2002 (4) TMI 25 - HC - Income Tax

(i) Whether, the cost of plant and machinery under erection as also the cost of building under construction was to be included in the capital base for purposes of deduction under section 80J of the Income-tax Act, 1961? - (ii) Whether the assessee is entitled to investment allowance in respect of the amount paid as a result of the fluctuation in exchange rate? - (iii) Whether the amount of Rs. 28,79,813 claimed by way of exchange loss consequent to the fluctuation in exchange rate was allowable as a deduction? - The said question (i) is, therefore, answered in the affirmative against the Revenue and in favour of the assessee. - Question No. (ii) is, therefore, answered in the negative, in favour of the Revenue and against the assessee. Question No. (iii) is accordingly answered against the assessee and in favour of the Revenue.

Summary

Issues:
1. Inclusion of plant and machinery under erection and building under construction in capital base for deduction under section 80J of the Income-tax Act, 1961.
2. Entitlement to investment allowance in respect of amount paid due to fluctuation in exchange rate.
3. Allowability of exchange loss as a deduction due to fluctuation in exchange rate.

Issue 1:
The first issue revolved around whether the cost of plant and machinery under erection and building under construction should be included in the capital base for the purpose of deduction under section 80J of the Income-tax Act, 1961. The Income-tax Officer initially rejected the claim, but the Commissioner of Income-tax (Appeals) accepted it, citing precedent cases. The Tribunal upheld the Commissioner's decision based on previous court rulings. The High Court concurred with the Tribunal, stating that the cost of plant and machinery under erection and building under construction should be included in the capital base for the purpose of deduction under section 80J.

Issue 2:
The second issue dealt with the entitlement to investment allowance in relation to the amount paid due to fluctuation in exchange rate. The Tribunal, following a previous decision, allowed the investment allowance on the principal amount. However, the High Court disagreed, stating that the full amount of the investment allowance should not be reduced due to subsequent fluctuations in the exchange rate. Relying on precedent cases, the High Court held that the assessee was not entitled to investment allowance in respect of the amount paid as a result of the fluctuation in exchange rate.

Issue 3:
The final issue involved the claim by the assessee that the exchange loss resulting from the fluctuation in exchange rate should be allowable as a deduction. The High Court, considering previous decisions and the nature of the liability, concluded that the additional liability arising from exchange rate fluctuations was of a capital nature, not a revenue expenditure. Therefore, the High Court held that the exchange loss claimed by the assessee was not allowable as a deduction. This issue was answered against the assessee and in favor of the Revenue.

In conclusion, the High Court addressed and resolved all three issues raised in the judgment, providing detailed reasoning and analysis based on legal precedents and interpretations of the Income-tax Act, 1961.