Sabyasachi Mukharji, J.
1. This reference under Section 256(1) of the I.T. Act, 1961, relates to the assessment year 1967-68. Only one question has been referred to this court for answer. The question is as follows :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 13,02,495 represented revenue loss accruing to the assessee during the previous year relevant to the assessment year 1967-68 in consequence of devaluation of the rupee on June 6, 1966?'
2. The assessee is a non-resident company having its head office at Belgrade, Yugoslavia, and the relevant assessment year is 1967-68 for which the previous year ended on 31st December, 1966. In the said assessment, the assessee had claimed devaluation loss of Rs. 14,55,970 representing depreciation in the value of the rupee in terms of Yugoslavia dinars on the 6th June, 1966, The amount was calculated with reference to the credit balance of the head office with the Indian branch and represented the difference between dinars and Indian rupee on conversion as on the 5th May, 1966, and the 6th June, 1966. In the assessment, this deduction was considered by the ITO, who was of the view that the loss debit-able to the head office could be claimed only at the time when the circulating capital was remitted from India to Yugoslavia and that as the remittances of the amounts due to the head office were made during January and March, 1968, the loss could not be considered in the assessment for the year 1967-68. Therefore, we have a finding which does not seem to have been altered by the Tribunal that the amount due to the head office fromthe Calcutta office was remitted in January to March, 1968, that is, beyond or subsequent to the relevant assessment year. The ITO was also of the view that the projects having been completed before the devaluation, there could be no expenses in respect of which the devaluation loss could be claimed and that the expenses subsequent to the devaluation would be debited at the next rate of exchange and there would be no question of devaluation loss in their cases. He also said in his order of assessment that the assessee should be considered as one unit, and therefore, there could be no question of loss on devaluation in respect of the liability of a branch to the head office of the same assessee, as any such loss, according to the ITO, would be on account of capital invested and not a revenue loss.
3. Being aggrieved, the assessee went up in appeal before the AAC and contended that the devaluation loss must be allowed ia the assessment for the assessment year 1967-68, when it was incurred, if not, in the year 1969-70, at least when the remittances were made. The AAC in his order for the year 1967-68 held that the notional loss which was arrived at on the 6th June, 1966, could not be a revenue loss, as, according to him, the current account maintained by the head office with the Indian branch represented the capital employed in India. The AAC was of the view that the head office and branch office could not be considered to be separate entities and as a person could not make a profit or loss out of himself the loss on account of devaluation was relatable to capital invested and not revenue loss at all. The AAC also held that the company did not repatriate the circulating capital and it was not a trading expense.
4. The assessee thereafter went up in appeal before the Tribunal. The Tribunal considered that the assessee was entitled to deduct the loss arising on account of devaluation in the assessment for the assessment year 1967-68, and gave its reasons. It would be better, in our opinion, to refer to the Tribunal's own order in rejecting the revenue's contention. The Tribunal observed as follows :
'The assessee had brought funds from Yugoslavia for the purpose of its business in India. On June 5, 1966, it had Rs. 2,532,121.89 equivalent to 6,646,819.96 dinars. On June 6, 1966, came the devaluation of the rupee and consequently the rupees on hand would fetch much less amount of dinars at the new rate of exchange. As the assessee followed the mercantile system of accounting it had to revalue its circulating capital at a lesser figure in dinars. That naturally amounts to a loss. The loss arose out of devaluation and does not depend upon actual remittance because the rupees on hand have become reduced in value in terms of dinars and the assessee can only remit (sic) it could have on June 5, 1966, back to its head office. In other words, its funds in terms of dinars have been depleted by reason of the devaluation of the rupee. If the assessee should make up that deficit it cannot but transfer an amount equal to the reduction in value from out of its profits. The assessing authorities have made a point that the assessee is one single legal entity and its head office and branches cannot be considered separately. But they have failed to push the logic to the right conclusion. The assessee being one entity, it is not possible to keep in mind (sic) its funds in rupees and ignore its funds valued in dinars at the head office accounts. It has to be viewed as a foreigner having funds from Yugoslavia for use in Indian business converted in rupees for the business but eventually to be accounted for at all material times in dinars. Viewed in that light it cannot be gainsaid that there was a reduction in the value of the funds held by the assessee in India and that amounts to a loss on account of devaluation.'
