HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Bombay City v. Tata Locomotive & Engineering Co. Ltd.
Civil Appeal No. 236 of 1965
[1966] 3 SCR 235 ·
Indian Income-tax Act, 1922: capital-versus-revenue receipt principles
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by S. M. Sikri, J. · K. Subba Rao, J. · J. C. Shah, J. · S. M. Sikri, J.
Assessment years: Accounting year ending 31 March 1950
01 · Facts of the case
Commission from a US manufacturer was taxable as revenue when earned, but with Reserve Bank approval the assessee retained the dollars with its New York purchasing agent solely to buy plant and machinery. Sterling devaluation increased the rupee value; import constraints later led to repatriation (SCR pp.235-239; PDF pp.1-5).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The relevant inquiry was the character of the later holding transaction. Retaining the dollars for capital goods was independent of the commission-earning trade and was the first step toward acquiring capital assets. Repatriating first and remitting again would not have changed that character, so the exchange gain was capital (SCR pp.239-241; PDF pp.5-7).
Source: Primary judgment: discussion
03 · Judicial decision
The Court affirmed the High Court's negative answers and dismissed Revenue's appeal with costs (SCR p.241; PDF p.7).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of the assessee: the rupee surplus on the $36,123.02 capital-purpose balance was not taxable revenue profit (SCR pp.240-241; PDF pp.6-7).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: identify when a foreign-currency balance is converted from trading use to a documented capital purpose. Current foreign-currency tax rules, accounting standards and statutory deeming provisions need fresh analysis (based on SCR pp.240-241; PDF pp.6-7).
Source: Primary judgment: review point
Source & verification
Download original judgment / order · Open cited source rendition
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Statutory scope
The decision applies historical capital/revenue principles to pre-liberalisation exchange controls; current foreign-exchange and computation rules were not checked.
Later treatment
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