PR. AL. M. M. ANNAMALAI CHETTIAR vs. COMMISSIONER OF INCOME-TAX, MADRAS

CIVIL APPEAL No. 131/1963Supreme Court[1965] 1 S.C.R. 82726 October 1964Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI B6 pages
AI SummaryDismissed

What were the facts?

The assessee, P.R. AL. M. M. ANNAMALAI CHETTIAR, with its head office in India and business in the Federated Malaya States, is in appeal before the Supreme Court. For the assessment year 1951-52, the assessee claimed a loss of $68,405 from the sale of house properties and rubber gardens. These properties were purchased in Malaya during the Japanese occupation in Japanese currency and sold in Malayan currency after the occupation ended. The Income-tax Officer scaled down the purchase prices using the rates from the Debtor and Creditor (Occupation Period) Ordinance, 1948, of the Federated Malaya States, resulting in a profit instead of a loss. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the ITO's order. The High Court also rejected the assessee's application to direct the Tribunal to state a case.

What did the Supreme Court hold?

The Supreme Court held that the Income-tax Officer was justified in adopting the schedule appended to the Debtor and Creditor (Occupation Period) Ordinance, 1948, for ascertaining the cost price of the properties in Malayan currency. While the Ordinance was enacted for scaling down payments between debtors and creditors during the occupation period, the appended schedule, resulting from careful inquiry by responsible authorities, provided the only available material for determining a common standard to convert the purchase price from Japanese currency to Malayan currency. The Court reasoned that when property is purchased in one currency and sold in another, profit or loss can only be ascertained by knowing the conversion rate. The fact that the ITO might have used a different method in previous years did not prevent him from using the correct method for the assessment year in question. The Court approved the High Court's reasoning in S.L.N. Sathappa Chettiar v. Commissioner of Income-tax, Madras, which adopted a similar approach.

What were the issues?

1. Whether the conversion table in the Schedule to the Debtor and Creditor (Occupation Period) Ordinance, 1948, of Malaya, intended only for determining debtor-creditor rights and liabilities, could be used to scale down the cost of properties for income-tax purposes. The assessee argued it was unwarranted. 2. Whether, given the assessee maintained regular accounts and no loss on revaluation was allowed in earlier years, a departure in the current assessment year was justified. The assessee contended there was no justification for a departure. The revenue argued that when property is purchased in one currency and sold in another, a common standard is necessary to ascertain profit or loss, and the Schedule provided the only available material for this conversion.

Which sections of the Income-tax Act were involved?

Section 66(1),Section 66(2)

AI-generated summary — verify with the full judgment below

A B c D E F PR. AL. M. M. ANNAMALAI CHETTIAR v. COMMISSIONER OF INCOME-TAX, MADRAS October 26, 1964 (K. SUBBA RAo, J. C. SHAH ANDS. M. SIKRI JJ.)

Income Tax-Purchase and sale of property in Mal.aya-Purchase in Japanese currency and sale in J,,falayan Currency-Method of coniputing profit and loss. · The assessee whose head office was in India was also carrying on busi- nciS in the Federated Malaya States. In respect of the assessment year 1951-52, the assessee claimed that a loss Vt'as incurred as a result of the sale of house properties and rubber gardens. Those properties were pur- chased by the assessee, in Malaya, during the Japanese occupation, in Japanese currency, but sold in Malayan currency after enemy occupation had ceased. The Income-tax Officer scaled down the purchase prices in accordance with the Schedule of rates contained in the Debtor and Creditor (Occupation l'eriod) Ordinance, 1948, of the Federated Malaya States.

The result was that the assessee was shown to have made a profit instead of suffering any loss.

On appeal by the assessee, the Appellate Assistant Commissioner and the Appellate Tribunal confirmed the order of the Income-tax Off

The order continues below.

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