$~13.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 141/2000
Date of order: 11th November, 2011
JAGATJIT INDUSTRIES LTD. ..... Appellant
Through Mr. Satyen Sethi & Mr. Arta
Trana Panda, Advocates.
versus
DY.COMMR.OF INCOME TAX,CENTRAL-VI
..... Respondent Through Mr. Sanjeev Sabharwal, Sr.
Standing Counsel.
CORAM:
HON’BLE MR. JUSTICE SANJIV KHANNA
HON’BLE MR. JUSTICE R.V.EASWAR
1. Whether Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported in the Digest?
SANJIV KHANNA, J.:
By order dated 8th February, 2001, the following
substantial question of law was framed:-
“Whether on the facts and circumstances of
the case the Tribunal was right in law in not
allowing investment allowance on enhanced
liability of Rs.2,90,226/- representing the
increase in actual cost u/s 43A on account of
fluctuations in foreign currency rates?”
2. The appellant-assessee is a company and the assessment
ITA No. 141/2000 Page 1 of 10
year involved is 1983-84.
3. We need not refer to the factual matrix of the case as the
issue pertains to computation of investment allowance on
enhanced liability of Rs.2,90,226/- representing the increase in
actual cost under Section 43A of the Income Tax Act, 1961. The
enhanced investment allowance was claimed on the basis of
fluctuation in the foreign currency rate on account of
depreciation in the value of the Rupee at the end of financial
year. This as per the stand of the appellant-assessee had to be
accounted and added to the capital cost of imported plant and
equipment, payment for which was due and payable. There is no
dispute that the appellant-assessee is entitled to investment
allowance in the year in question in respect of the “Glass Units.
4. The question raised is covered by the decision of the
Supreme Court in Commissioner of Income Tax versus
Gujarat Siddhi Cement Limited, (2008) 307 ITR 393 (SC).
Subject matter of challenge before the Supreme Court was the
decision of the Gujarat High Court, following their earlier Full
Bench decision in Commissioner of Income Tax versus
Gujarat State Fertilizers Company Limited, (2003) 259 ITR
526 in which it was held that investment allowance is allowable
ITA No. 141/2000 Page 2 of 10
on actual cost or adjusted cost as enhanced due to fluctuation in
exchange rate of the foreign currency. The ratio of the said
judgment was examined by the Supreme Court in Gujarat
Siddhi Cement Limited (supra). The specific issue examined
was whether while computing investment allowance under
Section 32A, foreign exchange fluctuation in terms of Section
43A can be taken into consideration and accordingly accounted.
The Supreme Court referred to an earlier decision in
Commissioner of Income Tax versus Arvind Mills Limited,
(1992) 193 ITR 255 (SC), wherein it has been observed as
under:-
“22. Nor is there any in-appropriateness of
statutory language as urged. As we have
discussed above, the provisions of sub-
section (1) apply to the present case and the
increased liability should be taken as „actual
cost‟ within the meaning of section 43A(1). All
allowances including development rebate or
depreciation allowance or the other types of
deductions referred to in the sub-section
would therefore have to be based on such
adjusted actual cost. But then sub-section (2)
intercedes to put in a caveat. It says that the
provisions of sub-section (1) should not be
applied for purposes of development rebate.
The effect is that the adjusted actual cost is to
be taken as the actual cost for all purposes
other than for grant of development rebate.
Read thus, there is no difficulty in the
application of the language of the section to
the present case. There is no
ITA No. 141/2000 Page 3 of 10
inappropriateness of language either in sub-
section (1) or in sub-section (2). The language
used is quite appropriate and meets the
situation fully.
23. For the reasons discussed above, we are
of the opinion that the language of the
provision is perfectly clear. It cannot be
interpreted in a restrictive manner as
contended for by the learned counsel for the
assessee. In our opinion, it is a clear
requirement of the statute that, for purposes
of development rebate, any increase or
decrease in the actual cost consequent on
fluctuations in exchange rate should not be
taken into account. It may be that the
Legislature intended to give a different
treatment to development rebate from
depreciation and other allowances because
the allowance of development rebate can
result in an assessee claiming allowances
exceeding the original cost. It may be that the
Legislature thought that, though development
rebate was intended to promote development
of industries, this could not be allowed at the
cost of the foreign exchange resources of the
country which are also depleted when there is
an increase in liability due to devaluation of
the currency. It is unnecessary to attribute any
particular reason for the provision when the
language of the section is otherwise plain and
unambiguous. We do not think that, in face of
the language of sub-section (2), it would be
right to permit the assessees to claim
development rebate on the increased cost.
