9911796707
TMI Blog1983 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as a company under the Indian I.T. Act, 1922. Some of the employees of the assessee are American nationals, who were paid salaries partly in dollars and partly in rupees. The dollar part of the salary was paid by the head office in New York. The head office also charged the assessee for certain overhead expenses. A third head of account which was claimed by the head office pertains to work like design, supply of drawings, etc. All this work was done in the United States of America and payment for the same was made in dollars in the United States of America. A running account used to be kept between the head office and the assessee. The assessee-company had obtained the permission of the Reserve Bank of India for maintenance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had to pay Rs. 4,38,437.06 to discharge its dollar liability to the head office to the extent it was discharged during this period. In this reference, we are concerned with the previous year ending December 31, 1966. For this previous year, the assessee claimed a net loss of Rs. 6,82,355.30. The principal amount of this loss was a sum of Rs. 7,64,830.27. To this a small amount of Rs. 16,492.31, being the difference in the exchange value at the time of actual remittance, was added and the aggregate sum was reduced by Rs. 93,967.28 which excess amount has been received from the atomic department from whom $ 36,144.57 was payable prior to the devaluation. The higher rupee equivalent was received for this amount after the devalua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss proper in computing the assessee's total income. These submissions were not accepted by the ITO. The ITO was of the view that the assessee as such had no liability as on the date of the devaluation. He held further that the loss which arose at the time of remittance was not in the course of earning the income. A copy of the order of the ITO is found annexed as annexure " A " to the statement of case. The assessee appealed to the AAC and elaborate arguments were addressed to him in support of the claim. It was urged that either the entire amount of Rs. 7,81,322 or at least Rs. 4,38,637 Which represented the actual extra rupee payment incurred to obtain dollars sent to the United States between June 6, 1966, and December 31, 1966, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no legal liability on the part of the assessee since the branch, that is, the assessee, and the head office were in law two parts of the same legal entity. According to the AAC, therefore, devaluation could not have increased the legal liability of the Indian branch and such liability would arise and could be considered only when there is a third party involved. The AAC also did not accept that there was any obligation on the part of the assessee to reimburse the head office in dollars. On both these counts, therefore, the claims and contentions of the assessee for allowing the entire amount or part of it were rejected. The assessee carried the matter to the Income-tax Appellate Tribunal and in I.T.A. No. 3951 (Bom) of 1970-71, the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maller amount, had to be met in the previous year on the basis of the system of accounting of the assessee which is mercantile. It observed that, on this basis, the assessee had got to provide for this known and certain loss in the period between June 6, 1966 and December 31, 1966. Thus, the Tribunal allowed the entire deduction of loss of Rs. 7,81,323 claimed by the assessee. Aggrieved by the decision of the Tribunal the Commissioner of Income-tax has made a reference to this court and the question referred to us is as under : " Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of the full amount of Rs. 7,81,323 or any part thereof as a business loss ? " Before us the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide a higher amount in terms of rupees for its liability for reimbursement and on this system provision would be required to be made and considered in the assessment year in question, that is, for the previous year ending on December 31, 1966.
We are, therefore, unable to get any assistance in favour of the Commissioner from either of the aforesaid two decisions cited. In our opinion, the view taken by the Tribunal is the proper view and in accordance with this, the question referred to us is answered as under :
The assessee is entitled to the deduction of the full amount of Rs. 7,81,323 as a business loss during the assessment year in question.
The Commissioner to pay the costs of the reference to the assessee. X X X X Extracts X X X X X X X X Extracts X X X X
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