5. Thereafter the Tribunal discussed the various authorities and also noted that the assessee had retained the circulating capital employed in the relevant projects after the completion of those projects for the purpose of continuing its other projects, and it could not be denied, in view of certain figures, which the Tribunal noted, that it was so, and the funds were not kept idle or blocked. The Tribunal was of the view that whatever funds remained unpaid on the 6th June, 1966, was the circulating capital of the assessee in India and, therefore, it was of the view that the funds in question was circulating capital and the depreciation in its value on account of devaluation was a trading loss. The Tribunal was of the view that the circulating capital held in rupees in India had depleted in terms of dinar so that, after devaluation, the assessee could not repatriate what it had brought into the business; it was also reflected in the accounts of the assessee. Such a loss could not be made up unless an equal sum was taken out of the profit or by way of its automatic reduction in terms of the dinar. Therefore, the Tribunal was of the view that the assessee had suffered a loss of Rs. 13,02,494.71 on account of the devaluation of the rupee and, as such, the loss arose out of the business of the assessee in India and it must be deducted in computing the profits of its business in India. As mentioned hereinbefore, on the aforesaid facts, the question as indicated before has been referred to us.
6. Before we go to discuss this question, it would be necessary to refer to the provisions of the section which defines the scope of the total income of the assessee and for our present purpose Sub-section (2) of Section 5 of the said Act is relevant, which reads as follows :
' 5. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which-
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.--Income accruing or arising outside India shall not be deemed to be received ia India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India.
Explanation 2.---For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. '
7. It has to be borne in mind as indicated before that Expln. 1 clarifies that the income accruing or arising outside India shall not be deemed to be received in India within the meaning of the section by reason only of the fact that it was taken into the balance-sheet prepared in India. Now, it is apparent from the facts found by the Tribunal that there was a devaluation on a particular date falling within the relevant assessment year with which we are concerned, namely, 1967-1968. As a result of such devaluation the value of dinars which was originally brought, from Yugoslavia was depleted. This amount which had been brought from Yugoslavia for use in the business of the assessee represented circulating capital. This point is also not in dispute. It is also relevant that for assessment in India, in computing the income, the loss has to be taken into account and such a loss has to be computed by taking into consideration the value of the stock-in-trade as well as the circulating capital. But the question here is, when such circulating capital is employed in the business in India and is not repatriated to the country from which such circulating capital had been brought, and, as a result of which the amount to be repatriated in foreign currency, originally brought, was not lost in terms of the Indian rupee, in such a case, can that amount be said to be a loss which was deductible in computing the income of the assessee in the year in question The Tribunal has referred to the fact that the assessee has to be viewed as a foreigner, having converted, the funds from Yugoslavia, for use in the Indian business, into rupees for the business. But the Tribunal has noted that eventually the rupees for the use in the business had to be accounted for at all material times in dinars. The material question, therefore, is, in a situation like this, when a loss or gain accrues or arises to an assessee because of revaluation or devaluation of currency, to which year would that loss or gain be attributable. Whether it should be in the year in which such devaluation takes place or in the year in which repatriation is made to the original currency in which the money is repatriated either to the foreign country or brought back from the foreign country. On thisprecise question we do not find any direct authority though we shall presently note some of the authorities cited before us.
7. Our attention was drawn to the decision in the case of Imperial Tobacco Co. v. Kelly  25 TC 292. There the assessee had carried on a business of tobacco manufacture for which large quantities of tobacco leaf were purchased in the United States where the company maintained a large buying organisation. To finance the purchases and the expenses of this organisation the assessee bought dollars in the United Kingdom through its bankers who remitted them to the banking accounts of the company in the United States and it was the practice of the company to accumulate a large holding of dollars each year before the leaf season commenced. The company never bought dollars for the purpose of resale as a speculation. On the outbreak of war in September, 1939, the asses-see-company, at the request of the Treasury, stopped all further purchases of tobacco leaf in the United States and, as a result, the assessee had on hand a holding of dollars which had been accumulated between January and August, 1939. Oa 30th September, 1959, the company was required under the Defence (Finance) Regulations, 1939, of England, to sell its surplus dollars to the Treasury and owing to the rise, which had occurred in the dollar exchange, the sale resulted in a profit for the company. This profit was included in the assessment upon the company to income-tax under Schedule D, Case I, and to the national defence contribution of England. On appeal to the Special Commissioners, the assessee had contended that in the events which had happened, the profit was a realised appreciation of a temporary investment in foreign currency and not a profit of its trade. The Commissioners, found that the profit from the sale of dollars to the Treasury had been correctly brought into the computation of the profits of the company's trade, and dismissed the appeal. It was held that the profit made by the assessee on the compulsory sale of surplus dollars to the Treasury must be included in the computation of the profits of its trade for income-tax and national defence contribution purposes. It has to be borne in mind that in this case the appreciation had been brought to tax in the year in which the conversion took place. In the said decision, at p. 300, Lord Greene M.R, observed as follows:
' We have here a finding of fact as to the purpose for which the dollars were bought. The purchase of the dollars was the first step in carrying out an intended commercial transaction, namely, the purchase of tobacco leaf. The dollars were bought in contemplation of that and nothing else. The purchase on the facts found was, as I say, a first step in the carrying out of a commercial transaction, which would be completed by the purchase and delivery of the leaf and payment of the dollar purchase price for it.