We, therefore, allow the appeal and uphold
the action of the Assessing Officer granting
development rebate to the assessee only in
respect of a sum of Rs. 52.48 lakhs and not
on Rs. 61 lakhs on the basis of which it was
claimed. Having regard, however, to the fact
that the assessees had succeeded before all
ITA No. 141/2000 Page 4 of 10
the High Courts we make no order regarding
costs.”
5. In Gujarat State Fertilizers Company Ltd. (Supra), it
has been observed:-
On a bare reading of the provision, i.e.,
section 43A(1) the position is clear that it
relates to the fluctuation in the previous year
in question. If any extra benefit is taken the
same has to be taxed in the year when the
liability is reduced as provided in terms of
section 41(1)(a), Explanation 2. Therefore,
whenever there is fluctuation in any previous
year, section 43A(1) comes into play. Section
43A(1), as it stood at the relevant point of
time, reads as follows :
“43A. Special provisions consequential to
changes in rate of exchange of currency.–(1)
Notwithstanding anything contained in any
other provision of this Act, where an assessee
has acquired any asset from a country
outside India for the purposes of his business
or profession and, in consequence of a
change in the rate of exchange at any time
after the acquisition of such asset, there is an
increase or reduction in the liability of the
assessee as expressed in Indian currency for
making payment towards the whole or a part
of the cost of the asset or for repayment of
the whole or a part of the moneys borrowed
by him from any person, directly or indirectly,
in any foreign currency specifically for the
purpose of acquiring the asset (being in either
case the liability existing immediately before
the date on which the change in the rate of
exchange takes effect), the amount by which
the liability aforesaid is so increased or
reduced during previous year shall be added
ITA No. 141/2000 Page 5 of 10
to, or, as the case may be, deducted from,
the actual cost of the asset as defined in
clause (1) of section 43, or the amount of
expenditure of a capital nature referred to in
clause (iv) of sub-section (1) of section 35 or
in section 35A or in clause (ix) of sub-section
(1) of section 36, or, in the case of a capital
asset (not being a capital asset referred to in
section 50), the cost of acquisition thereof for
the purposes of section 48, and the amount
arrived at after such addition or deduction
shall be taken to be the actual cost of the
asset or the amount of expenditure of a capital
nature or, as the case may be, the cost of
acquisition of the capital asset as aforesaid.
Explanation 1.–In this sub-section, unless the
context otherwise requires,–
(a) „rate of exchange‟ means the rate of
exchange determined or recognised by the
Central Government for the conversion of
Indian currency into foreign currency or
foreign currency into Indian currency ;
(b) „foreign currency‟ and „Indian currency‟
have the meanings respectively assigned to
them in section 2 of the Foreign Exchange
Regulation Act, 1947 (7 of 1947).
Explanation 2.–Where the whole or any part
of the liability aforesaid is met, not by the
assessee, but directly or indirectly, by any
other person or authority, the liability so met
shall not be taken into account for the
purposes of this sub-section.
Explanation 3.–Where the assessee has
entered into a contract with an authorized
dealer as defined in section 2 of the Foreign
Exchange Regulation Act, 1947 (7 of 1947),
for providing him with a specified sum in a
ITA No. 141/2000 Page 6 of 10
foreign currency on or after a stipulated future
date at the rate of exchange specified in the
contract to enable him to meet the whole or
any part of the liability aforesaid, the amount,
if any, to be added to, or deducted from, the
actual cost of the asset or the amount of
expenditure of a capital nature or, as the case
may be, the cost of acquisition of the capital
asset under this sub-section shall, in respect
of so much of the sum specified in the
contract as is available for discharging the
liability aforesaid, be computed with reference
to the rate of exchange specified therein.”
