Exchange fluctuation loss on plant and machinery loans is not deductible when the same outgo is treated as capital expenditure.

Exchange fluctuation loss and related interest on long-term loans used to acquire plant and machinery were held not deductible, because the assessee had treated the interest component as capital in one context and could not reclassify the same expenditure as revenue for deduction. The Madras HC applied the principle that an item of outgo cannot be given a capital character for one purpose and a revenue character for another, and followed earlier decisions rejecting such treatment. The claim was therefore disallowed in computing total income.

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Issues: Whether the extra amount and interest payable due to exchange fluctuation on long-term loans taken for purchase of plant and machinery were deductible in computing the assessee's income.

Analysis: The assessee sought to treat the exchange difference and the related interest as revenue expenditure for deduction, while the Revenue treated the outgo as capital in nature. The Court noted that the assessee itself had treated the interest component as capital for one purpose and then sought to characterise it as revenue for deduction. It held that the same item of expenditure cannot be treated as capital for one purpose and revenue for another, and followed the earlier decisions disallowing such deduction.

Conclusion: The claim for deduction was rejected and the expenditure was held not deductible in computing the assessee's total income.

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