Karnataka High Court
Jayakumari And Dilharkumari ... vs Commissoner Of Income-Tax (No. 1) on 3 March, 1986
Equivalent citations: [1987]165ITR787(KAR), [1987]165ITR787(KARN)
JUDGMENT
Jagannatha Shetty, Actg. C.J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following five questions :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the assessment made by the Income-tax Officer on the assessees under section 168 of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that both the instalment of principal amount and interest on annuity deposit are taxable under the provisions of the Income-tax Act, 1961 ?
(3) If the answer to the above second question is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the proportionate estate duty payable on the annuity deposit is not deductible from the annuity deposit assessable as income ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim for deduction of the devaluation loss of Rs. 1,67,863 ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the alternative plea of the appellants that the devaluation loss could be split into capital and revenue and treated as such in setting them off against capital gains and income of the assessee ?"
2. So far as the first three questions are concerned, the answers rendered by this court in I.T.R.C. No. 15 of 1981 [Jayakumari and Dilharkumari v. CIT (No. 2) [1987] 165 ITR 791 (kar) (infra)] which is between the same parties would cover the said questions. There, we have answered the said questions in the affirmative and against the assessee. Similar answers should follow in these questions also.
3. For answering the remaining two questions, we have to set out a few facts.
4. During the accounting year in question, the assessee transferred to India pound 1,50,000 from the account held in Lloyd's Bank, London, to the account in a bank in India. The exchange rate then was Rs. 18 per pound. Prior to November, 1967, the exchange rate was Rs. 21 per pound. Prior to November, 1967, a total sum of pound 32, 932 was there in the Lloyd's Bank account in London. Consequent on the fall in the exchange rate, there was a loss to the assessee of Rs. 3 per pound. The assessee claimed that the loss should be allowed as deduction while computing the total income for the year in question. The sources of income are from "Property" and from "other sources". The said loss was claimed as a deduction against the income from the head "other sources". The Tribunal has rejected that claim. It has observed that the assessee was not holding the money in London as a trader and, therefore, the loss occasioned by fluctuation in the currency rate cannot be allowed as a trade or any other loss while computing the taxable income.
5. In the alternative it was urged for the assessee, that the money lying in the bank at London was a capital asset and it was exchanged into Indian currency and the loss occasioned due to that exchange should be considered as a loss within the meaning of section 2(47) of the Income-tax Act, 1961. The Tribunal has not specifically dealt with that question although it has been properly considered and negatived by the Appellate Assistant Commissioner.
6. We will take up the last question first for consideration. The "transfer" contemplated under section 2(47) of the Income-tax Act envisages, no doubt, sale, exchange or relinquishment of the asset, etc. But mere conversion of one currency into another currency cannot be considered as "exchange". The exchange in the context must mean transfer of one capital asset for another capital asset. Like a sale, it requires two persons. There cannot be a sale to oneself. So too in the case of exchange. In the first place, the ownership of the money remained with the assessee even after the exchange in the first place. Secondly, it was just a conversion of one kind of currency into another kind in the normal course and not connected with any business. Such a conversion, in our opinion, can never be considered as exchange within the meaning of section 2(47) of the Income-tax Act, 1961.
7. As to the other question, whether the assessee has a right to claim deduction of devaluation loss of Rs. 1,67,863, suffice it to state that that has not been claimed as a revenue loss connected with any business. Admittedly that was claimed against "Other sources" of income envisaged under section 56 read with section 57(iii). For the purpose of claiming deduction under section 57(iii), it must be an expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. Obviously, the assessee has not been able to show that the amount claimed as deduction was laid out or expended for the purpose of making or earning the income. If it is not an expenditure laid out for that purpose, it cannot fall under section 57(iii).
8. In any event, the loss occasioned by the exchange of currencies upon remittance unconnected with the trading activity, as it is in the present case, cannot be considered as an expenditure at all.
9. In the result, we answer questions Nos. (4) and (5) also in the affirmative and against the assessee.
10. In the circumstances, we make no order as to costs.