Case: PR. AL. M. M. Annamalai Chettiar Vs. Commissioner of Income-tax, Madras

Subba Rao, J.1. This appeal by special leave is directed against the order of the High Court of Madras in Tax case Petition No. 44 of 1961.2. The appellant is a Hindu undivided family carrying on business with its head office at Pageneri in Ramanathapuram District, Madras State, and also business at Paritpuntar in the Federated Malaya States. In respect of the assessment year 1951-52, the appellant showed in the return filed on his behalf a total world income of Rs. 2,13,079, which included a sum of $ 21,350 as profit from the business at Paritpuntar. In computing the said profit from the business at Paritpuntar the appellant claimed an aggregate loss of $ 68,405 incurred on the sale of house property and rubber gardens as detailed below."No. Date of Purchase Cost price Sale price$ $1. 28 Ani, Angirasa - 14, Silama House. 5002. 28 Ani, Angirasa - No. 20 Silama House. 4,154 3,9203. 23rd Avani, Angirasa - No. 23 Silama House. 2,333 1,4254. 5th Avani, Subhanu - (21-8-43) Siradan House. 25,453 7,0005. 24th Avani, Tharana (15-9-44) - 38 Garden. 53,686 5,8806. 8th Purattasai, Tharana (23-9-44) - 35 Garden. 2,668 1,16488,294 19,880LOSS $ 68,405In respect of items Nos.1, 2 and 3 above the Income-tax Officer accepted the claim of the appellant, but in regard to the remaining three items, namely, items Nos. 4, 5 and 6, he held that as the said purchases of property and the outlay thereon were all made during the Japanese occupation of Malaya and in Occupation Currency, then in circulation, the purchase prices of the same required to be scaled down in accordance with the schedule of rates contained in the Debtor and Creditor(Occupation Period) Ordinance, 1948, passed by the Legislative Council of Federated Malaya States and on that basis the profit and loss in respect of the last 3 items of the property were worked out by him as under:S. No. Sale of Property Purchase price in occupation Currency Scaled down value of Purchase Price Sale amount profit Loss$ $ $ $ $1. Siradan House 25,453 9,000 7,000 - 2,0002. 88 Garden 53,686 3,830 5,880 2,050 -3. 85 Garden 2,668 190 1,164 974 -In the result the Income-tax Officer computed a profit of $ 382 in respect of the sale of the above gardens as against the loss of $ 68,405 claimed by the appellant. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On further appeal, the Income-tax Appellate Tribunal took the same view as the Income-tax Officer had taken. The appellant applied to the Tribunal under S. 66 (1) of the Income-tax Act requiring it to state a case and refer the following question of law arising out of its order to the decision of the High Court :"Whether on the facts and in the circumstances of the case the disallowance of the loss of 567,764 as claimed and the computation of the profit at S 3.82 is valid in law".The Appellate Tribunal rejected the application. Thereupon, the appellant moved the High Court under S. 66 (2) of the Income-tax Act praying for an order directing the Appellate Tribunal to state a case and refer the question of law arising out of its order. The High Court following the decision in S. L. N. Sathappa Chettiar v. Commr, of Income-tax, Madras, (1959) 35 ITR 641 (Mad) , dismissed the application. Hence the appeal.3. Mr. Srinivasan, learned counsel for the appellant, raised before us two points, namely, (1) the conversion table given in the Schedule to the Debtor and Creditor (Occupation Period) Ordinance, 1948, of Malaya, hereinafter called the Ordinance, was not intended to provide the rates of conversion for any purpose beyond what the Ordinance was expressly specified to achieve, namely, the determination of the rights and liabilities of debtors and creditors and that the adoption of the conversion rates given in the said Schedule to scale down the cost of properties in question was unwarranted; (2) the appellant maintained regular accounts for all the years including the Japanese occupation period; the original cost of acquisition of the 3 properties was adopted for the purpose of business balance-sheets all these years; no loss on revaluation of the said assets by scaling down their values at any time was allowed in any of the earlier years by the Department; and, therefore, there was no justification for a departure in the year of account.4. He also contended that if the properties were purchased for dollars and sold for dollars, the fact of inflation or deflation of currency would be irrelevant in ascertaining the profits. That may be so in the case of a countrys currency but when a property is purchased and sold in different currencies, say Japanese and Malayan currencies as in the present case, it is not possible to ascertain the profit or loss unless the exchange or conversion rate is ascertained. When a property is purchased in one currency and sold in another currency, how