TMI Blog1995 (11) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of fluctuations in the rates of exchange of currency was not a notional loss and that it represented real loss ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the aforesaid 'exchange loss' is allowable as a deduction in computing the income ? " The assessee is a banking company. This reference pertains to the assessment years 1973-74, 1974-75 and 1975-76. During these three assess ment years, the assessee claimed deduction for the following amounts as exchange loss : Year Amount (Rs.) 1973-74 3,70,180 1974-75 4,05,728 1975-76 84,251 The assessee claimed that these losses were on account of fluctua tions in the rates of exchange and, hence, allowable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee for allowance of loss in excess of current liabilities over current assets had to be allowed. The Commissioner (Appeals) accordingly allowed the claim of the assessee for deduction of loss on account of fluctuations in the rate of exchange. Aggrieved by the order of the Commissioner (Appeals), the Revenue appealed to the Income-tax Appellate Tribunal ("the Tribunal"). On consideration of the facts and circumstances of the case, the Tribunal dismissed the above appeal of the Revenue and confirmed the order of the Commissioner (Appeals). While doing so, the Tribunal followed its earlier order in the assessee's own case in respect of the earlier assessment years and observed that the only difference in the facts of that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n currency is held as a capital asset or as fixed capital. To the same effect is the earlier decision of the Supreme Court in CIT v. Tata Locomotive and Engineering Co. Ltd. [1966] 60 ITR 405, where it was held that the real test to be applied in such cases is whether the depreciation in value had taken place in a capital asset or in a trading asset, or in other words, in fixed capital or in circulating capital. Therefore, what is relevant is the nature of the asset at the time of devaluation. These decisions of the Supreme Court came to be considered by this court in CIT v. V. S. Dempo and Co. Pvt. Ltd. [1994] 206 ITR 291. After elaborate discussion, the propositions emerging from the above decisions were summed up by this court (at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss and not a capital loss. (vii) The way in which the entries are made by an assessee in the books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee. Applying the above principles to the facts of the present case, we are of the clear opinion that the Tribunal was right in holding that the exchange loss claimed by the assessee as a result of fluctuations in the rates of exchange of foreign currencies held by it as balance in its foreign branches was an allowable deduction because the foreign currencies were its stock-in-trade. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
