1. Since a common question of law arises for consideration in these two cases they are disposed of by this common judgment.
2. I.T.R.C. No. 7 of 1975 relates to the assessment year 1967-68 and I.T.R.C. No. 8 of 1975 relates to the assessment year 1970-71.
3. The assessee in these tow cases is the State Bank of Mysore, Bangalore, In the course of its business the assessee held certain sums in foreign currencies in various banks situated abroad for the purposes of making payment to foreign concerns on behalf of its clients in India.
4. On June 6,1966, the Indian rupee was devalued and as a consequence of such devaluation the amount held by the assesee in foreign currencies outside and India became appreciated in terms of rupees by Rs. 3,20,823. Due to revaluation of the france and deutschmark in 1969, there was again appreciation of the amounts held by the assessee in foreign currencies abroad in terms of Indian currency by Rs. 14,127.
5. The Income-tax officer held that the sum of Rs. 3,20,823 referred to above was income liable to tax for the assessment year 1967-68 and the sum of Rs. 14,127 was liable to tax for the assessment year 1970-71. The appeals filed by the assessee against the said orders of the Income-tax Officer before the Appellate Assistant Commissioner of Income-tax and the Income-tax Appellate Tribunal, Bangalore Bench, were unsuccessful. At the instance of the assessee, the following questions have been referred to this court :
'(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 3,20,823, is liable to tax for the assessment year 1967-68 and
(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 14,127 is liable to tax for the assessment year 1970-71 ?'
6. The facts found by the Tribunal in the cases are :
(i) That the foreign bank balances of the assesses bank represented its stock-in-trade.
(ii) There was an appreciation in value in terms of the rupees, of the balances due to the devaluation of the rupee in 1966, and revaluation of the franc and the deutschmark in 1969.
(iii) That by making payments out of its foreign bank balances (which had been acquired at lower rates of exchange) and realising from its clients the rupee equivalent of such payments (at the post-revaluation rates) the assessee actually realised the amounts of such appreciations, and
(iv) that the holding of the foreign bank balances and the related transactions were incidental to the assessee's banking business.
7. On the basis of the above facts the Tribunal has found that the amounts in question constituted part of income and were liable to tax. We do not think that there is any error in the decision of the Tribunal. The Tribunal's view is in accordance with the principles enunciated by the Supreme Court in Commissioner of Income-tax v. Canara Bank Ltd. : 63ITR328(SC) .
'The question involved in this appeal is whether the profit of the bank on account of fluctuation of exchange arose in the course of trading operations of the bank of whether it was incidental to any such trading operation, If by virtue of exchange operations profits are made during the course of business and in connection with business transactions, the excess receipts on account of conversion of one currency into another would be revenue receipts. But if the profit, by exchange operations comes in, not by way of business of the bank, the profit would be capital profit.'
8. It is not disputed that there was no freezing of the foreign currencies in question at the time of devaluation or revaluation as the case may be, and that the assessee was free to convert the foreign currencies into rupees if it desired to do so. In fact, it is found that the assessee had utilised its bank balances in foreign countries during the relevant period to make payments in foreign currencies on behalf of its clients and, in turn, it had been paid in India by its clients in rupees at the revised rates of exchange. The sums in question, therefore, amount to profits made by the assessee in the course of its business.
9. In these circusmtances, the questions referred to us in these two cases have to be answered in the affirmative and in favour of the department. The department is entitled to cists. Advocate's fee Rs. 250, one set.