TMI Blog1997 (12) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... the computation of its total income for the assessment years 1973-74 to 1975-76, the assessee claimed deduction of Rs. 12,99,806, Rs. 7,82,467 and Rs. 11,19,327, respectively as revenue expenditure. It was explained that the said expenditure was incurred on account of difference in foreign exchange rate in making the remittances to IGE Export Division, General Electric Company, New York and General Electric Technical Service Co. Inc., New York, against instalments under the deferred payment contracts Nos. IGE-9584 and GETS-1451 in foreign currency. The case of the assessee was that parity rate of dollar was fixed by the Reserve Bank of India, yet at the time of making actual remittances, dollars had to be arranged from the open market through the bankers duly registered who dealt in foreign exchange, which resulted in extra expenditure on account of fluctuations in the exchange rate. Further, the exchange loss was not on account of any official devaluation/revaluation of the currency and, as such, the expenditure in question was purely incidental to the carrying on of the business arising from the remittances in the foreign exchange. In response to a query from the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in treating the liability as a capital one. The ground, therefore, fails." The assessee thereafter pursued the matter further in the second appeal before the Income-tax Appellate Tribunal which upheld its claim. In doing so, the Tribunal merely relied upon certain decisions of other Benches of the Tribunal where in similar circumstances the view taken was that such an expenditure was allowable as a revenue expenditure. We have heard learned counsel for the parties. Learned standing counsel for the Revenue contended that any increase in the liability of the assessee expressed in terms of Indian currency for remitting the instalments towards the cost of plant and machinery under the deferred payment agreement, is an expenditure on capital account. The extra expenditure in such circumstances, it was urged, will have the effect of increasing the actual cost of the capital asset. Learned counsel further submitted that the cause which occasioned such loss whether owing to day-to-day fluctuation in the rate of exchange or devaluation brought about by the act of the State, was of no importance in deciding whether the expenditure was revenue or capital expenditure. On the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was a trading loss or not would depend on the answer to the question, whether the loss was in respect of a trading asset or a capital asset. In the former case, it would be a trading loss but not so in the latter." In that very decision an argument like the one advanced before us---that the distinction should be maintained between the loss caused by fluctuation in the exchange rates due to market forces and the loss caused on account of devaluation which was an act of the State, was repelled by the Supreme Court. The Supreme Court observed that it makes no difference whether a loss is occasioned by devaluation brought about by the act of the State or because of the fluctuation in the day-to-day exchange rate on account of other circumstances. It was emphasised that the circumstances which caused such fluctuations and the resultant loss to the assessee is not material for determining whether the character of loss is revenue or capital. It is the utilisation or intended utilisation of the foreign currency that makes the difference in determining whether the loss resulting from depreciation in value on account of variation in the rate of exchange would be a trading l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held as a capital asset, loss arising from depreciation would be a capital loss" It is evident that whether the increased liability due to fluctuation in currency rate would be revenue or capital, would depend on the circumstances of each case. In the instant case, the assessee has no case that the payment of instalments made in foreign currency was on revenue account or as a trading asset or as a part of circulating capital embarked in the business. Any payment towards the increase in liability of the assessee while repaying the cost of the capital asset due to fluctuation in foreign exchange rates, is in the nature of capital expenditure. It is not the case of the assessee that the original expenditure for the purchase of machinery/plant is not a capital expenditure. The accretion to such an expenditure or enhanced payment represented by the difference due to fluctuation in the currency rate also should be of capital nature. Increase in liability due to fluctuation of currency rates arising out of devaluation or otherwise bears the same character as the original liability and it cannot be taken to have a different character. The machinery and plant had already been purchased. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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