can the profit or loss be ascertained unless the conversion rate of the two currencies is known? There should be a common standard. The two currencies in the present case are essentially different though they were current in the same country during the same or different periods. The extraordinary situation of two currencies co-existing during the occupation period or the situation of one property being purchased during the enemy occupation period in Japanese currency and sold in Malayan currency after the vacation of the enemy occupation cannot be equated with fluctuations in the value of a nationss currency. Unless the cost price expressed in Japanese currency is computed in terms of the Malayan currency, it is not possible to arrive at the real profit accrued to the assessee. That is exactly what the Income-tax Officer did and, in our view, that is the only correct basis.5. It is not correct to say that the income-tax Officer applied the said Ordinance to ascertain the profit, in the present case. The scheme and the detail, of the Ordinance have already been considered by us in Civil Appeals Nos. 55 of 1962, etc. The Ordinance was enacted for the purpose of scaling down the payments made by debtor; to creditors during the occupation period. A schedule was appended to the Ordinance providing a table of conversion of the depreciated Japanese currency into Malayan currency. In terms the Ordinance does not directly apply to the scaling down of the cost price of properties purchased in Japanese currency. But to ascertain the real profit, as we have stated earlier, it is necessary to adopt a reasonable conversion rate. The only material that was available to the Income-tax Officer was the Schedule appended to the Ordinance. Though that Schedule was appended to the Ordinance enacted for a different purpose, it was the result of a careful inquiry made by the appropriate and responsible authorities in Malaya. The Income-tax Officer was, therefore, justified in adopting that Schedule for the purpose of ascertaining the cost price of the properties purchased in Japanese currency and sold in the Malayan currency. The fact that the Income-tax Officer adopted some other method in the previous years-no material has been placed before us in regard to the method adopted by the Income-tax Officer-does not prevent him from ascertaining the correct method for the assessment year with which we are concerned.6. The questions raised before us were the subject-matter of the decision of the Madras High Court in (1959) 35 ITR 641 (Mad) . There, as here, the assessee, which carried on a moneylending business and had its head office in India and a brach in the Federated Malaya States, purchased some properties when Malaya was under enemy occupation and sold them after the vacation of the enemy occupation in Malayan currency. In order to ascertain the profits resulting from the sale for the purpose of assessment of the assessee for the fear 1952-53 the Department valued the cost of the properties in Malayan currency in accordance with the Schedule appended to the Ordinance. The assessee contended that the cost price of the properties must be taken at the figure accepted by the Department for the purpose of the Government scheme. The High Court held that to ascertain the real profits the Department was right in computing the cost price of the properties in Malayan currency in accordance with the Schedule appended to the Ordinance. The reason for the conclusion is stated thus at p. 649:"The purchase was paid for in Japanese currency. The sale price was realised in Malayan currency. There was no parity between the two on the date of purchase. Certainly the Japanese currency ceased to be in use on the date of sale. To arrive at a computation of profits or losses where property was purchased in one currency and sold in another, it should be obvious that there should be a common standard; in the circumstances of this case the purchase price had to be computed in terms of Malayan currency, in which the property was sold. "The principle adopted by the High Court appears to be unexceptionable. It accords with our view. Adverting to the second argument that the schedule to the Ordinance should be confined only to the scaling down of debts, the learned Judges pointed out at p. 650."The Report of the Select Committee which preceded the issue of the Malayan Ordinance has also been made part of the record. That showed that the Committee made a real attempt to ascertain the value of the Japanese currency in relation to the Malayan currency at every stage of the occupation period. Besides, we have to point out that no other basis of conversion was proposed by the assessee at any stage. We are unable to hold that the Department and the Tribunal were in error in adopting the conversion table furnished in the Schedule to the Malayan Ordinance."We also agree with this view.

