl, 590 relied upon. 
2, If the foreign currency has increaaed in vilue in teru 
of Indian rupee and that 8lll0unt has been utiliaed by the uau1ee 
in carrying on hia business, it was incidental to the blnkfna 
busineu. [700 A-B] 
s.B. I. v. c. I. T. [SABYASACHI MUKHARJI, J,] 
695 
In the instant case the profit was due to tbe devaluation 
of the rupee and waa not due to my other busineae activities. 
This is an incidental inco• arisiug from the carryiug on the 
banltiug business. [698 D] 
lloperlal Tobacco· Cozpouy v. lelly, 25 Tax Casu 292, 
Cmnluiooer of Inc 
Tu: l!an=a Vo A.&.A. Cancem ll<o•MiD, 5 
I.T.R. 456 and Punjab Ccr-operat:be lllmk LU. v. Cmn!BBfC!l!er of 
~. 
Punjab, 8 I,T.R. 635 relied upon. 
3. The way in which antriea are made by the unaaee in it.a 
books of account ia not determinative of the question whether tbe 
aaseasee baa eat'll8d any profit or suffered any lose. The asaeaaee 
might, by lllBkiug entries which were not in conformity with the 
proper principles of accountancy, concealed profit or showed losa 
and the entries made by him could not, therefore, be regarded as 
concluaive one way or the other. (699 C-D) 
4, In this case, stock in trade of the aaseaeee was foreign 
exchange. From the statement• made it is evident thet there was 
excess realisation of the foreign excheuge in Indian rupee and 
the aasessee realised their value. Under s. 5 of the ~me Tu 
Act, 1961, .it would be, in case of an .assaeaae who was a 
ruident and ordinarily a 
resident of India, asaeHllble, !he 
aaaesBee showed this amount as appreciation on devaluation of the 
rupee. (697 G-i!) 
CIVIL APPELLATE JURISDiCTION : Civil Appeal No. 596 (NT) of 
1974. 
From the Judgment and Order dated 25.1.1973 of the Kerala 
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High Court in Income Tax Reference No. 31 of 1971, 
F 
T, s. 
l<rishnamoorthy 
Iyer 
and 
N. 
Sudhakaran for the 
Appellant. 
V. Gauri Shankar, K.c. Dua and Miss A. 
Subhashini for the 
Respondent. 
G 
The Judgment of the Court was delivered by 
SABYASACHI MUKHARJI, J. 
The 
original appellant Banlt of 
Cochin Ltd. has been amalgamated with the State Bank of India and 
on an oral application of the appellant for substitution and with 
the consent of the respondent, this application was allowed and 
H 
the amendment was directed to be effected. 
696 
SUPREME COURT REPORTS 
[1985] SUPP.3 s.c.R. 
A 
This appeal arises by special leave against the judgment 
and decision of the High Court of Kerala at Ernakulam dated 25th 
January, 1973 in Income Tax Reference No. 31 of 1971. 
The assessee, previously the Bank of Cochin Ltd., a banking 
company, as part of its banking busines·s, had been purchasing 
B 
cheques, payment orders, mail transfers, demand drafts, bills and 
other negotiable instrtunents drawn in foreign currencies and 
sometimes foreign currencies themselves from its clients. Titese 
foreign exchange assets were subsequently sold or encashed 
through 
the 
assessee 1 s 
correspondent-banks 
in the 
foreign 

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