UNIVERSAL RADIATORS, COIMBATORE vs. COMMISSIONER OF INCOME TAX, TAMIL NADU

CIVIL APPEAL No. 5897/1983Supreme Court[1993] 2 S.C.R. 77530 March 1993Bench: 2 JudgesAuthor: T.K. THOMMEN, R.M. SAHAI13 pages
AI SummaryAllowed

What were the facts?

The assessee, Universal Radiators, a manufacturer of automobile radiators, booked copper ingots from the USA. These ingots were to be rolled into sheets and despatched to the assessee. While en route, the vessel carrying the ingots was seized by Pakistan authorities. The insurer settled the assessee's claim, paying the value of the goods. Due to the devaluation of the Indian Rupee, the assessee received Rs. 3,43,556/- as against their initial payment of Rs. 2,00,164/-. The difference was credited to profit on devaluation. The Income Tax Officer and the Appellate Assistant Commissioner disagreed with the assessee's contention that this difference was a casual and non-recurring receipt not liable to tax. The Tribunal, however, held it to be a capital receipt, not business income, as the goods became sterilized stock-in-trade. The High Court, on reference, reversed the Tribunal's decision, holding the difference to be taxable revenue receipt.

What did the Supreme Court hold?

The Supreme Court allowed the appeal, holding that the excess amount received by the assessee due to the devaluation of the Indian Rupee was a capital receipt and not taxable income arising from business. The Court reasoned that the copper ingots, even if considered stock-in-trade, became sterilized due to the seizure, ceasing to be stock-in-trade. Therefore, any surplus arising from the exchange rate fluctuation on this sterilized capital was a capital receipt. The Court distinguished between insurance against loss of goods and insurance against loss of profits, stating that while the latter is taxable, compensation for loss of goods, especially where the assessee does not carry on business in those specific goods, may not be taxable income. The payment was considered a just equivalent of the cost incurred, with the excess arising due to fortuitous circumstances (devaluation), making it a windfall and not income arising from business. The Court agreed with the Tribunal's finding that the profit was casual, non-recurring, and had nothing to do with the assessee's trading activity.

What were the issues?

1. Whether the excess amount received by the assessee due to fluctuation in the exchange rate (devaluation of Indian Rupee) is taxable income under the Income Tax Act, 1961, specifically in relation to Section 4 and Section 10(3). Assessee's contentions: - The difference in receipt due to devaluation is a casual and non-recurring receipt, hence not liable to tax. - The receipt is in the nature of capital gains, not revenue receipt. - The goods became sterilized stock-in-trade upon seizure, and the surplus arising from exchange rate fluctuation on such sterilized capital is a capital receipt. Revenue's contentions: - The difference in cost price and sale price is taxable. - The receipt is a revenue receipt, as the entire transaction was part and parcel of the business carried on by the assessee. - If the assessee had imported and sold the goods, they would have received a higher amount due to devaluation, thus it is taxable.

Which sections of the Income-tax Act were involved?

Section 4,Section 10(3),Section 2(24)

AI-generated summary — verify with the full judgment below

i- , --J .. ,. . UNIVERSAL RADIATORS, COIMBATORE A v. COMMISSIONER OF INCOME TAX, TAMIL NADU )'- MARCH 30, 1993 [DR. T.K. THOMMEN AND R.M. SAHA!, JJ.) B - Income Tax Act, 1961 : Sections 4 and 10(3).

Assessee-Manufacturer of automobile radiators-Copper ingots booked from America-To be rolled in Bombay as and sheets and despatched c -( to assessee for manufactu~Ship carrying goods seized by Pakistatt-ln- surance company paying value of goods in do/lars-Devalua_tion. of Indian rnpee-171e difference of the Indian rnpee before devaluation and that received. after devaluation-Excess held a capital receipt-Not business receipt-Receipt of casual nature-Sterilization of stock in trade. D Words and Phrases-Meaning of 'lnconie'-'Casuar.

The appellant-assessee a manufacturers of radiators for _}.__ automobiles booked copper ingots from a corporation In the United States of America for being brought to Bombay where it was to be rolled into E strips and sheets and then despatched to the assessee for being used for manufacture. While the Ingots were at sea, hostilrtles broke out between - India and Pakistan and, the vessel carrying the goods was seized by the authoritie

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 4

All 1,127 judgments and leading authorities on Section 4 →

Recent GST High Court judgments

Search GST case law →