Decision:
0[ds]6. The questions raised before us were the subject-matter of the decision of the Madras High Court in (1959) 35 ITR 641 (Mad)  . There, as here, the assessee, which carried on a moneylending business and had its head office in India and a brach in the Federated Malaya States, purchased some properties when Malaya was under enemy occupation and sold them after the vacation of the enemy occupation in Malayan currency. In order to ascertain the profits resulting from the sale for the purpose of assessment of the assessee for the fear 1952-53 the Department valued the cost of the properties in Malayan currency in accordance with the Schedule appended to the Ordinance. The assessee contended that the cost price of the properties must be taken at the figure accepted by the Department for the purpose of the Government scheme. The High Court held that to ascertain the real profits the Department was right in computing the cost price of the properties in Malayan currency in accordance with the Schedule appended to the Ordinance. The reason for the conclusion is stated thus at p.purchase was paid for in Japanese currency. The sale price was realised in Malayan currency. There was no parity between the two on the date of purchase. Certainly the Japanese currency ceased to be in use on the date of sale. To arrive at a computation of profits or losses where property was purchased in one currency and sold in another, it should be obvious that there should be a common standard; in the circumstances of this case the purchase price had to be computed in terms of Malayan currency, in which the property was sold.principle adopted by the High Court appears to be unexceptionable. It accords with our view. Adverting to the second argument that the schedule to the Ordinance should be confined only to the scaling down of debts, the learned Judges pointed out at p.Report of the Select Committee which preceded the issue of the Malayan Ordinance has also been made part of the record. That showed that the Committee made a real attempt to ascertain the value of the Japanese currency in relation to the Malayan currency at every stage of the occupation period. Besides, we have to point out that no other basis of conversion was proposed by the assessee at any stage. We are unable to hold that the Department and the Tribunal were in error in adopting the conversion table furnished in the Schedule to the Malayanalso agree with thistwo currencies in the present case are essentially different though they were current in the same country during the same or different periods. The extraordinary situation of two currenciesduring the occupation period or the situation of one property being purchased during the enemy occupation period in Japanese currency and sold in Malayan currency after the vacation of the enemy occupation cannot be equated with fluctuations in the value of a nationss currency. Unless the cost price expressed in Japanese currency is computed in terms of the Malayan currency, it is not possible to arrive at the real profit accrued to the assessee. That is exactly what theOfficer did and, in our view, that is the only correct basis.5. It is not correct to say that theOfficer applied the said Ordinance to ascertain the profit, in the presentOrdinance was enacted for the purpose of scaling down the payments made by debtor; to creditors during the occupation period. A schedule was appended to the Ordinance providing a table of conversion of the depreciated Japanese currency into Malayan currency. In terms the Ordinance does not directly apply to the scaling down of the cost price of properties purchased in Japanese currency. But to ascertain the real profit, as we have stated earlier, it is necessary to adopt a reasonable conversion rate. The only material that was available to theOfficer was the Schedule appended to the Ordinance. Though that Schedule was appended to the Ordinance enacted for a different purpose, it was the result of a careful inquiry made by the appropriate and responsible authorities in Malaya. TheOfficer was, therefore, justified in adopting that Schedule for the purpose of ascertaining the cost price of the properties purchased in Japanese currency and sold in the Malayan currency. The fact that theOfficer adopted some other method in the previousmaterial has been placed before us in regard to the method adopted by thes not prevent him from ascertaining the correct method for the assessment year with which we are concerned.