1991 (3) TMI 4 - HC - Income Tax

Summary

Issues:
1. Entitlement to depreciation on extra liability due to exchange rate difference.
2. Entitlement to development rebate on the increased liability.

Analysis:
The case involved a dispute regarding the assessee's claim for depreciation and development rebate on a sum of Rs. 23,61,713 due to exchange rate differences. Initially, the claim was for a lesser amount disallowed by the assessing authority as capital in nature. The Commissioner of Income-tax (Appeals) directed depreciation on the initial amount. However, before the Tribunal, the assessee argued for depreciation on the higher amount, supported by a chart showing liability increase due to exchange rate difference. The Tribunal held that the entire increase in liability should be considered for depreciation under the mercantile system of accounting.

Regarding development rebate, the Commissioner rejected the claim based on section 43A(2) of the Income-tax Act. The assessee relied on a Madras High Court decision allowing such claims despite section 43A(2). The Calcutta High Court, in a previous case, had approved the Madras High Court decision, disagreeing with another High Court judgment. The Tribunal followed the Calcutta High Court decision, allowing the development rebate claim.

The first issue addressed the entitlement to depreciation allowance. The court held that if assets are eligible for development rebate, they should also receive depreciation allowance. Referring to previous judgments, the court emphasized that increased liabilities due to exchange rate fluctuations are considered capital expenditure, making the assessee eligible for depreciation on the increased value of plant and machinery.

The second issue was settled based on a previous decision in favor of the assessee, leading to a positive answer regarding entitlement to development rebate. The judgment concluded in favor of the assessee on both issues, with no order as to costs. The concurring judge agreed with the decision.

This detailed analysis of the judgment highlights the legal intricacies involved in determining the entitlement to depreciation and development rebate based on exchange rate differences, referencing relevant legal provisions and precedents to support the final decision in favor of the assessee.