COMMISSIONER OF INCOME-TAX VS SHAH CONSTRUCTION CO. LTD., 2000 PTD-BOMBAY-HIGH-COURT-INDIA 3278 (1998)

(a) Income-tax---

----Income---Addition to income--Assessee taking up contract works abroad- Assessee receiving advances to be adjusted against running bills of assessee- Assessee converting into Indian Rupees foreign currency lying in reserve for account purposes at end of year at prevailing exchange rate---Till amount lying in reserve was adjusted against future bills it did not belong to assessee---Such amount not income liable to tax.

The assessee had taken up some contract works in the Middle East countries. Against such contracts, advances were received by the assessee which had to be adjusted against the running bills submitted by the assessee from time to time. At the end of the accounting year relevant to the assessment year 1979-80, certain foreign currency had remained in reserve and for account purposes, the assessee converted them into Indian rupees at the prevailing exchange rate. The Income-tax Officer brought such amount to tax in the hands of the assessee. On appeal, the Appellate Assistant Commissioner deleted the addition on the ground that the credit balance in the foreign exchange reserve account did not represent any profit or gain under the Income Tax Act, 1961. The Tribunal affirmed the order of the Appellate Assistant. Commissioner. On a reference:

Held, affirming the decision of the Tribunal, that the amount lying in the foreign exchange reserve account did not belong to the assessee. It was part of the amount received by the assessee from the parties in the Middle East by way of advance to be adjusted against the running bills, Till the amount was adjusted against the running bills, it did not belong to the assessee. The conversion into Indian rupees at the end of the year was only for account purposes. The amount could not be regarded as income of the assessee till it was adjusted against the future bills. Therefore, the Tribunal was justified in deleting the addition of Rs.4,59,098 from the income of the assessee.

(b) Income-tax---

----Investment allowance---New industrial undertaking---Business of construction---Not an industrial undertaking entitled to .investment allowance---Indian Income Tax Act, 1961, S. 32-A(2)(b)(iii).

Tribunal was not right in holding that the business of construction carried on by the assessee was an industrial undertaking eligible for investment allowance under section 32-A(2)(b)(iii) of the Income Tax Act, 1961.

CIT v. N. C. Budharaja & Co. (1993) 204 ITR 412 (SC) fol.

(c) Income-tax---

----Investment allowance---Dumpers used in execution of civil engineering contract work---Are "road transport vehicles"---Not entitled to investment allowance---Indian Income Tax Act, 1961, S. 32-A(1), proviso (b).

Dumpers used by the assessee in the execution of civil engineering contract work were "road transport vehicles" and were not entitled to investment allowance under section 32-A(1), proviso (b) of the Act.

CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412 (SC) fol.

R.V. Desai with B.M. Chatterjee for the Commissioner.

S.J. Mehta with I.M. Munim for the Assessee.

JUDGMENT

DR. B.P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following questions of law to this Court for opinion at the instance of the Revenue:

"(1) Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was right in holding that the business. of construction carried on by the assesssee is an 'industrial undertaking'?

(2) Whether, on the facts and in the circumstances of the case, the business of construction (of this industrial undertaking) is by itself not eligible to investment allowance under section 32-A(2)(b)(iii)?

(3) Whether, on the facts and in the circumstances of the case and in law, the assessee's business activity is also business of construction of thing to be entitled to investment allowance under section 32-A(2)(b)(iii)?

(4) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the dumpers used by the assessee in the execution of civil engineering contract work were not 'road transport vehicles' so as to fall within the proviso (b) to section 32-A(1), and granting investment allowance of Rs.1,19,930 thereon?

(5) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the amount in credit in the foreign exchange reserve account represented profit or gain of the assessee when the foreign currency had been converted into rupees at the rate prevailing at the end of the year only for account purposes, although it had remained outside India, when such foreign currency had not been adjusted- during this year, and, on these premises, deleting the addition of Rs.4,59,098?"

So far as questions Nos. l to 4 are concerned; learned counsel for the parties are agreed that the controversy therein now stands concluded in favour of the Revenue by the decision of the Supreme Court in CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412.

Following the above decision, we answer the first four questions as below:

Question No. 1.---In the negative, i.e., in favour of the Revenue.

Question No.2.---In the affirmative i.e., in favour of the Revenue and against the assessee.

Question No.3.---In the negative, i.e., in favour of the Revenue and against the assessee.

Question No.4.---In the negative, i.e., in favour of the Revenue and against the assessee.

The only question that requires consideration is question No.5. The material facts necessary for deciding the controversy in this question, briefly stated, are as follows:

The assessee had taken up some contract, works in the Middle East countries. Against such contracts, advances were received by the assessee which hard to be adjusted against the running bills submitted by the assessee from time to time. At the end of the accounting year relevant to the assessment year 1979-80, certain foreign currency had remained in reserve and for account purposes, they were converted into Indian rupees at the prevailing rate. The amount of foreign exchange/reserve in terms of Indian rupees was Rs.4,59,098. The Income-tax Officer brought this amount to tax in the hands of the assessee. The assessee appealed to the Appellate Assistant Commissioner of Income-tax (Appeals). The Appellate Assistant Commissioner deleted the addition, as he was of the opinion that the credit balance in the foreign exchange reserve account, in the facts and circumstances of the case, did not represent any profit or gain taxable under the Act. The order of the Appellate Assistant Commissioner (Appeals) was confirmed by the Income-tax Appellate Tribunal ("the Tribunal"). Hence, this reference at the instance of the Revenue.

We have heard Mr. R. V. Desai, learned counsel for the Revenue, as also, Mr. S.J. Mehta, learned counsel for the assessee. The uncontroverted factual position is that the amount in question lying in the exchange reserve account did not even belong to the assessee. It was a part of the amount received by the assessee from the parties in the Middle East by way of advance to be adjusted against the running bills. Till it was adjusted against the running bills, it did not belong to the assessee. The conversion into Indian rupees at the end of the year obviously was only for account purposes. That being so, the said amount cannot regarded as income of the assessee. In these facts and circumstances of the case, the Tribunal, in our opinion, was correct in its conclusion that until these amounts were adjusted against future bills, the question of regarding the same as income and assessing to tax cannot arise. Accordingly, we answer question No.5 in. the affirmative, i.e., in favour of the assessee and against the Revenue.

Reference disposed of accordingly with no order as to costs.

M.B.A./57/FC

Order accordingly.