1. The following are the questions which have been referred by the Appellate Tribunal under Section 256(1) of the I.T. Act, 1961.
' 1. Whether the Tribunal was right in holding that the official rate of exchange set out in rule 115 of the Income-tax Rules, 1962, alone should be adopted
2. If the answer to question No. 1 is in the negative, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was justified in adopting the value equivalent to Indian rupee for the value of the income in Ceylon at the official rate of exchange '
2. In the other tax cases heard along with this case, namely, T.C. Nos. 391 and 392 of 1975, the questions of law referred in those cases are identical and, therefore, they need not be re-produced. For our present purpose, it is enough to set out the facts in the case of the assessee in T.C. No. 364 of 1975, as there is no dispute that the facts in the connected cases are similar. The assessee, an individual, had income in India as well as in Ceylon. While accepting the return for the assessment year 1969-70, the ITO converted the Ceylon rupees into Indian currency by adopting the official exchange rate of 1 Ceylon rupee as equivalent to 1.2658 Indian rupees. The income so earned in Ceylon in the relevant year was Rs. 10,311 and the converted amount came to Rs. 13,051. Similarly, for the assessment year 1970-71, the Ceylon income was Rs. 10,782 and after converting into Indian rupees, the amount came to Rs. 13,648. The ITO adopted the sum of Rs. 13,051 and Rs. 13,648 and brought them to tax. On appeal, the AAC confirmed the assessments for the two years. The assessee appealed to the Tribunal. The Tribunal also upheld the findings of the income-tax authorities. It is against this order of the Tribunal that the questions already extracted have been referred.
3. The first question contains an expression ' official rate of exchange '. What the Tribunal appears to have contemplated is the rate of exchange as provided in Rule 115 of the I.T. Rules, 1962, The second question is not quite intelligible. But the learned counsel for the assessee submitted that in case the first question is answered in favour of the revenue, then the second question may not arise for consideration. We would, therefore, reserve the consideration of refraining the second question after answering the first question.
4. The assessee, having earned his income in Ceylon and being liable to be taxed in India, has necessarily to pay tax in Indian rupees. In order to arrive at the total income in India, the income earned in Ceylon willhave to be converted into Indian rupees. For this purpose, during the relevant years, Rule 115, as in force, ran as follows :
' The rates of exchange for the calculation of the value in rupees of any income shall be as follows:--
(a) in respect of income accruing or arising or deemed to accrue or arise to the assessee or received or deemed to be received by him or on his behalf before the 6th day of June, 1966--
(i) 1 sh. 6 d. = Re. 1;
(ii) U.S. $ 1 = Rs. 4.762;
(b) in respect of income accruing or arising or deemed to accrue or arise to the assessee or received or deemed to be received by him or on his behalf on or after the 6th day of June, 1966--
(1) where such income accrues or arises or is deemed to accrue or arise to the assessee or is received or deemed to be received by him or on his behalf--
(i) before the 19th day of November, 1967,
1 sterling = Rs. 21.00;
(ii) after the 18th day of November, 1967,
1 sterling = Rs. 18.00
(2) U.S.$ 1 = Rs. 7.50.'
5. The present case falls under Clause (b)(1)(ii). The learned counsel for the assessee submitted that this rule is applicable only to the income earned either in a country with a sterling currency or in a country with a dollar currency, i.e., either in Great Britain or U.S. and that the rule would not apply to the conversion of income earned in any other country. His further submission was that if Rule 115 did not apply, then the Exchange Control Regulations would apply so as to convert the income at the rate of exchange prevailing on the last day of the previous year. His point was that the assessee has to be taxed only on the real income and not on any notional income based on a formula which does not correspond to the facts.
6. We are unable to agree with these submissions. Rule 115 opens with the words ' The rate of exchange for the calculation of the value in rupees of any income '. The word ' any ' underlined by us would clearly show that it deals with the income earned in any place and liable to be taxed in India. The attempt of the learned counsel for the assessee was to show that this expression 'any income' would refer only to the source of income and not to the place of origin. The language of the rule does not appear to suggest this construction. The rule-making authority was to make a rule in order to provide for the conversion of income earned in any foreign currency. The idea was to fix a rough and ready method so thatthe ITO had not to hunt for himself the prevailing exchange rates of different currencies in relation to the Indian currency at different points of time. Subsequently, this rule itself has been changed and under the amended rule it was provided :
' The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date.'
7. In Explanation 2 to the same rule, ' specified date ' has been defined as meaning ' in respect of salaries, the last day of the month immediately preceding the month in which the salary is due and in respect of income from business or income from other sources, the last day of the previous year of the assessee '. An elaborate provision has been made with reference to various heads of income under Explanation 2. It is unnecessary to refer to the other provisions in Explanation 2 relating to the other heads of income. What the learned counsel for the assessee attempts in the present case is to practically apply this rule with retrospective effect to the income earned in the relevant years under consideration even though the rule which was applicable to these years was differently worded. A rule is not ordinarily to be applied retrospectively and so long as Rule 115 provided for a rough and ready rate of exchange of conversion, it will not be open to any one to apply a rule which subsequently came into force. The validity of the rule is not also questioned.
8. Learned counsel drew our attention to a decision of this court in thecase of S. Abdul Rahman v. CWT, in T.C. No. 49 of 1975, in the judgmentdated April 11, 1978 (since reported in : 117ITR570(Mad) . That was acase under the W.T. Act and the foreign assets were converted into Indianrupees. This court held that the foreign assets would have to be convertedinto Indian rupees at the prevailing rate of exchange as on the date ofvaluation and this was done only because of the absence of any rule similarto Rule 115 under the W.T. Act. Therefore, this decision would not be of anyassistance to determine the points now in issue.
9. If really the contention of the learned counsel for the assessee were to be accepted, then the rule-making authority would seem to have framed a rough and ready method for the calculation of exchange rate only to income earned in sterling or dollar currency and would have left the matter for determination of the rate of exchange with reference to other currency in a nebulous state. The rule-making authority, it must be remembered, was interested in providing for the rate of conversion with reference to all income earned in foreign currency and not with reference to income earned only in certain particular currencies. There is particularly no reason whythe rule-making authority should have singled out the sterling and the dollar currency for the purpose of rule making and left out the other currencies. The result is that the first question is answered in the affirmative and in favour of the revenue. In this view, we find it unnecessary to go into the second question at all. The revenue will be entitled to its costs. Counsel's fee Rs. 500 (one set).