Summary
A financing company sought deduction of foreign-exchange losses on money borrowed for its regular leasing and hire-purchase business, including an amount mistakenly capitalised in its return. The Court restored the Tribunal’s allowance of the entire Rs.3,56,57,727 as revenue expenditure. The borrowing served trading operations rather than acquisition of a foreign asset by the assessee, and the Tribunal could entertain the fresh claim. Consequential depreciation benefits on the capitalised amount had to be withdrawn.
Issues
- Whether exchange-fluctuation loss on the business borrowing was deductible revenue expenditure.
- Whether the Tribunal could allow a fresh revenue deduction claim inconsistent with the original return.
Provisions considered
- Section 37(1), Income-tax Act, 1961The exchange loss on funds used wholly and exclusively in the financing business was allowable on revenue account. (¶¶ 3, 6-9)
- Section 254(1), Income-tax Act, 1961The Tribunal’s appellate powers permitted consideration of the fresh deduction claim. (¶¶ 3, 10-11)
- Section 43A, in the relevant assessment-year context, Income-tax Act, 1961The foreign-asset acquisition provision did not apply to this business financing transaction. (¶¶ 3, 7, 12)
Held
- The borrowed foreign currency financed the assessee’s ordinary leasing and hire-purchase operations. The borrowing was not for creation of its own asset or its acquisition of an asset from outside India. The exchange loss therefore qualified as business revenue expenditure on these facts. (¶¶ 6-9, 12)
- An enduring benefit is not conclusive of capital expenditure. Its commercial character and effect on trading operations must be examined; facilitation of business with fixed capital untouched can remain revenue expenditure. The Tribunal had applied that approach correctly. (¶ 8-9)
- The Tribunal knowingly entertained the fresh claim under Section 254, relying on National Thermal Power and recording the department representative’s lack of objection. Goetze restricted claims before the assessing authority and did not curtail the Tribunal’s plenary appellate powers. (¶ 10-11)
- Allowing the whole amount as revenue expenditure required corresponding amendments to the assessment: depreciation or other consequential benefits taken on the Rs.2,46,04,418 previously capitalised were unavailable. (¶ 13-14)
Result
Appeal allowed without costs; the High Court’s order was set aside and the Tribunal’s decision restored on both disputed questions. The assessment was to reflect the entire Rs.3,56,57,727 revenue deduction with the consequential capitalisation-based benefits removed. Pending applications disposed of.