1998 (11) TMI 109 - HC - Income Tax

Additions To Income, Foreign Currency, Investment Allowance, New Industrial Undertaking, Penalty, Interest

Summary

Issues:
1. Whether the business of construction carried on by the assessee is an 'industrial undertaking'?
2. Whether the business of construction is eligible for investment allowance under section 32A(2)(b)(iii)?
3. Whether the business activity of the assessee qualifies for investment allowance under section 32A(2)(b)(iii)?
4. Whether the dumpers used by the assessee in civil engineering contract work are 'road transport vehicles' for investment allowance under section 32A(1)?
5. Whether the amount in the foreign exchange reserve account represents taxable profit or gain?

Analysis:

1. The first four questions were resolved in favor of the Revenue based on a previous Supreme Court decision. The High Court answered questions 1 to 4 against the assessee, following the precedent set by the Supreme Court in CIT v. N. C Budharaja and Co. [1993] 204 ITR 412.

2. The fifth question involved the treatment of the amount in the foreign exchange reserve account. The assessee had received advances for contract works in the Middle East, and the remaining foreign currency was converted into Indian rupees at the year-end. The Income-tax Officer taxed this amount, but the Appellate Assistant Commissioner and the Tribunal ruled in favor of the assessee. The High Court agreed that the amount did not belong to the assessee until adjusted against future bills, and the conversion into Indian rupees was for accounting purposes only. Therefore, the High Court held that the amount was not taxable income, ruling in favor of the assessee.

3. The High Court concluded that until the foreign currency advances were adjusted against future bills, they could not be considered as income of the assessee. The conversion into Indian rupees at year-end was merely for accounting purposes, and the amount did not belong to the assessee until adjusted. Therefore, the High Court upheld the decision of the Tribunal, ruling in favor of the assessee against the Revenue.

4. The High Court disposed of the reference accordingly, with no order as to costs, after providing a detailed analysis and resolution for each of the issues raised in the reference under section 256(1) of the Income-tax Act, 1961.