We must decide this case having regard to the facts as found. In the light of those facts, the acquisition of these dollars cannot be regarded as colourless. They were an essential part of a contemplated commercial operation.
That being so what is the true analysis of the position A manufacturer has provided himself with a commodity, namely, dollars. I call dollars a ' commodity ' not for the reason that they are not currency in this country but because they have a characteristic which is common to other commodities, and is not shared by sterling, namely, that their value from day to day varies in terms of sterling, just in the same way as coal, or bricks, or anything else may do.
The appellant-company having provided themselves with this particular commodity, which they proposed to exchange for leaf tobacco, their contemplated transactions became impossible of performance, or were not in fact performed. They then realised the commodity which had become surplus to their requirements. When I say ' surplus to their requirements ', I mean surplus to their requirements for the purpose and the only purpose for which the dollars were acquired.
In these circumstances, they sell this surplus stock of dollars ; and it seems to me quite impossible to say that the dollars have lost the revenue characteristic which attached to them when they were originally bought, and in some mysterious way have acquired a capital character. In my opinion, it does not make any difference that the contemplated purchases were stopped by the operation of Treasury or governmental orders, if that were the case; nor is the case affected by the fact that the purchase was under a Treasury requisition and was not a voluntary one. It would be a fantastic result, supposing the company had been able voluntarily, at its own free will, to sell those surplus dollars, if in that case the resulting profit should be regarded as income, whereas if the sale were a compulsory one the resulting profit would be capital. That is a distinction which, in my opinion, cannot, possibly be made.
To reduce the matter to its simplest elements a the appellant, company has sold a surplus stock of dollars which it had acquired for the purpose of effecting a transaction on revenue account. If the transaction is regarded in that light, it seems to me it is precisely on all fours with the case of any trader who, having acquired commodities for the purpose of carrying out a contract, which falls under the head of revenue for the purpose of assessment under Schedule D, Case I, then finds that he has bought more than he ultimately needs and proceeds to sell the surplus. In that case it could not be suggested that the profit so made was anything but income. It had an income character impressed upon it from the very first. '
8. In the instant case, however, we are not really concerned with this question.
9. Our attention was drawn to the decision in the case of CIT v. Mogul Line Ltd. : 46ITR590(Bom) , where the Division Bench of the Bombay High Court observed that if foreign fund of the assessee was allowed to remain unused where it lay, the mere circumstance that there had been a fluctuation in the currency resulting in an appreciation of the fund in terms of the coin of another country would not result in a profit to the owner of the fund. But if the fund was utilised in the course of business for a trading purpose there would be a realisation of profit arising on the devaluation and the profit would be taxable. If, on the other hand, the fund was not utilised for a business operation or for the purpose of trade, but for a non-business operation, like payment of income-tax in the foreign country there was no profit and the difference in exchange value could not be assessed to income-tax. It may be mentioned that the facts of the instant case are distinctly dissimilar. Here, though the assessee utilised the fund that it had brought, that is to say, Yugoslavia dinars, and transformed into Indian rupees, the subsequent user in the business and retention thereof was in the form of rupees and there was neither any appreciation nor depreciation of the rupees in the funds held by the assessee. Therefore, the precise question with which we are concerned was not canvassed before their Lordships of the Bombay High Court. Our attention was, however, drawn to certain observations appearing at pp. 598 and 599 of the report, but it is not necessary to refer to the said observation in detail, because the said observations were made in the context of the facts of that case.
