IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 25 of 1987 For Approval and Signature: Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? 2. To be referred to the Reporter or not? 3. Whether Their Lordships wish to see the fair copy of the judgement? 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus TARUN COMMERCIAL MILLS CO. -------------------------------------------------------------- Appearance: MR Mihir Joshi for Mr.MANISH R BHATT for Petitioner SERVED BY RPAD - (N) for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 15/04/98 ORAL JUDGEMENT (Per R.K.Abichandani,J) The Income-tax Appellate Tribunal has referred the following question for the opinion of this Court under section 256(1) of the Income-tax Act, 1961. "Whether, on the facts and in the circumstances of the case the Appellate Tribunal is right in law in holding that the assessee is entitled to development rebate/investment allowance in respect of an expenditure of Rs. 1,01,543/- incurred on account of exchange rate difference for purchase of machineries ?" 2. The assessee had many years prior to the previous year in question purchased machinery on deferred payment basis through IDBI. The price of the machinery was to be paid in instalments in foreign currency. On account of exchange rate difference, the assessee was required to pay an aditional amount for which a deduction was claimed on the ground that it was a Revenue expenditure incurred for the purpose of business. The I.T.O. rejected the claim treating it as capital expenditure. The C.I.T. (Appeals) confirmed the same. The Tribunal also confirmed the view that the expenditure was a capital expenditure, but it held that the assessee was entitled to development rebate/investment allowance on satisfying the necessary requirements. 3. Similar question had arisen before this Court in ITR No.227 of 1985 and in the context of the provisions of sections 32-A and 43A, it was held by this Court that no question of revising full amount on investment allowance which was already worked out in the relevant previous year can ever arise by virtue of any subsequent fluctuation in the exchange rate, which brings about a change in the liability that exsisted immediately before the date on which the fluctuation in rate of exchange takes effect. The additional liability is to be added to the actual cost only in that previous year in which it arose and the actual cost so revised will be in respect of the benefits which are to be calculated in that previous year. It was held that since the investment allowance was already worked out on the basis of the actual cost and that quantified allowance cannot be varied by giving a back effect to some subsequent alteration in the exchange rate, there can arise no question of working out any additional investment allowance in such subsequent year in which the fluctuation takes place. It was therefore, held that the assessee was entitled to deduction of investment allowance on the amount of additional liability that arises due to flucuation in foreign exchange rate in respect of payments of outstanding instalments of machinery. 4. Applying the ratio of the said decision in ITR no.227 of 1985 decided on 5.3.98, we hold that the Tribunal committed an error in coming to the conclusion that the assessee was entitled to investment allowance in respect of the expenditure incurred on account of exchange rate difference for the purchase of machinery. The question referred to this Court is therefore, answered in the negative in favour of the Revenue and against the assessee. The Reference stands disposed of accordingly with no order as to costs. ..... ***darji