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TMI Blog2020 (10) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... b State Industrial Development Corporation Ltd. Vs. CIT [ 1996 (12) TMI 6 - SUPREME COURT] would also support the stand taken by the Revenue by treating the expenditure as capital expenditure. In the decision of this Court in the case of Tube Investments of India Vs. JCIT [ 2014 (3) TMI 731 - MADRAS HIGH COURT] the question was as to whether the Tribunal was right in confirming the disallowance of interest and additional expenditure incurred on account of exchange fluctuation. It was held that if any part of the loan was not used for purchase of a capital asset, the corresponding loss had to be treated as a capital expenditure - Decided against assessee. - Tax Case Appeal No.171 of 2019 - - - Dated:- 5-10-2020 - Mr. Justice T.S. Sivagnanam And Mrs. Justice V. Bhavani Subbaroyan For the Appellant : Mr.R.Sivaraman For the Respondent : Mr.T.Ravikumar, SSC JUDGMENT T.S.SIVAGNANAM, J. We have heard Mr.R.Sivaraman, learned counsel appearing for the appellant assessee and Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent Revenue. 2. This appeal, filed by the assessee under Section 260A of the Income Tax Act, 1961 (f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset in any previous year from any country outside India and this aspect was noted by the CIT(A) in the order dated 08.11.2016. However, before the Tribunal, the assessee made an alternate submission because the Tribunal appeared to have come to a conclusion that the loss suffered by the assessee was a capital loss. The alternate submission was that if it had to be treated as a capital loss, then the assessee was entitled to the benefit of depreciation. 8. The learned counsel for the assessee has referred to the decision of this Court rendered by us in the case of CIT Vs. M/s.Celebrity Fashion Ltd. [TCA.No.26 of 2018 dated 21.9.2020]. 9. In our considered opinion, the said decision may not be of any assistance to the assessee, as the nature of transaction done therein was wholly different. It is an admitted case of the assessee that they availed loan for the purpose of purchase of capital assets in India. The loan was availed in Indian currency and pursuant to a request made by the assessee, by entering into a contract dated 04.8.2011 with the State Bank of India, the loan in Indian currency was converted into a loan in foreign currency with a view to save interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported in (2011) 336 ITR 0479]. The decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT [reported in (1997) 225 ITR 0792] would also support the stand taken by the Revenue by treating the expenditure as capital expenditure. 14. In the decision of this Court in the case of Tube Investments of India Vs. JCIT [reported in (2014) 45 Taxmann.com 78], to which, one of us (TSSJ) was a party, the question was as to whether the Tribunal was right in confirming the disallowance of interest and additional expenditure incurred on account of exchange fluctuation. It was held that if any part of the loan was not used for purchase of a capital asset, the corresponding loss had to be treated as a capital expenditure. The relevant portions are as follows : 15. The facts of the case have been set out in extenso in the preceding paragraphs. At the time when the appeal was heard by the first Appellate Authority, the assessee appears to have taken a different stand than the stand taken at the time of filing the appeal by stating that the money generated out of GDR issue had funded the capital expenditure and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the decision of the Hon'ble Apex Court in the case of Tata Locomotive and Engg. Co Ltd. (supra) the Tribunal pointed out that if capital asset is purchased, capitalizing as capital work in progress, the nature of the same is to be treated as capital and if no assets are purchased as regards the principal devaluation of gains and loss due to devaluation, the allowance of loss on devaluation, if any, arising on the loans obtained for purchase of assets will certainly be in capital account and covered by Section 43A of the Act. It was further pointed out that if any part of the loan is not used for the purpose of purchase of assets, the corresponding loss has to be allowed as capital and not Revenue as the gains are not treated as Revenue income following the principles laid down by the Hon'ble Apex Court in Tata Locomotive and Engg. Co Ltd. (Supra). 16. The frequent issue, which arises for consideration is regarding the computation of business income, whether as particular expenditure is revenue or capital. In the long line of decision of the Hon'ble Supreme Court and this Court certain principles have been formulated, nevertheless each case has to be decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitutes conceivable nucleus to form the foundation for posterior profit earning, whether the expenditure could be viewed as an integral part of the conduct of the business and potential future and these were all held to be the main incidents, which have a bearing on the decision whether, in a given case, the expenditure is capital or chargeable to revenue. Thus, it was held that an objective application of a judicial mind to the facts of each case is necessary. ......... 18. In the decision reported in Woodward Governor India (P.) Ltd. (supra) the Supreme Court considered the allowability of expenditure arising out of fluctuation in rate of exchange. Referring to Accounting Standards-11, the Supreme Court pointed out that paragraph 9 of AS-11 recognises exchange differences as income or expenses in the period in which they arise. Paragraphs 10 and 11 deal with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which topic falls under section 43A of the 1961 Act. Referring to Section 43A (1) opening with the non-obstante clause, the Supreme Court pointed out that Section 43A(1) applies where, as a resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn from the loan should be utilized for the purpose approved and strictly subject to the terms and conditions stipulated by the Reserve Bank of India vide their letter dated 21st September, 1994. It is also not denied by the assessee that the loan and interest thereon have to be repaid/paid only from out of the net foreign exchange earnings of the borrower entity and not from any other source and/or the group earnings, as per the schedule of repayment/ payment indicated in the application. The assessee also does not deny the fact that the repayment of the loan which includes interest should be made through the authorized dealer only. Thus, when the object and the purpose of loan clearly points out to the purpose of the loan given as for capital expenditure on modernization and expansion, the fact that the exchange fluctuation had been added on to the cost under Section 43-A(1), however, does not, lead to the inference that as far as the balance amount is concerned, the interest payment difference on exchange fluctuation would fall under Revenue head. 15. In the light of the above, the substantial question of law framed for consideration has to be necessarily answered against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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