10. In the case of CIT v. Canara Bank Ltd. : 63ITR328(SC) , the Supreme Court was concerned with the case where the assessee had opened a branch in Karachi on 15th of November, 1946. After the partition of India in 1947, the currencies of the two Dominions of India and Pakistan continued to be at par until there was a devaluation of the Indian rupee on September 18, 1949. On that date the assessee had a sum of Rs. 3,97,221 at the Karachi branch belonging to its head office. As Pakistan did not devalue its currency, the parity between the Indian rupee and Pakistan rupee ceased to exist. The exchange ratio between the two countries was not determined until February 27, 1951. The bank did not carry on any business in foreign currencies and even after it was permitted to carry on business in Pakistan currency on 3rd April, 1951, it carried on no foreign exchange business. The Appellate Tribunal found that the money was lying idle in the Karachi branch and was not utilised in any banking operation even within Pakistan. The State Bank of Pakistan granted permission on July 1, 1953, and two days later the bank remitted the amount to India and, in view of the difference in values of the currencies, made a profit of Rs. 1,73,817. The question was whether the amount was revenue receipt. It was held by the Supreme Court on the facts that appreciation of money did not arise in the course of trading operation. Assuming that the amount of Rs. 3,97,221 was originally stock-in-trade, when it was blocked and sterilised and the bank was unable to deal with that amount, it ceased to be its stock-in-trade and the increase in its value owing to exchange fluctuation was a capital receipt. By virtue of exchange operations, according to the Supreme Court, profits made during the course of business and in connection with the business transactions, the excess receipts on account of conversion of one currency into another would be revenue receipts. But the Supreme Court pointed out that if the profit by exchange operations came in, not by way of business of the assessee, the profit would be capital. The question with which we are concerned in this case has been discussed in a subsequent decision of the Supreme Court which we shall presently notice.
11. Our attention was also drawn to the Supreme Court decision in the case of Sutlej Cotton Mills Ltd. v. CIT : 116ITR1(SC) . There the Supreme Court, after considering various decisions and the facts, observed at pp. 13 and 14 as follows:
' The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But if, on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Now, in the present case, no finding appears to have been given by the Tribunal as to whether the sums of Rs. 25 lakhs and Rs. 12,50,000 were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan. If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of Rs. 11 lakhs and Rs. 5,50,000 resulting to the assessee on remission of those two amounts to India, on account of alteration in the rate of exchange, would be a trading loss, but if, instead, these two amounts were held on capital account and were part of fixed capita], the loss would plainly be a capital loss. The question whether the loss suffered by the assessee was a trading loss or a capital loss cannot, therefore, be answered unless it is first determined whether these two amounts were held by the assessee on capital account or on revenue account or, to put it differently, as part of fixed capital or of circulating capital.'
12. In the case of Chainrup Sampatram v. CIT : 24ITR481(SC) , the Supreme Court observed that it was a misconception to think that any profit ' arises out of the valuation of the closing stock ' and the situs of its arising or accrual was where the valuation was made. According to the Supreme Court, valuation of unsold stock at the close of an accounting period was a necessary part of the process of determining the trading results of that period, and could in no sense be regarded as the ' source ' of such profits. Now, could the place where such valuation was made be regarded as the situs of their accrual The source of the profits and gains of a business was indubitably the business and the place of their accrual was where the business was carried on. As such profits could be correctly ascertained according to the method adopted by an assessee only after bringing into the trading account his closing stock wherever it might exist, the whole of the profits must be taken to accrue or arise at the place of carrying on the business. In that case the assessee, a registered firm consisting of two partners and carrying on business in Calcutta as bullion merchants dealing mainly in silver, kept its books on the mercantile basis. In the relevant year of account some bars of silver were sent to the Indian State of Bikaner where the partners resided and their value at cost was credited in the assessee's books. In the assessment of the assessee it was alleged that the silver bars had been sold to the partners for their domestic use but the I.T. authorities held that the alleged sale was not genuine and the silver bars still formed part of the assessee's stock-in-trade at the close of the year of account. They accordingly included in the taxable profits a sum of Rs. 2,20,887 as the excess arising from the valuation of the silver bars at market rate at which the rest of the closing stock at Calcutta was valued in the assessee's books. The Appellate Tribunal, on appeal, upheld the action of the I.T. authorities. On a reference, the High Court answered the question in the affirmative, On appeal, the Supreme Court held that on the finding of the I.T. authorities that the silver bars lying at Bikaner had not been really sold but remained part of the unsold stock of the assessee's business at the end of the accounting year, the whole of the profits of that year must be taken to have accrued or arisen in Calcutta where the business was carried on, no part of that business having admittedly been transacted at Bikaner. Consequently it was held that the sum was assessable to tax. Though the case was really dealing with the question where the situs of profit was, learned advocate for the revenue drew our attention to the observations of the Chief Justice, Patanjali Sastri, at p. 487 of the report, to the following effect:
