K.S. Paripoornan, J.
1. The matter arises under the Gift-tax Act. The assessee is the applicant. The respondent is the Revenue. The matter relates to the assessment year 1969-70. The assessee, an individual, was having a proprietary business. On January 1, 1968, it was converted into a partnership firm. Three partners were inducted. The Gift-tax Officer held that there is a deemed gift since the right to future profits was surrendered to the extent of 70% to the incoming partners. This right was quantified by taking the average of the last four years' profit and taking two years' purchase price, amounting to Rs. 3,30,782. The assessment order is dated June 18, 1970. There was an appeal before the Appellate Assistant Commissioner. He upheld the levy of gift-tax. He entertained doubts regarding valuation. He ordered a remit on that score. There was a further appeal to the Appellate Tribunal. In the meanwhile, the Appellate Assistant Commissioner passed rectification proceedings on June 28, 1971. He held that the devaluation profits should be excluded. Finally, the Appellate Tribunal passed an order on February 28, 1973. It upheld the levy of gift-tax.Regarding the quantification, the Appellate Tribunal directed the Appellate Assistant Commissioner to dispose of the assessee's objections from all angles. After remit, the Appellate Assistant Commissioner held that the ' super profit should be multiplied by 2 to determine the taxable value of the gift. The assessee again appealed to the Appellate Tribunal. It was prayed that the devaluation profits, as a result of devaluation of Indian currency on June 6, 1966, should be deducted while computing the average profit from the business. By a reference to the profits of the various years 1964 to 1970, and by reference to accounts, the Appellate Tribunal found that on the day before the conversion of the business into a firm, the assessee's account showed a capital balance of nearly Rs. 11.5 lakhs. The plea of the assessee was to exclude the devaluation profits in the two accounting years 1966 and 1967, totalling to Rs. 14'22 lakhs, from the total of the four years' profits of Rs. 18.6 lakhs. It was so deducted on the basis that the devaluation profits are in the nature of a windfall and not ordinary profits and it is only the ordinary profits which should be taken into account for the purpose of quantifying the value of goodwill. The Appellate Tribunal, after adverting to the devaluation of Indian currency on June 6, 1966, and the principles of accountancy, held that there is nothing exceptional in the instant case by the devaluation. The devaluation permeates every transaction after June 6, 1966. It is akin to a sudden spurt in selling price which is maintained. It was held that the profits of the business had been maintained at a high level even after devaluation and so, on facts, the Appellate Tribunal did not find a case for treating the change in the exchange rate as an extraordinary circumstance leading to profits. On merits, regarding quantification, it was limited to one year's purchase price. The assessee filed an application for referring a question of law which arose out of the appellate order. It was rejected. This court was moved in O.P. No. 1715 of 1978-D. In pursuance of the directions of this court, the following question of law has been referred by the Appellate Tribunal for the decision of this court:
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the claim of the assessee to deduct ' the devaluation profits' from the total value of the ' deemed gift' is not sustainable in law '
2. Counsel for the applicant contended that the devaluation profits are in the nature of a windfall and so it should not have been reckoned in the matter of arriving at real profits which in turn should be reckoned for valuing the goodwill. After reference to the devaluation of Indian currency on June 6, 1966, and keeping in mind the principles of accountancy,the Appellate Tribunal held that the devaluation applies to every transaction after June 6, 1966, and there is nothing exceptional in the matter. The Appellate Tribunal also held that they do not find a case for treating the change in the exchange rate as an extraordinary circumstance leading to profits. Ordinarily, this is a question of fact. This has not been challenged by the assessed.
3. In answering the question referred to us, we will have to proceed on the basis that the change in the exchange rate is not an extraordinary circumstance leading to profits and whether, on that basis, the Appellate Tribunal is right in holding that the claim of the assessee to deduct the devaluation profits from the total value of the deemed gifts is not sustain-able. On the basis of the finding entered by the Appellate Tribunal, we have to hold that the Appellate Tribunal was right in holding that the devaluation profits need not be deducted from the total value of the 'deemed gift'.
4. Even otherwise, the assessee's plea should fail. Broadly stated, the devaluation profit is an unexpected phenomenon. It is not peculiar. In this case, the effect of the said devaluation continued even for subsequent years. The income which arose as a consequence of the devaluation is really a trading profit. It represents part of the sale proceeds. For the goods supplied, the assessee got an appreciated value. It cannot be denied that it is part of the trading profit in the hands of the assessee. In this view of the matter, we are unable to accept the plea of the assessee that the devaluation profits should not be reckoned for the purpose of fixing the total value of the deemed gift.
5. We answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue.
6. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Tribunal as required by law.