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TMI Blog1991 (8) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... the other provisions of the statute would remain untouched by the provisions of section 37(4) of the Act. We, therefore, uphold the claim of the assessee. 18. That takes us to the last and more substantial important ground which is against non-allowance of investment allowance of Rs. 4,28,73,922 being the increased cost of ships. The assessee during the previous year relevant to the assessment year under appeal had acquired two ships. The ships were acquired partly out of foreign exchange loan made available to the assessee. The sum of Rs. 4,28,73,922 represented loss as a result of exchange fluctuation. Since this took place after the close of the accounting year, the AO was of the view that this loss would not enter into the determination of the actual cost of acquisition of ships. The CIT(A) laying heavy reliance on the provisions of section 43A of the Act held that variation in the actual cost of acquisition consequent to changes in the rate of exchange was to be taken into account only during the previous year in which the change in rate of exchange of currency took place. Since the loss accrued not in the previous year but in the two subsequent years, the CIT(A) took the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, the authority for this proposition can again be formed in the decision of the Allahabad High Court in Motilal Padamapat Sugar Mills v. CIT [1977] 106 ITR 988. Our attention is then invited to the Supreme Court decision in the case of CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144. That was a case where the assessee had credited some amounts to the commission account. There was an agreement which altered the rate of commission in such a way that the assessee received by way of commission an amount different from what had been entered in the books of accounts. The agreement was entered into after the close of the accounting year and the department took the view that the income had already accrued and the agreement after the close of the accounting year to give up a portion of that income could not save that portion from liability to income-tax. The Supreme Court decided the issue in favour of the assessee. This would clearly negate the contention that the events in the previous year alone can be held to be sacrosanct as far as liability to claim a deduction is concerned. Assessee then took us through the decision in CIT v. Sarabhai Sons Ltd. [ 1983] 143 ITR 473 (Guj.). Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddl. CIT v. Chowgule Co. (P.) Ltd. [1986] 159 ITR 12, 159 ITR 12 and 116 ITR 879 (Sic). In the later case the court has held that in view of the specific provisions contained in sub-clause (2) of section 43A which provide that variation in the cost of assets arising out of devaluation of rupee should not be taken into consideration for the purpose of grant of development rebate under section 33 of the old IT Act, the general principle that additional liability arising out of devaluation of Indian rupee would be a capital expenditure could not be applied for the purpose of granting development rebate under section 33 of the Act. By implication there is no such bar against allowance of claim for investment allowance. In the light of these decided cases the inescapable conclusion, according to the assessee, would be that the extra liability that the assessee was saddled with in regard to loan taken by assessee in foreign exchange as a result of currency fluctuation would definitely go to increase cost and investment allowance would be admissible with reference to such increased cost. 20. The learned Departmental Representative, on the other hand, relies on the orders of the AO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehensive and has left a lot to imagination. The courts have time and again interpreted this expression and have held having regard to the accountancy principles that it would include all expenditure necessary to bring such assets into existence and put them into working condition. In that context the Supreme Court in the case in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 has held, in case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of fixed assets (underline supplied). This rules out the capitalisation of any interest even though paid on moneys borrowed for acquisition of capital assets after the production has already started. Taking a clue from this decision it would be evident that the loss incurred by assessee due to currency fluctuation after the acquisition would infact be no part of the actual cost for the purposes of allowing the claim of investment allowance. We shall in this connection advert to the provisions of section 43A of the Act. These provisions were inserted in the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment gets delayed. This is what we described as unsettling effect in the earlier part of this order. We are of the view that the decisions relied upon by the assessee in the course of the appeal hearing would be of little help. Thus, in the decision in Habib Hussein's case the assessee had agreed to pay in consideration of service assistance rendered by the owner of the land which was taken on lease by the assessee a sum based on the gross annual income. This agreement was subsequently revised and a fixed amount was determined to be payable in lieu of annual instalments amount. The additional amount paid by the assessee was no doubt held by the court as part of the actual cost. It has to be remembered that the court in that case was explaining the meaning of the expression 'actual cost to the assessee' and in that context the court had held that amount expended or laid out for the purpose of acquiring a depreciable asset would require to be included in the cost of the depreciable asset. Further, adverting to Rule 19 of the IT Rules, as they stood in the Statute book at the relevant time, the court held that it was open to the ITO to determine afresh for himself the actual co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the decisions of the courts which are relied upon by the assesee in the course of the appeal hearing are of any assistance in deciding the issue before us or are in any way supporting the view canvassed by the assessee before us. The only way this issue could be resolved is by giving the expression 'actual cost' the meaning assigned to it in the commercial and accounting world. If this is done, the actual cost of the assets would only mean the cost to the assessee at the time of its installation or at the time it is brought to use. Subsequent losses arising as a result of currency fluctuations would be in the nature of capital losses. It has to be remembered that the assessee had to incur these losses only because part of the finance necessary for the acquisition of the ships came out of borrowings from foreign source and in foreign currency. Such losses would go to increase the cost of the assets by virtue of the provisions of section 43A(1) of the IT Act which are provisions granting certain concessions to the assessee and as observed earlier introduced in the Statute book with a view to lessening the hardship caused as a result of losses incurred due to currency fluctuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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