' Again, it is a misconception to think that any profit arises out of the valuation of the closing stock ' and the situs of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as the 'source' of such profits. Nor can the place where such valuation is made be regarded as the situs of their accrual. The source of the profits and gains of a business is indubitably the business, and the place of their accrual is where the business is carried on. As such profits can be correctly ascertained according to the method adopted by an asses-see only after bringing into the trading account his closing stock wherever it may exist, the whole of the profits must be taken to accrue or arise at the place of carrying on the business. On the finding of the income-tax authorities that the 582 bars of silver lying at Bikaner had not been really sold but remained part of the unsold stock of the firm's business at the end of the accounting year, the whole of the profits of that year must be taken to have accrued or arisen at Calcutta where the business was carried on, no part of that business having admittedly been transacted at Bikaner. '
13. Learned advocate for the Revenue sought to draw support for his theory that it was only on conversion that a profit or loss could be said to arise and, as, in this case, there was no finding that there was any conversion in the year or any loss had accrued as a result of conversion, there was no revenue loss in the year in question.
14. Our attention was also drawn to the decision in the case of Badridas Daga v. CIT : 34ITR10(SC) . It is not necessary to discuss the said decision in detail. It has already been discussed in several decisions. Learned advocate for the revenue drew our attention to the observations of the court at pp. 15-16 of the report to the following effect:
' These being the governing principles, in deciding whether loss resulting from embezzlement by an employee in a business is admissible as a deduction under Section 10(1) what has to be considered is whether it arises out of the carrying on of the business and is incidental to it. Viewing the question as a businessman would, it seems difficult to maintain that it does not. A business especially such as is calculated to yield taxable profits has to be carried on through agents, cashiers, clerks, and peons. Salary and remuneration paid to them are admissible under Section 10(2)(xv) as expenses incurred for the purpose of the business. If employment of agents is incidental to the carrying on of business, it must logically follow that, losses which are incidental to such employment arc also incidental to the carrying on of the business. Human nature being what it is, it is impossible to rule out the possibility of an employee taking advantage of his position as such employee and misappropriating the funds of his employer, and the loss arising from such misappropriation must be held to arise out of the carrying on of business and to be incidental to it. And that is how it would be dealt with according to ordinary commercial principles of trading.
At the same time, it should be emphasised that the loss for which a deduction could be made under Section 10(1) must be one that springs directly from the carrying on of the business and is incidental to it and not any loss sustained by the assessee, even if it has some connection with his business. If, for example, a thief were to break overnight into the premises of a money-lender and run away with the funds secured therein, that must result in the depletion of the resources available to him for lending and the loss must, in that sense, be a business loss, but if it is not one incurred in the running of the business, but is one to which all owners of properties are exposed whether they do business or not. The loss in such a case . may be said to fall on the assessee not as a person carrying on business but as owner of funds. This distinction, though fine, is very material as on it will depend whether deduction could be made under Section 10(1) or not.'
15. Our attention was also drawn to the decision in the case of Radio Pictures Lid. v. IRC  22 TC 106 and learned advocate for the revenue relied on the observations of Scott L.J., at p. 132 to the following effect:
' I, therefore, commence consideration of this case by noting that the agreement of the 20th August provided for payment in dollars. None the less I entirely agree with what the Master of the Rolls has said, that for practical purposes, so far as the present claims are concerned, it would have made little difference if the contract had provided for payment in sterling, for the simple reason that the loss in respect of which the English company is asking for relief under the Act of 1923 was a loss entirely due to its inability to find the necessary cash to make the payments to the American company on the dates when they fell due. There was a sudden fall in the purchasing power of the sterling after this country went off gold in September, 1931. That would not of itself have caused any loss to the English company if the English company had been in a position to buy dollars on the due dates for making its remittances, since the contract provided for loss on exchange up to that point resting with the American company, and only after that point with the English company. That is true equally of the agreement of the 20th August and of the letter of the 14th August. In either case the due date of payment was the dividing line. The facts of the case arc that the English company had no sufficient cash to make the earlier payments due to the American company in respect of its shares of the film receipts as they fell due to be made. The English company was only able to find the money during the succeeding years; and the application under the Act of 1923 is in respect of its returns for tax in those years, when, by reason of the purchasing power of the having fallen, the company had to spend a larger number of pounds than it would have had to spend if there had been no such fall. That is a sufficient ground to entitle the company to the rectification permitted by the Act of 1923, because it had paid tax on the basis of returns which made no allowance for that extra cost to it of discharging its liabilities. It follows, therefore, that the case made is the simplest possible case for relief under the Act of 1923, namely, that the company had made a mistake in the method of making its return and had paid tax during the years following 1931 upon higher figures than represented its real income in those years.'
