ITA No.583 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 583 of 2008 Date of decision: 26.7.2013 [ENTITY] Appellant Vs. M/s [ENTITY] Respondent CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH Present:- Ms. [ENTITY], Senior Panel Counsel for the appellant. Ms. [ENTITY], Advocate for the respondent. [ENTITY],J.
1. This appeal has been preferred by the revenue under [SECTION] of the [ACT] (in short, "the Act") against the order dated 29.1.2008 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh (for brevity, "the ITAT") in [CASE NUMBER], for the assessment year 1993-94, claiming following substantial question of law:-
"Whether on the facts and circumstances of the case the Hon'ble Tribunal was right in law in allowing deduction under [SECTION] with regard to the additional liability incurred towards the cost of the plant and machinery on account of fluctuation in foreign exchange rate subsequent to the year in which plant and machinery has been installed."
2. Briefly, the facts as narrated in the appeal necessary for adjudication of the controversy involved, may be noticed. The assessee company purchased certain machinery in the assessment year 1987-88. Due to fluctuation in the foreign exchange rates in the assessment years 1991-92 to 1993-94, liability of the assessee got enhanced. The assessee claimed investment allowance in respect of enhanced cost on account of currency fluctuations in the assessment year 1993-94. The Assessing Officer vide order dated 1.3.2002, Annexure A.1 disallowed the claim on the ground that in terms of [SECTION] of the Act, investment allowance was to be allowed on actual cost of plant and machinery in the year in which it was acquired or immediately succeeding previous year, if plant and machinery is first put to be used in the succeeding year. Aggrieved thereby, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who vide order dated 5.1.2007, Annexure A.2 deleted the disallowances made by the Assessing Officer. Not satisfied with the order passed by the CIT (A), the revenue filed an appeal before the ITAT. The ITAT vide order dated 29.1.2008, Annexure A.3 rejected the revenue's appeal on the basis of order passed in assessee's own case for the assessment year 1994-95 in [CASE NUMBER] dated 31.5.2006. Hence the present appeal.
3. Learned counsel for the revenue submitted that unless the amount was actually paid on account of exchange rate fluctuation by the assessee, benefit of the same should not have been allowed to the assessee as has been done by the ITAT. Relying upon decision of the Apex Court in [PRECEDENT], [PRECEDENT] and Karnataka High Court in [PRECEDENT], it was urged that [SECTION] of the Act was amended by [ACT] w.e.f 1.4.2003 which was clarificatory in nature and, therefore, the same was applicable to assessment years prior thereto as well.
4. On the other hand, learned counsel for the assessee besides supporting the order passed by the ITAT, on the strength of decision of the Apex Court in Commissioner of Income Tax. vs. [ENTITY] Governor [PRECEDENT], this Court in [PRECEDENT], Calcutta High Court in [PRECEDENT] and this Court in [PRECEDENT], decided on 8.5.2012, contended that in view of [SECTION] of the Act as it existed at the relevant time, the assessee was entitled to the benefit thereunder.
5. After hearing learned counsel for the parties, we do not find any merit in the appeal.
6. [SECTION] of the Act was inserted by [ACT] with effect from 1.4.1967. At the relevant time,it reads thus:-
"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 the previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in [SECTION] or the amount of expenditure of a capital nature referred to in clause
(iv) of sub section (1) of section 35 or [SECTION] or [SECTION], or, in the case of a capital asset (not being a capital asset referred to in [SECTION]), the cost of acquisition thereof for the purposes of [SECTION], 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: xx xx xx xx"
7. The scope of the aforesaid provision was succinctly analysed by the Apex Court in [ENTITY] Governor India (P) Limited's case (supra) as under:-
"33. As stated above, what triggers the adjustment in the actual cost of the assets, in terms of unamended [SECTION] of the 1961 Act is the change in the rate of exchange subsequent to the acquisition of asset 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] 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]. The unamended [SECTION] nowhere required as condition precedent for making necessary adjustment in the carrying amount of the fixed asset that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation. The words used in the unamended [SECTION] were "for making payment" and not "on payment" which is now brought in by amendment to [SECTION] vide [ACT]."
8. In order to appropriately adjudicate the controversy, the amendment brought about to [SECTION] of the Act by [ACT] effective from 1.4.2003 may also be noticed, which reads thus:-
"43A. Notwithstanding anything contained in any other provision of the Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment.
(a) towards the whole or a part of the cost of the asset; or
(b) towards 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 along with interest, if any, the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from -
xx xx xx xx xx xx xx xx"
9. According to amended [SECTION] of the Act, any addition to and deduction from the actual cost of a capital asset resulting from exchange fluctuation shall be only at the time of actual discharge of the liability and not to be adjusted with reference to amount payable and outstanding at the end of each year on the basis of mercantile system of accounting. It has further been provided that method of accountancy being followed by the assessee would not be relevant. Any adjustment which has already been allowed as a deduction prior to 1.4.2003 shall not be allowed again on account of exchange fluctuation at the time of actual payment.
10. The Apex Court in [ENTITY] Governor India (P) limited,'s case (supra) dealt with similar issue for years prior to the assessment year 2003-04 and held that the amendment of [SECTION] by the [ACT] with effect from 1.4.2003 would be applicable prospectively with the following observations:-
"34. Lastly, we are of the view that the amendment of [SECTION] by the [ACT] w.e.f Ist April, 2003 is amendatory and not clarificatory. The amendment is in complete substitution of the section as it existed prior thereto. Under the unamended [SECTION] adjustment to the actual cost took place on the happening of change in the rate of exchange whereas under the amended [SECTION] 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], '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] w.e.f Ist April, 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], vide the [ACT]. Therefore, the amended section is amendatory and not clarificatory in nature."
11. As noticed above, the Hon'ble Apex Court in [ENTITY] Governor India (P) Limited's case (supra) held that amendment to [SECTION] by [ACT] w.e.f 1.4.2003 was amendatory and not clarificatory. In other words, it would mean that it shall be prospectively effective from 1.4.2003 and the cases relating to earlier assessment years would be governed by unamended [SECTION] of the Act. Once that is so, the present appeal which relates to the assessment year 1993-94, the same would be governed by the unamended provisions of [SECTION] of the Act. It is held that the assessee was entitled to exchange rate fluctuation in respect of foreign currency in the assessment year in question as it was following mercantile system of accountancy.
12. Adverting to the judgments relied upon by learned counsel for the revenue, suffice it to notice that the judgments relied upon in Lucas T. V.S.Limited,'s case (supra), Elecon Engineering Co. Limited's case (supra) and Wipro Finance Limited's case (supra) do not advance the case of the revenue being on individual fact situation involved therein.
13. Accordingly, the substantial question of law raised in this appeal is answered against the revenue.
14. Consequently, the appeal is dismissed.
([ENTITY]) Judge July 26, 2013 ([ENTITY]) 'gs' Judge