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

- **Citation:** [1965] 1 S.C.R. 827
- **Court:** Supreme Court of India
- **Decided:** 1964-10-26
- **Bench:** K. SUBBA RAo, J. C. Shah Ands. M. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pr-al-m-m-annamalai-chettiar-v-commissioner-of-income-tax-madras-3262
- **Pages:** 6

## Headnote

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 businciS 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 purchased 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 Officer.
The Tribunal also refused to state a case to the High
Court and the High Court rejected the assessee's application to direct the
Tribunal to do so.
The assessee appealed to the Supreme Court.
HELD : The Income-tax Officer was justified in adopting the schedule
appended to the Ordinance for the purpose of ascertaining the cost price
of the properties in Malayan Currency, [831 A-BJ
When a property is purchased in one currency and sold in another, the
profit or loss can be ascertained only when the conversion rate of the
two currencies is known.
The only material available to the officer for
determining that common standard was the Schedule in the Ordinance.
Though the Ordinance does not in terms apply to the scaling down of the
coet price-it was enacted for the purpose of scaling dov./n payments
made by debtors to creditors during the occupation period-still, it was
the result of a careful enquiry made by appropriate and responsible authorities in Malaya.
Even if he had adopted some other method in the
previous years it did not prevent him from utilizing the' correct method for
the assessment year.
[830 C; 830 G-831 A; 831 B-C]
S. L. N. Sathappa Chettiar Y. Comn1issioner of l11conze-tax, Madras,
(1959) 35 LT.R. 641, approved.
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## Text

