Ratnavel Pandian, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Madras Bench 'B', Madras, has referred the following question of law for the opinion of this court.
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 16,534 is income liable to tax for the assessment year 1967-68 ?'
2. The assessee is an individual, and the assessment year under consideration is 1967-68. The return of income filed by the assessee had shown in para. 2 thereof an amount of Rs. 16,534 as 'surplus amount received' due to devaluation of amount due from parties. The assessee on May 11, 1965, placed an order with an American firm through Messrs. Gerdau India Corporation, 23/33, Sembudoss Street, Madras, for the supply of 80-82 Purity Pesticide known as 'Zinab' weighing 7.8 tons. The goods wereimported to the Madras Port in February, 1966, and the said goods were found to be sub-standard by the Madras Customs authorities, as a result of which the consignment was returned to the supplier in U.S.A. Out of the letter of credit opened with Canara Bank, Madras, for Rs. 30,000 on September 10, 1965, a sum of Rs. 24,300 being the actual value of the goods was remitted by the bank on June 8, 1966. As subsequently the goods were returned, the consignor refunded the amount in terms of dollars and the rupee equivalent was higher than the amount actually paid for by the assessee as devaluation had taken place in the meanwhile. The excess amount so received came to Rs. 16,534 which was the amount claimed to be exempted. The ITO disallowed the claim made by the assessee, holding that the claim of the assessee that the amount was not earned in the course of his business could not be accepted. Annexure A is the copy of order of the ITO.
3. Aggrieved by the order of the ITO, the assessee appealed to the AAC, who confirmed the order of the ITO by his order shown as annexure B. Thereafter, the assessee filed an appeal before the Tribunal, which also upheld the findings of the authorities below, holding that the amount of Rs. 16,534 was liable to tax for the assessment year 1967-68. Hence, this reference.
4. Mr. K. Srinivasan, learned counsel appearing for the assessee, would contend that the surplus income did not arise in the course of the business concerned, but it was the outcome of an entirely different transaction and as such the surplus received was not exigible to tax. In other words, the plea was that the amount so received was by way of refund and was only casual and non-recurring in nature and, therefore, it could not constitute a receipt from the business. In support of his contention, he relies on CIT v. Union Engineering Works : 105ITR311(Ker) . The facts of that case are : The assessee-firm carried on the business of manufacturing and selling tea-chest fittings and battery covers and for that purpose it imported tin sheets from London. Upon arrival of the goods, it was found that more than half of the quantity was rusty. The goods were insured with an insurance company at London and the assessee had entered into an agreement with the insurer whereby the latter had agreed to accept the rusty sheets on discount. In accordance with the said agreement, the insurer, issued a cheque drawn in favour of the assessee on a bank in London. Within a fortnight of the receipt of the cheque, the rupee was devalued and the assessee realised an excess amount of Rs. 13,455.75. The question arose whether the receipt of the excess amount was a casual and non-recurring receipt. A bench of the Kerala High Court upheld the order of the Tribunal that the amount was not a receipt arising from its business within the meaning of Section 10(3)(ii) of the I.T. Act, 1961 (hereinafterreferred to as 'the Act') and, therefore, was not exigible under the Act, observing thus (p. 314):
'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.'
5. Coming to the present case, the answer to the reference would depend only on the finding whether the amount was received by the assessee from an independent transaction different from the business carried on by him or whether the receipt of the income is only an integral part of the said business.
6. Mrs. Nalini Chidambaram, learned counsel for the revenue, would resist the contention of the assessee, urging that the receipt of the surplus amount shown in the return is part and parcel of the business run by the assessee and not a transaction entirely different from it. In support of her contention she would rely on two decisions of the Supreme Court, viz., CIT v. Tata Locomotive and Engineering Co. Ltd. : 60ITR405(SC) and CIT v. Canara Bank Ltd. : 63ITR328(SC) .
7. Under Section 10(3) of the Act, receipts which are of a casual and nonrecurring nature are exempt from taxation unless they are ; (1) capital gains chargeable under the provisions of Section 45, or (2) receipts arising from business or the exercise of a profession or occupation, or (3) receipts by way of addition to the remuneration of an employee. Section 2(13) of the Act defines 'business' as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Now, we have to examine whether the transaction constituting the receipt of the surplus amount represents part and parcel of the business within the meaning of Section 2(13) of the Act or not.