16. Many of these decisions were recently reviewed by us in one of the unreported decisions in I.T. Ref. No. 57 of 1977 (Indo-Burma Petroleum Co. Ltd. v. CIT--since reported in : 136ITR251(Cal) ) judgment delivered on 11th September, 1980 where, after discussing these authorities, and after referring to the observations of the Supreme Court in the case of Sutlej Company : 116ITR1(SC) referred to hereinbefore, we observed as follows (pp. 275, 276 of 136 ITR):
'The aforesaid observation of Mr. Justice Bhagwati requires little closer scrutiny. It was observed, as we have mentioned before, that where profit or loss arises to an assessee on account of appreciation or depreciation (underlined* by us) in the value of foreign currency held by him, on conversion into another currency (underlined* by us) such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. There are two aspects which, it may be specifically pointed out, do not seem to have been urged before the Supreme Court whether, it is the profit which arose on appreciation or depreciation at that point of time or is it the profit which arose on conversion of the currency into another currency. The moment a currency is devalued or revalued there is an appreciation or depreciation. At that point of time there is no question of conversion. Sometimes the conversion takes place later on. At what point of time the profit should be computed and to which year would that profit or loss be attributed, that aspect the Supreme Court has not clarified. The second aspect that requires consideration and upon which stress was laid in this case was that where a profit or loss arises to an assessee on account of appreciation or depreciation in the value-of foreign currency, then such profit should be attributable either to capital or revenue, if the amount was held either as capital or as revenue. Now, in so far as it held that merely the character of the asset would be decisive this aspect of the decision, in our opinion, with great respect, runs counter to the ratio of the decision of the Supreme Court in the case of Canara Bank : 63ITR328(SC) , where the exact point was in dispute and the relevant passage we have quoted hereinbefore. We must hesitate to observe that this observation of the Supreme Court in the subsequent case was an observation of a general nature and was not necessary for the purpose of determining the actual point involved before the Supreme Court. The point involved before the Supreme Court was the allowability of a particular loss. It is well settled that a loss may be allowable in a business, even though the loss is not occasioned by the carrying on of the operation by the assessee. No assessee carries on business for making losses, but losses are incidental to or arise in the course of the business. But the assessee carries on business for making profit. Therefore, profit being taxble must arise out of or in course of the activity of the assesse. It would not be sufficient if it was merely connected with the business of the assessee. In this connection, reference may be made to the observations of the Supreme Court in the case of Badridas Daga v. CIT : 34ITR10(SC) as well as the observation of the Bombay High Court in the case of Pohoomal Bros. v. CIT : 34ITR64(Bom) . Now this point is exactly with the ratio of the Supreme Court decision in the case of Canara Bank : 63ITR328(SC) , which is a decision mentioned by us hereinbefore and rendered by three learned judges.
In so far as the decision of the Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT : 116ITR1(SC) relating to the profit runs counter to those observations, we must adhere to the decision of the larger bench.'
17. In that view of the position that in this case there being a finding of the ITO, which not having been varied or altered, that the repatriation was done to the head office in January to March 1968, that is subsequent to the relevant assessment year, and the Tribunal having held that the sum in question was used as circulating capital in India and that there was no diminution of the value of the Indian currency there was, in our opinion, no revenue loss in the year in question. Whether there was revenue loss in the subsequent year, that is to say, in the year when it was eventually accounted for in dinars or not, is not a question with which we are concerned in this reference.
18. In the premises, the question is answered in the negative and in favour of the revenue.
19. In the facts and circumstances of the case there will be no order as to costs.
Sudhindra Mohan Guha, J.
20. I agree.