2014 (9) TMI 283 - HC - Income Tax

Reference u/s 256(1) - Deduction of exchange rate fluctuation Held that - Following the decision in Commissioner of Income Tax V/s. Woodward Governor India P. Ltd. 2009 (4) TMI 4 - SUPREME COURT - deduction need not be claimed upon actual payment and the same can be claimed even pending such actual payment - the deduction of foreign exchange fluctuation can be claimed in the computation of the assessee s business profits pending such payment Decided in favour of assessee. Managing Director s remuneration disallowed Held that - Following the decision in Mahindra And Mahindra Limited Versus Commissioner Of Income-Tax 2005 (8) TMI 87 - BOMBAY High Court - the claim for allowance of its Managing Director s remuneration in the computation of business profits is permissible Decided in favour of assessee.

Summary

Issues:
1. Deduction towards exchange rate fluctuation in the computation of business profits.
2. Claim of Managing Director's remuneration in the computation of business profits.

Analysis:

Issue 1: Deduction towards exchange rate fluctuation
The first issue pertains to the disallowance of a deduction towards exchange rate fluctuation amounting to Rs. 45,32,050 in the computation of the assessee's business profits. The Tribunal had held that such deduction could only be claimed upon actual payment and was contingent until then. However, this issue has been settled in the case of Commissioner of Income Tax v. Woodward Governor India P. Ltd., where the Supreme Court ruled that the deduction need not be claimed upon actual payment and can be claimed even pending such payment. Therefore, the deduction of foreign exchange fluctuation in the present case can be claimed in the computation of the assessee's business profits pending actual payment.

Issue 2: Claim of Managing Director's remuneration
The second issue concerns the disallowance of the assessee's claim for the Managing Director's remuneration amounting to Rs. 1,56,701. This issue has been previously addressed in Income Tax Reference No.23 of 1993, where the Court decided in favor of the assessee. The Court held that the claim for allowance of the Managing Director's remuneration in the computation of business profits is permissible. This decision was influenced by a statement made on behalf of the Government of India in a related matter before the Supreme Court, where the government communicated its approval for such allowance. Consequently, the question regarding the Managing Director's remuneration was answered in the negative and in favor of the assessee.

In conclusion, both issues raised in the reference are answered in the negative, favoring the assessee and ruling against the revenue. The reference is disposed of accordingly, with no orders as to costs.