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Issues involved:
The judgment addresses the questions of law regarding the treatment of a loss arising from the devaluation of the Indian rupee in the context of a foreign currency loan obtained by a company for the purchase of capital goods. Issue 1: The first issue pertains to whether the loss of Rs. 6,38,600 resulting from the devaluation of the Indian rupee in the repayment of a foreign currency loan is a revenue expenditure and thus deductible. The company had obtained a loan from a Swiss company specifically for purchasing capital goods, with the loan being utilised as per the terms of the agreement. After the devaluation of the Indian rupee, the company's liability to repay the loan increased by Rs. 6,38,600. The Income tax Officer rejected the company's claim for deduction of this amount as a revenue expenditure, a decision upheld by the Appellate Assistant Commissioner. However, the Income-tax Appellate Tribunal ruled in favor of the company, considering the additional liability due to devaluation as a revenue expenditure. Issue 2: The second issue questions whether the aforementioned loss of Rs. 6,38,600, incurred by the company in the course of its business due to devaluation, should be treated as a revenue loss and thus deductible from the total income of the company. The company argued that despite using the loan for acquiring capital assets, the loss arising from the increase in loan liability due to exchange fluctuation should be considered a revenue expenditure. The Tribunal's decision in favor of the company was challenged by the Revenue, citing previous court decisions and legal principles. The judgment extensively discusses the legal precedents, including decisions by the Supreme Court and various High Courts, to determine the nature of the loss incurred by the company. It emphasizes the distinction between revenue and capital expenditures in the context of foreign currency loans used for business purposes. Ultimately, the court concludes that the loss due to the increase in rupee payment obligation of a foreign currency loan, when used for capital purposes, is not deductible as a revenue expenditure. The court rules against the company, stating that the loss arising from devaluation should not be treated as a revenue expenditure for tax deduction purposes. The judgment highlights the importance of the company's own treatment of the expenditure and concludes by answering both questions in the negative and in favor of the Revenue, with no order as to costs.
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