1997 (12) TMI 5 - SC - Income Tax

Repayment of loan - fluctuation in the rate of foreign exchange resulted in repay a much lesser amount - manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals of revenue are dismissed

Summary

Issues:
1. Interpretation of gain on capital account in foreign exchange fluctuations for assessment year 1960-61.
2. Interpretation of loss on capital account in foreign exchange fluctuations for assessment year 1961-62.

Analysis:
The Supreme Court addressed the issue of whether gains and losses from fluctuations in foreign exchange rates should be considered as capital account items affecting the cost of depreciable assets. The High Court's decision was based on a previous case, but the Supreme Court noted that the relevant assessment years in the cited case differed from the current case, and the provisions of section 43A of the Income-tax Act were not applicable in the present scenario. The Court emphasized that the manner of loan repayment does not impact the cost of assets acquired by the assessee, as the actual cost is determined by the amount paid to acquire the asset, regardless of loan repayment fluctuations. The Court clarified that the cost of an asset and the cost of raising funds for its purchase are distinct transactions, and external factors like foreign exchange fluctuations during loan repayment do not alter the original cost of the asset. Therefore, the Supreme Court upheld the High Court's decision, stating that the mode of loan repayment does not affect the cost of assets acquired by the assessee for business purposes. Consequently, the appeals were dismissed with no order as to costs.