After the substitution by the Finance Act,
2002, with effect from April 1, 2003, the
position is quiet different.
In the instant case, as rightly submitted by
learned counsel for the Revenue, the
Commissioner of Income-tax (Appeals)
recorded a categorical finding that no
argument was advanced and no details were
given.
In the aforesaid background we feel that it
would be appropriate to grant opportunity to
the assessee to establish the factual position
relating to fluctuation in the foreign exchange
rate. For that limited purpose the matter is
remitted to the Tribunal to consider whether
the assessee is justified in claiming deduction
in the background of section 43A(1), as it
stood then, keeping in view the legal position
as highlighted above.”
6. Thus, the Supreme Court had referred to the provisions of
Section 43A as they existed prior to the amendment with effect
from 1st April, 2003 by Finance Act, 2002 (in the present case,
ITA No. 141/2000 Page 7 of 10
the assessment year involved in 1983-84 and, therefore, the
amendment to Section 43A with effect from 1st April, 2003 is not
relevant) and it was held that in the background of Section 43A,
the decision of the Gujarat High Court was correct and in
accordance with law.
7. We may now refer to the recent decision of the Supreme
Court in Commissioner of Income Tax, Delhi verses
Woodward Governor India Private Limited, (2009) 13 SCC 1,
wherein Section 43A was examined with reference to foreign
exchange fluctuation and the exchange rate prevailing at the
end of the financial year. It has been held in Wood Ward
Governor India Private Ltd. as under:-
“56. As stated above, what triggers the
adjustment in the actual cost of the assets,
in terms of unamended Section 43-A of the
1961 Act is the change in the rate of
exchange subsequent to the acquisition of
assets 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 43-A which
corresponds to Para 10 of AS 11 such
adjustment in the carrying amount of the
fixed assets was not possible, particularly in
the light of Section 43(1). The unamended
Section 43-A nowhere required as condition
precedent for making necessary adjustment
in the carrying amount of the fixed asset that
ITA No. 141/2000 Page 8 of 10
there should be actual payment of the
increased/decreased liability as a
consequence of the exchange variation. The
words used in the unamended Section 43-A
were “for making payment” and not “on
payment” which are now brought in by
amendment to Section 43-A vide the
Finance Act, 2002.
57. Lastly, we are of the view that
amendment of Section 43-A by the Finance
Act, 2002 w.e.f. 1-4-2003 is amendatory and
not clarificatory. The amendment is in
complete substitution of the section as it
existed prior thereto. Under the unamended
Section 43-A adjustment to the actual cost
took place on the happening of change in
the rate of exchange whereas under the
amended Section 43-A the adjustment in the
actual cost is made on cash basis. This is
indicated by the words “at the time of making
payment”. In other words, under the
unamended Section 43-A, “actual payment”
was not a condition precedent for making
necessary adjustment in the carrying cost of
the fixed asset acquired in foreign currency,
however, under amended Section 43-A
w.e.f. 1-4-2003 such actual payment of the
decreased/enhanced liability is made a
condition precedent for making adjustment in
the carrying amount of the fixed asset. This
indicates a complete structural change
brought about in Section 43-A vide the
Finance Act, 2002. Therefore, the amended
section is amendatory and not clarificatory in
nature.”
8. In the light of the aforesaid discussion, it is apparent that
the foreign exchange fluctuation and the exchange rate
prevailing at the last date of financial year can be taken into
ITA No. 141/2000 Page 9 of 10
consideration for the purpose of Section 43A and accordingly
for computing investment allowance.
9. Necessary sequitor is that the ITAT was not right in
dismissing the appeal of the assessee holding that the foreign
exchange fluctuation or the exchange rate prevailing on the last
date of the financial year cannot be taken into consideration in
computing the investment allowance. The question of law is
answered in negative i.e. accordingly answered against the
Revenue and in favour of the appellant-assessee.
The appeal is disposed of. No order as to costs.
SANJIV KHANNA, J.
R.V. EASWAR, J.
NOVEMBER 11, 2011
VKR
ITA No. 141/2000 Page 10 of 10