Foreign exchange fluctuation on machinery loan repayment treated as capital expenditure, not deductible as revenue outgo.

Excess instalments paid on repayment of a foreign currency loan taken to import machinery were treated as capital in nature under section 43A of the Income-tax Act, 1961. The additional liability arose solely from exchange rate fluctuation during repayment and was attributable to the acquisition of the capital asset, not to day-to-day trading operations. Following its earlier view in the same assessee's case for other assessment years, the Madras HC held that the excess payment was not deductible as revenue expenditure.

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Issues: Whether the excess instalments paid on account of fluctuation in foreign exchange rates, in repayment of a loan taken for importing machinery, were allowable as revenue expenditure or were capital in nature under section 43A of the Income-tax Act, 1961.

Analysis: The assessee had borrowed foreign currency funds for financing the import of machinery, and the additional amount arose only because of exchange rate fluctuation in the course of repayment of the loan instalments. The Court followed its earlier decision on the same assessee for other assessment years and accepted the view that such additional payment was attributable to the capital asset and not to day-to-day trading operations. The amount was therefore not deductible as revenue expenditure.

Conclusion: The excess instalments paid due to exchange fluctuation were capital in nature and not allowable as revenue expenditure.

Ratio Decidendi: Additional payment made towards repayment of a foreign currency loan taken to acquire machinery, solely because of exchange fluctuation, constitutes capital expenditure and is not deductible as revenue expenditure.

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