1975 (10) TMI 42 - AT - Income Tax

Summary

Issues:
1. Interpretation of Section 40(a)(i) of the Income Tax Act, 1961 regarding the deduction of interest paid to non-resident banks without tax deduction at source.
2. Application of Section 43A of the Income Tax Act, 1961 concerning extra depreciation due to devaluation of Indian currency.

Interpretation of Section 40(a)(i):
The Department appealed against the allowance of interest paid to non-resident banks without tax deduction at source under Section 40(a)(i) of the Income Tax Act, 1961. The Tribunal examined whether the payment of interest to non-resident banks was in compliance with Chapter XVII B of the Act. The Department argued that the payment should have been made under Chapter XVII B to avoid the provisions of Section 40(a)(i). However, the Tribunal held that as long as tax on the interest payable outside India has been paid, the payer would not be caught by Section 40(a)(i), irrespective of whether the tax was deducted at the source or paid directly by the payee. The Tribunal upheld the decision of the AAC, emphasizing that the interest payment should be allowed as a deduction since the tax payable had been recovered by the Department under Section 226.

Application of Section 43A:
The dispute regarding extra depreciation under Section 43A of the Income Tax Act, 1961 arose from the lack of evidence regarding the outstanding liability on the date of the change in the rate of exchange of Indian currency. The Department contended that the assessee must prove the increase in liability due to the change in the rate of exchange to claim extra depreciation. The Tribunal found that the necessary information was not on record and directed the ITO to determine the increase in the liability of the assessee in Indian currency for making payments towards the assets purchased from outside countries. The case was sent back to the ITO for further assessment to ascertain the eligibility of the assessee for extra depreciation under Section 43A.

Consequential Appeal - Extra Depreciation:
A consequential appeal (ITA 971) related to the allowance of extra depreciation under Section 43A was deemed redundant as the issue was addressed in the previous appeal. The Tribunal directed the ITO to recompute the extra depreciation the assessee may be entitled to under Section 43A. The appeal was treated as dismissed for statistical purposes.