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TMI Blog2019 (5) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... f the relevant balance-sheet dates pending actual payment of the varied liability. Disallowance of royalty expenses - expenses not relating to the previous year ended on 31.03.1993 - prior period expenses - HELD THAT:- Admittedly, the assessee, instead of claiming the said amount in the assessment year 1992 - '93 claimed it as well in the year 1993 - '94, which was not correct or sustainable and hence disallowed. We are of the view that there is nothing illegal or improper on the part of the Commissioner or the Tribunal in having disallowed the royalty expenses the said extent being attributable to the previous year 1992 - '93, which could not have been claimed during the assessment year 1993 - '94. As it stands so, the second question also stands answered against the assessee and in favour of the Revenue - I. T. A. No. 535 of 2009 - - - Dated:- 13-3-2019 - MR P. R. RAMACHANDRA MENON AND MR N. ANIL KUMAR, JJ. For The APPELLANT : ADVS. SRI. JOSEPH MARKOSE, SC, SRI. BINU MATHEW, SRI. B. J. JOHN PRAKASH, SRI. JOSEPH KODIANTHARA (SR. ), SRI. MATHEWS K. UTHUPPACHAN, SRI. TERRY V. JAMES, SRI. TOM THOMAS (KAKKUZHIYIL) AND SRI. V. ABRAHA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated as aggrieved and hence the appeal. 4. Though the appeal was admitted on 03.08.2009, no substantial question of law is seen framed. The assessee however has suggested two questions, as involving substantial questions of law, which are extracted below : 1. Whether on the facts and circumstances of the case, the gains on the cancellation of forward contracts, held to be capital receipt, were liable to be set off against the cost of acquisition of imported plant and machinery ? 2. Whether the royalty expenses of ₹ 49 lakhs could be disallowed as not relation to the previous year ended 31.03.1993 relevant to the assessment year 1993 - 94 5. We heard Sri. Joseph Markos, the learned senior counsel appearing for the appellant and Sri.Christopher Abraham, the learned standing counsel appearing for the Revenue. 6. The finding of the Tribunal that it is a capital receipt and not the revenue receipt has become final as there is no challenge at the instance of the Revenue. With regard to the further course of action, i.e. the necessity to have it reduced from the cost of plant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond 30.4.1992 and the assessee consciously decided not to extend the security cover on maturity of the contracts would not by itself take these contracts out of the purview of Explanation 3. Admitted facts are that these contracts have been entered into for providing the assessee with foreign currency on or after a stipulated future date at the fixed exchange rate. The contracts are thus fully in conformity with the letter and spirit of Explanation 3. If the assessee has not opted for roll over of the contracts, this would not ipso facto make Explanation 3 inapplicable. The language of Explanation 3 does not contain any such qualification. The interpretation suggested by Id. Counsel would require the addition of the words and the contract has been rolled over to the date of actual payment of instalment for foreign liability after the words to enable him to meet the whole or any part of the liability aforesaid in the Explanation. There is nothing in the present language of the Explanation which makes it inapplicable to a case where the contracts have not been rolled over to the date of actual repayment of the liability. We are unable to accept the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of fluctuation in the rate of exchange at each balance-sheet date, pending actual payment of the varied liability with reference to unamended Section 43A of the Act, in Woodward s case [2009] 312 ITR 254, the court observed thus (page 272 ) : ........ What triggers the adjustment in the actual cost of the assets, in terms of the unamended section 43A of the 1961 Act is the change in the rate of exchange subsequent to the acquisition of asset in foreign currency. The section mandates that at any time there is change in the rate of exchange, the same may be given effect to by way of adjustment of the carrying cost of the fixed assets acquired in foreign currency. But for section 43A which corresponds to paragraph 10 of AS-II such adjustment in the carrying amount of the fixed assets was not possible, particularly in the light of section 43(1). The unamended section 43A nowhere required as condition precedent for making necessary adjustment in the carrying amount of the fixed asset that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation. The words used in the unamended section 43A were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration agreement executed by the assessee was for the period from 26.01.1992 to 31.03.1993. The entire expenditure of ₹ 261.53 lakhs was disallowed by the Assessing Officer on the ground that the Government approval for the royalty agreement was obtained only much later, after commencement of the financial year 01.04.1993. In the appeal preferred by the assessee, the Commissioner upheld the disallowance to the extent of ₹ 49 lakhs, being royalty expenses for the period from 26.01.1992 to 31.03.1992 as related to the preceding assessment year. Admittedly, the assessee, instead of claiming the said amount in the assessment year 1992 - '93 claimed it as well in the year 1993 - '94, which was not correct or sustainable and hence disallowed. The said finding of the Commissioner was upheld by the Tribunal, which is under challenge in this appeal. 10. After hearing both the sides, we are of the view that there is nothing illegal or improper on the part of the Commissioner or the Tribunal in having disallowed the royalty expenses of ₹ 49 lakhs, the said extent being attributable to the previous year 1992 - '93, which could not have been claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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