8. In the first case cited on behalf of the revenue, the assessee which was carrying on business in the manufacture of locomotive boilers and locomotives for purposes of this manufacturing activity, had to make purchases of plant and machinery in the U.S.A. With the sanction of the exchange control authorities it had remitted to its agent in U.S.A. $ 33,850 for the purpose of purchasing capital goods and other expenses. As selling agent of Baldwin Locomotive Works of U.S.A. for the sale of their products in India, the assessee incurred expenses on their behalf in India and also earned a commission of $36,123. With the sanction of the exchange control authorities, the amount paid by Baldwin Locomotive Works in reimbursement of the expenses and towards commission was retained withits agent in U.S.A. for the purchase of capital goods there. The pound sterling and with it the Indian rupee were devalued on September 16, 1949. Thereafter, the assessee found it more expensive to buy American goods and as the Government of India also imposed some restrictions on imports from the U.S.A., the assessee, with the permission of the Reserve Bank, repatriated $ 49,500. This resulted in a surplus and the ITO assessed it as profit arising to the assessee incidentally to its carrying on business. The Tribunal held that only that part of the surplus which was attributable to $ 36,123 received from Baldwin Locomotive Works was a trading profit. On a reference, the High Court held that the surplus attributable to $ 36,123 was an accretion to the assessee's fixed capital and was not liable to tax. On appeal, the Supreme Court held that the act of retaining the moneys in U.S.A. for capital purposes after obtaining the sanction of the Reserve Bank was not a trading transaction in the business of manufacture of locomotive boilers and locomotives, that it was clearly a transaction of accumulating dollars to pay for capital goods, the first step to the acquisition of capital goods, and that the surplus attributable to $ 36,123 was capital accretion and not profit taxable in the hands of the assessee. While holding so, the Supreme Court observed that if it were part of a trading transaction or itself a trading transaction, then any profit that would accrue would be a revenue receipt. In the instant case before us, the surplus amount was received by the assessee while receiving the refund of the value of the pesticides and, therefore, the receipt of the said amount was an integral part of the transaction of receiving the refund which constituted part of his business.
9. In the next case relied on viz., CIT v. Canara Bank Ltd. : 63ITR328(SC) , the Supreme Court observed that if by virtue of exchange operations, profits are made during the course of business and in connection with business trantactions, the excess receipts on account of conversion of one currency into another would be revenue receipts, though if the profits by virtue of exchange operations come to the assessee not by way of his business, the profits would be capital accretion. In the present case, there can be little doubt that the receipt of the surplus amount is the outcome of the business carried on by him.
10. In the case relied on by the assessee, viz., in CIT v. Union Engineering Works : 105ITR311(Ker) , the facts are entirely different from those in the present case. In that case, the goods were insured with the insurance company under an agreement in accordance with which the insurer issued a cheque drawn in favour of the assessee on a bank in London. The transaction of the insurance company in issuing the said cheque for damages to the insured, viz., the assessee, was entirely different from the main business of the asssssee and it was under those circumstances, this receipt was held not to be included in the receipts from the business within the meaning of Section 10(3)(ii) of the Act. Hence, we are unable to agree with Mr. K. Srinivasan that CIT v. Union Engineering Works : 105ITR311(Ker) would be applicable to the facts of the present case.
11. It may be noted here that the Kerala High Court in Bank of Cochin Ltd. v. CIT : 94ITR93(Ker) , which has been distinguished in Union Engineering Works' case : 105ITR311(Ker) , has held with reference to the facts therein, that the business of the assessee being a banking business and as a part of its banking business it was purchasing cheques, payment orders and mail transfers, demand drafts and other negotiable instruments drawn in foreign currencies, the sale proceeds of these would constitute trading receipts. 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 sale proceeds of the assets in which the assessee was dealing in the course of its business and in such circumstances it was held that there could be no doubt that the appreciation in value of all such assets represented trading receipts of the assessee and, therefore, constituted revenue receipts in its hand which were chargeable to income-tax.
12. From the foregoing discussions, we hold that the surplus amount of Rs. 16,354 received by the assessee due to devaluation is a receipt derived from an integral part of the business carried on by the assessee and as such the said income is exigible to tax. We, accordingly, answer the reference in the affirmative and against the assessee and in favour of the revenue. The revenue will be entitled to its costs. Counsel's fee Rs. 500.
13. A copy of this judgment under the signature of the Registrar and the seal of this court will be sent to the Appellate Tribunal.