TMI Blog1992 (10) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the character of its user ? For the assessment year 1973-74 : (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not deciding the question whether the assessee was entitled to claim the extra liability resulting from the exchange rate fluctuation of Rs. 6,03,172 as revenue expenses ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not holding that, on the basis of the mercantile system of accounting, the additional liability had arisen at the end of the accounting year and the same was of revenue nature and/or capital nature includible in the cost of the machinery ?" The assessee wanted the following four questions to be referred to this court : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not deciding the question whether the assessee was entitled to claim the extra liability resulting from the exchange rate fluctuation of Rs. 6,03,172 as revenue expenses ? 2. If the answer to the above question is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal was justified in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d increased by Rs. 6,03,172, it claimed depreciation on the increased liability also, A contention was also raised that the said increased liability was in the nature of revenue expenditure, but it was conceded before the Income-tax Officer that it could not be regarded as revenue expenditure. Before the Appellate Assistant Commissioner, that point was not raised, but it appears that it was again raised before the Tribunal. The Tribunal rejected that claim and the question in that behalf has been referred to us. But at the time of hearing of this reference, learned counsel appearing for the assessee stated that he is not pressing the said question. Therefore, no further discussion with respect to that question is necessary. The claim for depreciation of the machinery on its increased cost as a result of fluctuation in the foreign exchange rate was rejected by the Income-tax Officer holding that the increased liability was determined on the last date of the accounting year and as such it was relevant for the following accounting period. Two more reasons were given by the Income-tax Officer for rejecting the said claim, but the Tribunal has not thought it fit to base its conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the enhanced value of the machinery, the Tribunal held that, ". . . . the liability for payment of instalments would accrue only in the subsequent year and, therefore, the decision of the Appellate Assistant Commissioner allowing the claim for depreciation was not justified both in law as well as on facts". The Tribunal was of the view that no enforceable obligation had arisen during the relevant previous year as the first instalment was to be paid in the following accounting year. Thus, according to the Tribunal, the claim for higher depreciation did not arise really for consideration so far as the assessment year under appeal was concerned. The Tribunal, therefore, dismissed the appeal so far as those contentions were concerned, but partly allowed the same with respect to some other claims. As the assessee was not satisfied with the decision of the Tribunal, it preferred three applications two arising from the orders passed in his appeal and one arising from the order passed in the appeal filed by the Revenue for referring four questions to this court. As stated above, instead of referring the questions suggested by the assessee, the Tribunal has thought it fit to refer the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1973-74, and that such a claim would arise for consideration only when the liability of the assessee is increased as a result of payment of the instalments in subsequent years will have to be accepted. The Supreme Court, in the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255, has also held that, after the introduction of that section what would have been the position independently of that section cannot be considered, and that there would be no justification to disregard the enacted provision. Therefore, the only controversy arising for consideration is : Can the assessee's liability be said to have increased as a result of fluctuation in the exchange rate ? It was contended on behalf of the assessee that, when the assessee purchased the assets, its liability to pay the price thereof accrued and the said liability increased in the relevant previous year as a result of devaluation of the rupee, and increase in the value of the German currency. As against that, it was contended by learned counsel for the Revenue that the liability of the assessee would increase only when it pays the instalments and as admittedly no instalment was payable and paid during the relevant previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of the asset in respect of which depreciation is claimed. It is in this context that we have to consider as to when the liability can be said to have arisen. If the contention raised on behalf of the Revenue is accepted, then it would defeat the very purpose of the provision. As pointed out by the Supreme Court, section 43A was introduced with view to mitigate hardships which were likely to be caused to the assessees as a result of fluctuation in the rate of exchange. For these reasons, we hold that the Tribunal was not right in holding that the assessee was not entitled to claim the benefit on the basis of this additional liability resulting from the exchange rate fluctuation. In the result, we answer question No. 1 in the affirmative, that is, against the assessee and in favour of the Revenue. We decline to answer question No. 2 as it does not call for any reply. Question No. 3 is not answered as it is not pressed and question No. 4 is answered in the negative, that is in favour of the assessee and against the Revenue. No order as to costs. The reference application is dismissed. Rule is discharged with no order as to costs. As this reference arises out of three refe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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