TMI Blog1993 (10) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... t of devaluation of the Indian rupee is a revenue expenditure and consequently directing the deduction thereof ? (2) If the answer to question No. (1) above is in the negative, whether the Tribunal was right in holding that the aforesaid loss of Rs. 6,38,600 was a revenue loss incurred by the assessee in the course of carrying on its business, and consequently directing the deduction thereof from the total income of the assessee-company ?" The assessee is a company. It entered into an agreement of loan with a Swiss company Sandoz (India) Ltd. which was repayable in Swiss francs in Switzerland. The loan was specifically taken for the purpose of purchasing capital goods and as per the terms of the agreement the assessee was bound to utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence this reference at the instance of the Revenue. Learned counsel for the Revenue submits that this case is fully covered by the decision of this court in Income-tax Reference No. 122 of 1980 decided on July 15, 1993 (CIT v. V. S. Dempo and Co. Pvt. Ltd. [1994] 206 ITR 291.). Learned counsel for the assessee does not dispute the above submission of learned counsel for the Revenue. He, however, submits that the above decision needs reconsideration in view of the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52. According to the assessee, the loan in question having been raised for the purpose. of business, the expenditure in repayment of the same is a revenue expenditure notwithstanding the fact that the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, was whether a sum of Rs. 84,633 expended by the assessee towards stamp duty, registration fees, lawyer's fees, etc., in obtaining loan or any part thereof was an allowable expenditure. It was in this context that the Supreme Court held that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business. Observations of the court in that judgment should be read in that context only. It is the ratio of the decision that would apply. Evidently, the ratio of the above decision has no application to the facts of the present case which are quite different. The question that arises for consideration in this case is whether the loss incurred by an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal proposition which needs no reconsideration. The decision of the Supreme Court in CIT v. Tata Locomotive and Engineering Co. Ltd. [1966] 60 ITR 405 is clearly distinguishable (sic) having regard to the facts of that case. The law on the subject is well-settled by the decision of the Supreme Court in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1, wherein the Supreme Court has gone into all aspects of the matter and laid down the test for determining whether the loss caused on account of devaluation is a revenue loss or a capital loss in the following words (at page 13) : 'A "The law may, therefore, now be taken to be well-settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid six months early in 1976 with the consent of the Bank of England. The second loan was repaid on the due date. In each case the company converted the loan proceeds into sterling and used the money for the general purposes of its business. For repayment it bought Swiss francs out of its general funds. The exchange transactions gave rise to losses of about pounds11.4m. Before the Special Commissioners the company contended that the losses were deductible in computing its profits for corporation tax purposes as arising on revenue account. The Special Commissioners found that the purpose of the loans was to tide the company over a short-term cash flow problem and so represented temporary facilities rather than permanent addition to its capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and incurred in meeting the ordinary running expenses of the taxpayer's trade. (2) The borrowing of a definite sum for a fixed term of five years was not part of the taxpayer's day-to-day activities in earning profits but an increase of its capital, and the exchange loss incurred in connection with it was accordingly not allowable." In view of the above discussion, we are of the clear opinion that loss due to increase in rupee payment obligation of a foreign currency loan due to exchange rate fluctuation is not deductible if the loan was used by the assessee for purposes of capital nature. The Tribunal was, therefore, not justified in holding the loss of Rs. 6,38,600 arising out of devaluation of the Indian rupee in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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