TMI Blog1982 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-70, respectively ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 8,71,399, being the amount of guarantee commission paid to the bank represented part of the capital expenditure and, therefore, was not allowable under section 37(1) of the Income-tax Act, 1961, for the assessment year 1969-70 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expression 'such profits and gains' appearing in section 80-I of the Income-tax Act, 1961, referred only to profits and gains attributable to priority industry as included in the gross total income and such profits and gains signified profits and gains of the priority industry determined and finally included in the gross total income in accordance with the provisions of the said Act including its sections 32, 33, 71 and 72 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no depreciation was admissible on drains, culverts and roads for the assessment year 1969-70 ? " The first question has been referred at the instance of the Revenue. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability for the additional amount accrued during the relevant period in which devaluation took place. It was held in that case (p. 170): " We have already observed that the Division Bench held, in the facts of the case before that Bench, that the loss was a capital loss. But that is not the controversy here and it is undisputed that the expenditure in respect of the additional expenditure incurred was of a revenue nature. Following the ratio of the said decision on the two aspects, we are of the opinion that the Tribunal was in error in not holding that the amount was not deductible in computing the assessee's income for the assessment year 1967-68. " The question in this year really follows the decision of the earlier year. In this case the Tribunal has allowed the deduction on the basis that in this year the actual payment was made and the Revenue has come up on reference against it. The logical corollary of the judgment given in the earlier year is that the amount cannot be allowed as deduction in this year because the liability was incurred and allowed as a deduction in the earlier year. It has been argued on behalf of the assessee that the Tribunal has only been logical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Khandelwal Brothers Pvt. Ltd. v. CIT [1979] 117 ITR 452, held that the currency surplus accrued to the assessee at the time of devaluation and not at the time of subsequent adjustment of the accounts of the assessee or at the time when the assessee obtained the sanction of the Reserve Bank of India to adjust its two accounts. This was done on the basis of the principles underlying the mercantile system of accounting. The point was also gone into at length in the case of Bestobell (India) Ltd. v. CIT [1979] 117 ITR 789 (Cal), where it was held that since the assessee maintained its accounts on mercantile basis, on the devaluation of the Indian currency the liability of the assessee to its foreign creditor immediately increased to the extent of rupees devalued and the assessee became liable to pay and/or spend an extra amount in rupees in order to pay its dues. The liability of the assessee arose during the assessment year and could not be said to be a contingent liability or an anticipated future loss. It has been argued that the principle enunciated in the aforesaid cases is not correct and reliance was placed for this purpose on a judgment of the Supreme Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1954-55 as Rs. 36,00,000 in terms of Indian rupees according to the then prevailing rate of exchange. Therefore, when the assessee ultimately converted the amount into Indian currency at par on the basis of the new rate of exchange, the assessee suffered a loss on account of appreciation of Indian rupee qua Pakistani rupee. The question before the Supreme Court was whether this loss which the assessee suffered on actual remittance of the amount of money lying in Pakistan to India was capital loss or revenue loss. It is to be noted that in the case before the Supreme Court when the profits arose in Pakistan it was taxed in India on accrual basis without any actual physical conversion but on a notional conversion of Pakistani rupees into Indian rupees at the prevailing rate of exchange. After the income accrued and was taxed, the money was retained in Pakistan for some time and ultimately repatriated to India. Upon repatriation the question arose whether the loss suffered due to further fluctuation in the rate of exchange was capital loss or revenue loss. In our opinion, this judgment does not help the assessee in the case before us in any way at all. The profit o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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