Kochu Thommen, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has, at the instance of the department, referred to us the following question :
'Whether, on the facts and in the circumstances of the case, the amount of Rs. 13,455.75 received by the assessee is a receipt arising fromits business within the meaning of Section 10(3) of the Income-tax Act, 1961 ?'
2. The assessee-firm carries on the business of manufacturing and selling tea-chest fittings and battery covers. The reference case relates to the assessment year 1968-69. For the accounting year relevant to the said assessment year, the assessee had shown a sum of Rs. 13,455.75 in its profit and loss account as 'profit on devaluation'. The question that arises in this case -is whether the claim of the assessee that this amount represented a casual and non-recurring receipt coming within the scope of Section 10(3) of the Income-tax Act, as it stood at the relevant time, can be accepted.
3. The assessee imported 57,694 tonnes of tin sheets from London. These tin sheets were imported for the purpose of manufacturing tea-chests. Upon the arrival of the goods at Quilon, it was found that a quantity of 37,140 tonnes of tin sheets was rusty varying between 40% and 100% and these sheets had become unfit for the purpose , of making tea-chests. The goods were insured with an insurance company in London. It was agreed between the assessee and the insurer that the assessee would accept the partly rusty sheets at 40% discount and the completely rusty sheets at 50% discount. In accordance with this agreement, the assessee submitted a bill to the insurer on December 9, 1965, claiming a sum of Rs. 32,920. The insurer after deducting certain charges from the claim bill, issued a cheque for 1,762 10 sh. This cheque was drawn in favour of the assessee on the Westminster Bank Ltd., London, and it was forwarded to the assessee under cover of a letter dated May 16, 1966. The assessee received the cheque on May 26, 1966. On June 6, 1966, the Indian rupee was devalued. Subsequently, the cheque was deposited by the assessee for collection with the State Bank of India at Quilon and the bank credited the cheque to the account of the assessee on June 27, 1966. The bank duly collected the cheque and credited its proceeds of Rs. 36,857.21 to the account of the assessee on January 21, 1967. On account of the devaluation the assessee realised an excess amount of Rs. 13,455-75 which formed part of the total amount realised.
4. The assessee contended before the Income-tax Officer that this sum of Rs. 13,455.75 was of a casual and non-recurring nature and that it was not, therefore, liable to be included in its total income as per Section 10(3) of the Income-tax Act. The claim of the assessee was rejected by the officer by his order dated March 23, 1970. He held that the excess amount formed part of the receipts arising from the assessee's business transactions and, therefore, it could not be considered to be a mere casual gain. This order was confirmed on appeal by the Appellate Assistant Commissioner. The appellant filed an appeal before the Appellate Tribunal, Cochin Bench. Allowing the appeal the Tribunal held :
'The transaction had thus been completed and there was nothing more to be done in pursuance thereof. In these circumstances, we are of opinion that the profit of Rs. 13,455.75 got by the appellant on account of devaluation by reason of the above cheque being realised subsequent to the devaluation cannot be said to be a receipt arising from its business.' The Tribunal further observed that it was admitted both by the assessee and the department that the excess amount received by the company was rot capital gains.
Section 10 of the Income-tax Act, as it stood during the relevant period, enumerated the incomes which are to be excluded in computing the total income of an assessee. It says :
' In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--...
(3) any receipts which are of a casual and non-recurring nature, unless they are--
(i) capital gains, chargeable under the provisions of Section 45 ; or
(ii) receipts arising from business or the exercise of a profession or occupation; or
(iii) receipts by way of addition to the remuneration of an employee...'
5. Counsel for the department contended that the excess amount of Rs. 13,455.75 which arose as a result of devaluation had been received by the assessee in the course of trade and was, therefore, a trading profit, in other words 'receipts arising from business', which is liable to be included in computing the total income of the assessee. He relied upon two Division Bench decisions of this court in Shamsuddin (M.) & Company v. Commissioner of Income-tax, : 90ITR323(Ker) and Bank of Cochin Ltd. v. Commissioner of Income-tax, : 94ITR93(Ker) . According to him, the present case is covered by these two decisions and the Tribunal was, therefore, wrong in holding that the excess amount was not chargeable to income-tax.
6. In the present case the cheque was received by the assessee from theinsurers as compensation for goods damaged in transit. The facts of thecase in Shamsuddin (M.) & Company v. Commissioner of Income-tax, : 90ITR323(Ker) are notsimilar. In that case the amount received represented the sale consideration of the goods in respect of which the assessee was carrying on a trade.It was therefore held by this court that the excess amount received by theassessee as a result of a devaluation was a receipt arising from business,and consequently a trading receipt, which was liable to be assessed as atrading profit. In Bank of Cochin Ltd, v. Commissioner of Income-tax, : 94ITR93(Ker) theassessee was a bank dealing in foreign exchange. As part of its bankingbusiness it purchased cheques, payment orders, mail transfers, demand drafts, bills and other negotiable instruments drawn in foreign currencies. This court, therefore, observed that the sale proceeds of the assets constituted trading receipt. The claim of the bank that the excess realisation on devaluation was in the nature of a windfall and that it was unconnected with its business was not accepted by this court. It was held, : 94ITR93(Ker) :
'Consequent on the devaluation of the Indian rupee, the amount receivable by the assessee appreciated in. value, and this represented an appreciation in the value of the sale proceeds of the assets in which the assessee was dealing in the course of its business. There could, therefore, be no doubt that the appreciation in value of all such assets represented part of the trading receipts of the assesses and, therefore, constituted revenue receipts in his hands.'
7. As observed by this court, the bank was dealing in foreign exchange. Any profits arising from such business as a result of devaluation naturally fell within Sub-clause (ii) of Sub-section (3) of Section 10, thereby losing the character of a mere casual and non-recurring receipt which would be excluded from the computation of total income.
8. In the instant case, the excess profit, as found by the Tribunal, was not a receipt arising from business; nor was it, as admitted on both sides, capital gains. This was part of the compensation received by the assessee from the insurer for damage caused to its goods. The claim for compensation for damage caused to the goods had been settled with the insurer and the sum so settled did not include any excess profit. The excess profit arose entirely due to the devaluation. This excess amount was in the nature of a windfall, being the unexpected fruit of devaluation, and it cannot, therefore, be regarded as a receipt arising from business though it may be said in a sense to be a receipt in the course of business. We hold that the Tribunal had correctly held that the sum of Rs. 13,455'75 received by the assessee was not a receipt arising from its business within the meaning of Section 10(3)(ii) of the Income-tax Act, 1961.
9. For the reasons stated above, we answer the question referred to us in the negative and in favour of the assessee.
10. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal, Cochin Bench.