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TMI Blog2013 (9) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee. Disllowance of loss - Foreign exchange fluctuation - Held that:- The dispute is regarding allowability of loss on account of foreign exchange fluctuation in respect of foreign currency loan taken by the assessee. The assessee had been restating foreign exchange loan liability on the balance-sheet date which resulted into loss which has been claimed as deduction. The loss/gain on account of foreign exchange fluctuation on restatement of the loan liability on the balance-sheet date is required to be taken into account in computation of income if the loan is on revenue account or is a working capital loan. Loss is allowable as deduction under section 37(1) as held by the hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT]. The loan in this case had been taken as working capital loan as is clear from the loan agreement wherein the purpose of the loan is clearly mentioned to use it as a working capital to finance the activities of the company. As held by the hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1978 (9) TMI 1 - SUPREME Court], foreign currency fluctuation loss is allowable as deduction if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure on trade mark and disallowance of foreign exchange fluctuation loss. The facts concerning the disallowance of expenditure on acquisition of trade mark are that the Assessing Officer during the assessment proceedings noted that the assessee in terms of agreement dated June 1, 1998 with Hari Mohan Puri had acquired his rights, title and interest in the brand "Libra" and the right to manufacture and market sales, weighing device, equipment or instruments both mechanical or electronic for lump sum payment of Rs. 1 crore. The assessee had written off the said sum of Rs. 1 crore during the assessment years 1999-00 to 2004-05 as under: Financial year Assessment year Amount written off (Rs.) 1st June, 1998 to 31st March, 1999 1999-00 16,66,667 1999-00 2000-01 20,00,000 2000-01 2001-02 20,00,000 2001-02 2002-03 20,00,000 2002-03 2003-04 20,00,000 1st April, 2003 to 31st May, 2003 2004-05 2,33,333 1,00,00,000 The Assessing Officer asked the assessee to explain as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accordingly urged that the claim of revenue expenditure should be allowed. Alternatively it was also submitted that, in case, expenditure was treated as capital expenditure, the assessee should be allowed depreciation under section 32 of the Act at 25 percent as brand was an intangible asset. The Commissioner of Income-tax (Appeals) however did not accept the contentions raised. It was observed by him that the assessee had acquired brand named "Libra" along with right to manufacture on lump sum payment of Rs. 1 crore. The acquisition of the brand became one of the foundation to carry out the business. The brand name which had necessary goodwill in the market had been exploited by the assessee to conduct business. It was therefore, an asset with which the business was being carried on. The Commissioner of Income-tax (Appeals) accordingly held that the expenditure incurred on acquisition of brand was capital expenditure. As regards alternate claim of the assessee to allow depreciation if the amount was treated as capital the Commissioner of Income-tax (Appeals) observed that disallowance of expenditure as capital in nature did not necessarily mean that asset had been created in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was the owner of the brand and therefore expenditure had been incurred for acquisition of capital asset which was not allowable. It was also submitted that merely because the claim had been allowed in the earlier year, it did not give any right or confer any legal authority in favour of the assessee that in subsequent years also the mistake should be allowed to perpetuate as held by the hon'ble High Court of Rajasthan in the case of CIT v. Foss Electronic [2003] 263 ITR 125 (Raj). We have perused the records and considered the rival contentions carefully. The dispute is regarding nature of expenditure incurred by the assessee on acquisition of brand name/trade mark "Libra". The said brand had been acquired by the assessee vide agreement dated June 1, 1998. A perusal of the agreement placed at page 15 of the paper book shows that the assessee had been allowed only exclusive licence to use the brand name. Thus, as per agreement the assessee had been allowed the use of brand name for a period of five years and was not the owner of the brand. However, subsequently on expiry of the five year period, the assessee sold the business along with brand name to a third party. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus loss was not notional or contingent as held by the Special Bench of the Tribunal in the case of Oil and Natural Gas Corporation Ltd. v. Deputy CIT (Assessment) [2003] 261 ITR (AT) 1 (Delhi). It was accordingly urged that the claim should be allowed. The Commissioner of Income-tax (Appeals) however, did not accept the contentions raised. It was observed by him that the foreign currency loan was not only to enhance its working capital but also enhance its assets specially loan of Rs. 10 lakhs CHF. It was also observed by him that the loan was sanctioned and approved in 1998 and only in the financial year 200304 part payment of the loan had been made. The Commissioner of Income-tax (Appeals) also noted that the assessee changed the accounting policy of claiming loss only after March 31, 2001. In the year 2000-01, there was gain on account of restatement of foreign currency loss which had not been offered for tax. Further the claim made by the assessee was notional as liability remained undischarged. The Commissioner of Income-tax (Appeals) also observed that loss could not be allowed on the basis of entry in the books of account. There being no real loss, the Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction if the foreign currency is held on revenue account or as trading asset or as part of circulating capital employed in the business. As regards the year of allowability, the claim has to be allowed on the basis of restatement of the liability on the balance-sheet date as held by the hon'ble Supreme Court in the case of Woodward Governor India P. Ltd. [2009] 312 ITR 254 (SC). Thus the claim of the assessee is allowable. In case there is gain in a year and the assessee has not offered it to tax, the Revenue is free to take action under law. In these years, admittedly there is loss which is allowable as deduction. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and allow the claim of the assessee. The appeal of the Revenue in I. T. A. No. 2574/M/2007 (assessment year 2002-03) : The only dispute raised by the Revenue in this appeal is regarding assessability of capital gain on sale of personal weighing scale business. The Assessing Officer noted from the accounts that the assessee received a sum of Rs. 30 lakhs on sale of personal weighing scale business at Goa. The assessee treated the same as a capital receipt not taxable. The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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