AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, the following two questions have been referred to this court for the assessment year 1973-74 : "1. Whether, on the facts and in the circumstances of the case, the loss arising out of exchange fluctuation in respect of the payment of the instalments of loan in Japanese yen obtained for the purchase of machineries on deferred payment basis was capital or revenue expenditure ?

( 2 ) WHETHER, on the facts and in the circumstances of the case, the assessee can claim as deduction the provision for payment of leave salary in the year under consideration ?" 2. At the suggestion of the learned advocates, we have reframed the first question as follows to bring out the real controversy :"whether, on the facts and in the circumstances of this case, the additional expenditure incurred by reason of exchange fluctuation in respect of the payment of the instalments of loan in Japanese yen obtained for the purchase of machinery on deferred payment basis was capital or revenue expenditure ?"

( 3 ) THE facts relating to the first question are stated hereafter.

( 4 ) THE assessee had borrowed certain capital in Japanese yen for the setting up of a capital asset. The said loan was also repayable in instalments in Japanese yen. For the instalments in Japanese yen payable towards the purchase price of the machinery purchased on deferred payment, basis, the assessee, over and above the amount of those instalments in Indian rupees, had to pay Rs. 8,939 more in view of the day to day fluctuations in the exchange rate. The claim of the assessee for the deduction of the said amount under Section 43a of the Act has been negatived by the Income-tax Officer on the ground that the said loss was capital and not revenue in nature because the loss arose in making instalment payments of the purchase price of the machineries which were capital assets of the assessee.

( 5 ) AGGRIEVED by the said disallowance, the assessee brought the matter by way of appeal before the Appellate Assistant Commissioner who, following the decision of the Tribunal in the case of Century Enka Ltd. , in ITA No. 5304 (Cal) of 1974-75, held

Page 2 of 14hat the said loss was capital and not revenue in nature.

( 6 ) IN the appeal by the assessee before the Tribunal, it was conceded that if the loss in the present case was loss due to devaluation in relation to a capital asset, it would not be allowed but since in this case the loss is on account of fluctuations in the rates of foreign exchange in terms of Section 43a of the Act, such loss should be allowed. The Tribunal merely followed its earlier order and held that the loss in question was allowable as revenue loss.

( 7 ) THE Tribunal in the case of Birla Jute Manufacturing Company Limited held as follows :"in our opinion, Mr. Bajoria is right. There is no dispute that the loss relates to capital, in the sense that in respect of certain loans which were to be repaid by the assessee, they were incurred in acquiring capital assets and the loss arose. So far as the loss on account of fluctuations in foreign exchange rate is concerned, the decisions of the Tribunal are uniform in Calcutta and Bombay to which reference has been made already. The decision in Universal Cables Ltd. has no application as it is a case of loss on devaluation. The matter was fully discussed by the Calcutta and Bombay Benches and we are in full agreement with the views expressed therein. Consequently, the loss is allowable. "

( 8 ) ONE of the orders relied on by the Tribunal is in the case of Century Spinning Mills Limited. In that case, the Tribunal has taken the view that foreign loans were obtained by the assessee in the course of business which were ultimately utilised for the purchase of plant and machinery. The ultimate object and purpose of those foreign loans are immaterial for deciding the question whether the

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