Back
High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
OIL INDIA CO.LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX, CENTRAL-II - Respondent
Income-Tax Reference 71 Of 1977
Decided On : 12/17/1980
INCOME TAX - BUSINESS LOSS - DEVALUATION - ADDITIONAL LIABILITY - REVENUE EXPENDITURE - ALLOWABLE DEDUCTION - INCOME TAX ACT, 1961, SS. 28, 37.
Fact of the Case:
The assessee, an Indian subsidiary of a non-resident company, took a loan from the parent company in London. Due to devaluation of the Indian rupee, the assessee had to pay an extra amount to repay the loan. The assessee claimed the extra amount as a business loss under Section 28 of the Income Tax Act, 1961, or as an expenditure under Section 37 of the Act.
Finding of the Court:
The Tribunal held that the extra amount was not allowable as a business loss, as it was not incurred in the course of carrying on the business. However, the Tribunal allowed the extra amount as an expenditure under Section 37 of the Act, as it was incurred for the purpose of the business.
Issues: 1. Whether the extra amount incurred by the assessee due to devaluation of the Indian rupee was allowable as a business loss under Section 28 of the Income Tax Act, 1961? 2. Whether the extra amount incurred by the assessee due to devaluation of the Indian rupee was allowable as an expenditure under Section 37 of the Income Tax Act, 1961?
Ratio Decidendi: The Court held that the extra amount incurred by the assessee due to devaluation of the Indian rupee was allowable as an expenditure under Section 37 of the Income Tax Act, 1961. The Court observed that the extra amount was incurred for the purpose of the business, as it was necessary to repay the loan taken from the parent company. The Court further observed that the extra amount was an expenditure of a revenue nature, as it was not incurred for the purpose of acquiring a capital asset.
Final Decision: The Court answered the first issue in the negative and the second issue in the affirmative. The Court held that the extra amount incurred by the assessee due to devaluation of the Indian rupee was not allowable as a business loss under Section 28 of the Income Tax Act, 1961, but was allowable as an expenditure under Section 37 of the Act.
( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the Tribunal has referred certain questions of law both at the instance of the assessee as well as at the instance of the Revenue. In order to understand these questions, it is necessary to note that the assessment year involved is the assessment year 1967-68. The assessee had taken a loan of 3,94,433, from the Burmah Oil Co. , London, in 1966, which was free of interest. It was repaid in December, 1966. In the meantime, there was a devaluation of the Indian rupee on the 6th June, 1966. As a result of the devaluation, the assessee had to pay in terms of the Indian currency Rs. 83,24,896 as against Rs. 52,50,000 received by the assessee as the original amount of loan. The extra amount of Rs. 30,74,896 was claimed by the assessee as a loss incidental to its business or as an expenditure under Section 37 of the I. T. Act, 1961. The assessee had also taken another loan of 10,250,000 from the Bank of Scotland on 30th June, 1963. Out of this 163,063 had remained unutilised and was retained in the U. K. The balance amounting to 1,086,937 was utilised by the assessee for the purchase of capital assets and stores as also as expenses for raising the loan, for repatriation of the amount to India and as operational expenses for its business. In terms of the Indian currency the entire expenditure came to Rs. 1,347. 26 lakhs. There was no dispute before the Tribunal that the original loan of 10,250,000 converted into Indian currency to Rs. 1,369. 04 lakhs was payable by the assessee in sterling in the U. K. As a result of the devaluation on the 6th June, 1966, the assessee was of the opinion that this liability with regard to the above loan was increased by Rs. 6,78,37,595 which it was required to incur for its repayment in sterling. There was also another amount due by the assessee by way of retention money to Bank Bush Murphy Ltd. According to the assessee, due to devaluation, it was required to incur an additional expenditure of Rs. 3,14,985 on repayment of this money also in sterling. The assessee, therefore, worked out its loss as a result of devaluation at Rs. 7,12,27,476 as per the following details :
.
Rs .
(1) On loan from Bank of Scotland 6,78,37,595 (2) On retention money to Bank Bush Murphy Ltd. 3,14,985 (3) On loan from B. O. C. , London 30,74,896 . 7,12,27,476
( 2 ) AGAINST the above, the assessee had a gain of Rs. 1,93,137 on account of devaluation on money realised in the U. K. for an insurance claim in respect of the damage caused to its pipeline lying along the Dhansiri Bridge. This gain was originally adjusted against the loss stated above and after the adjustment the net devaluation loss was claimed at Rs. 7,10,34,340. Subsequently, the assessee changed its stand and claimed that the devaluation gain in respect of insurance claim was not taxable at all and as such the devaluation loss should not be reduced by that amount. The above loss of Rs. 7,12,27,476 was allocated by the assessee towards the capital and revenue expenses as the loan itself was utilised for such combined purposes. The allocation as given was as under :
. Rs . 6,13,37,796 (i ) Loss on capital assets (ii) Loss relating to stores held in stock 6,11,730 (iii) Loss relating to sterling loan raising expenses
already incurred and allowed in earlier years
12,98,585
(iv) Loss relating to repatriation to India incurred
and allowed in earlier years
40,35,230
8,69,189
(vi) Loss relating to loan from B. O. C. repaid during 1966 30,74,896 . Total 7,12,27,476
(v) Loss relating to operational expenses already
incurred and allowed in earlier years
( 3 ) THE assessee claimed depreciation on the enhanced value of Rs. 6,13,37,796 which was allowed by the ITO under Section 43a of the Act. The ITO also observed that the claim for deduction of Rs. 6,11,780 would be embedded in the cost of stores as and when these were consumed and
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