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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 businciS 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 purchased 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 Officer.
The Tribunal also refused to state a case to the High
Court and the High Court rejected the assessee's application to direct the
Tribunal to do so.
The assessee appealed to the Supreme Court.
HELD : The Income-tax Officer was justified in adopting the schedule
appended to the Ordinance for the purpose of ascertaining the cost price
of the properties in Malayan Currency, [831 A-BJ
When a property is purchased in one currency and sold in another, the
profit or loss can be ascertained only when the conversion rate of the
two currencies is known.
The only material available to the officer for
determining that common standard was the Schedule in the Ordinance.
Though the Ordinance does not in terms apply to the scaling down of the
coet price-it was enacted for the purpose of scaling dov./n payments
made by debtors to creditors during the occupation period-still, it was
the result of a careful enquiry made by appropriate and responsible authorities in Malaya.
Even if he had adopted some other method in the
previous years it did not prevent him from utilizing the' correct method for
the assessment year.
[830 C; 830 G-831 A; 831 B-C]
S. L. N. Sathappa Chettiar Y. Comn1issioner of l11conze-tax, Madras,
(1959) 35 LT.R. 641, approved.
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 131 of
H
1963.
Appeal by special leave from the order dated July 31, 1961
of the Madras High Court in Tax Case Petition No. 44 of 1961.
K. Snnivasan and R. Gopalakrishnan, for the appellant.
C. K. Daphtary, Attorney-General, S. V. Gupte, SolicitorGeneral, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for
828
SUPREME COURT REPORTS
[1965] I S.C.R.
The Judgment of the Court was delivered by
A
Subba Rao J.
This appeal by special leave is directed against
the order of the High Court of Madras in Tax Case Petition No.
44 of 1961.
The appeliant is a Hindu undivided family carrying on business
with its head office at Pageneri in Ramanathapuram
District,
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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 ~t Paritpuntar the appellant claimed an c
aggregate loss of $ 68,405 incurred on the sale of house property
and rubber gardens QS detailed below :
- --------··---·---·· ···---··
SI.
No.
Date of Purchase
Cost price
Sale price
D
1.
2.
3.
4.
5.
6.
28 of Ani, Angirasa-14 Silama House.
28 Ani, Angirasa-No. 2) Silama House.
23rd A\ani, Angirasa-No. 23 Silama House.
4t54
2333
5th Avani, Subhanu-(21-8-43) Siradan House.
25453
24th Avani, Tharana (t5-9-44)-38 Garden.
53686
8th Purattasai Tbarana (23-9-44)-35 Garden.
2668
TOTAL
88294
(In doTiaro)
500
3920
1425
7000
5880
1164
19880
In respect of items Nos. I, 2 and 3 above the Income-tax Officer
accepted the claim of the appellant, but in regard to the remainmg three items, namely, items Nos. 4, 5 and 6, he held that as
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the said purchases of property and the outlay thereon were all
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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
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respect of the Ja,t 3 items of the property were worked out by Wm
as under:
ANNAMALAI CHETTIAR v. C.I.T. (Subba Rao!.)
829'
A
Purchase
Scaled
S. No. Sale of Property
price in
down
Sale
Profit
Loss
occupation
value of
amount
currency
purchase
price
$
$
$
$
$
1.
Siradan House
25453
9000
7000
2000
B"
2.
38 Garden
53686
3830
5880
2050
3.
35 Garden
2668
190
J-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 appellar;t.
On appeal, the Appellate
C 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 Incometax Act requiring it to state a case and refer the following question
0
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 $67, 7 64
as
claimed and the computation of the profit at $382 is
valid in Jaw."
E The Appellate Tribunal rejected the application. Thereupon, the
appellant moved the High Court under s. 66(2) of the Incometax Act praying for an order directing the Appellate Tribunal tostate a case and refer the question of law arising out of its order.
'The High Court, following the decision in S.L.N.
Sathappa
Chettlar v. Commissioner of Income-tax, Madras('), dismissed
F the application. Hence the appeal.
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,.
G 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
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for all the years including the Japanese occupation period; the
original cost of. acquisition of the 3 properties was adopted for the
(I) (1959) 35 I.T.R. 641.
830
SUPREME COURT REPORTS
(1965) I S.C.R.
purpose of business balance-sheets all these years; no loss on
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revaluation of the said assets by scaling down their values at any
time was allowed in any of the e;irlier years by the Department;
and, therefore, there was no justification for a departure in the
year of account.
He also contended that if the properties were purchase.d for
dollars and sold for dollars, the fact of inflation or deflation of
currency would be irrelevant in ascertaining the profits. That may
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be so in the case of a country's 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 possib!e to
ascertain the profit or loss unless the exchange or conversion rate C
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
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the same country during
the same or different periods.
The
extraordinary situation of two currencies coexisting during the
occupation period or the situation of one property being purchued
during the enemy occupation period in Japanese currency and
<.old in Malayan currency after the vacation of the enemy occupation cannot be equated with fluctuations in the v~lue of a nation's
currency.
Unless the cost price expressed in Japanese currency
is computed in terms of the Malayan currency, it is not p<liSible
to arrive at the real profit accrued to the assessce. That is exactly
what the Income-tax Officer did and, in our view, that is the only
correct basis.
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 details of the Ordinance have already been considered by us in Civil Appeals Nos. 55 of I 962 etc. The Ordinance was enacted for the purpose of scaling down the payments
made by debtors to creditors during the occupation period.
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Schcduk was apper,ded to the Ordinance providing a table
of
conversion of tl1e depreciated Japanese currency into
Malnyan
currency. In terms the Ordinance does not directly apply to the
~.caling 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-ta.1: Officer was
the Schedule appended to the Ordinance. Though that Schedule
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ANNAMALA! CHETTIAR l'. C.l.T. (Subba Rao!.)
831
was appended to the Ordinance enacted for a di~rent purpose, it
was the result of a careful inquiry made by the appropriate and
responsible author:ties 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 reg2rd to the
method adopted by the Income-tax Officer-does not prevent him
from ascertaining the correct method for the assesmcnt year with
which we are concerned.
The questions raised before us were the subject-matter of the
decision of the Madras High Court in S.L.N. Sathappa Chetriar v.
Commissioner of Income-tax, Madras('). There, as here, the
asscssee, which carried on a moneylending business and had its
head office in India and a branch in the Federated Malaya States.
D purchased some properties when Malaya was under enemy occupation and sold them after the vacation of the enemy occupat10n in
Malayan currency. In order to ascertain the profits resulting from ·
the sale for the purpose of assessment of the assessee for the year
1952-53 the Department valued the cost of the properties
in
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Malayan currency in accordance with the Schedule appended to
the Ordinance. The assessee contended that the cost price of the
properties mtis~ be ta.ken 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
F reason for the conclusion is stated thus at p. 649.
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"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 shou Id
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."
H The principle adopted by the High Cou~t appears to be unexceptionable. It accords with our view. · Adverting to the ~econd
(I) (19S9) 3S l.T.R. 641.
832
SUPREME COURT REPORTS
11965] l S.C.R.
argument that the schedule to the Ordinance should b~ confined
<mly to the scaling down of debts. the learned Judge' poin:ed 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 a!lempt 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 asscsscc at any stage.
We
are
unable to bold 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.
In the result the appeal fails and is dismissed with costs.
Appeal dirn1issed.
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