Foreign exchange fluctuation on deferred machinery payments remains capital expenditure, not revenue deduction, where linked to acquisition cost.

Excess foreign exchange payments arising on deferred instalments for machinery acquired as capital assets are treated as capital expenditure, not revenue outgo. The settled principle applied is that additional cost incurred in meeting the purchase price of capital goods, or liability directly linked to their acquisition, retains the same capital character even if foreign currency fluctuation increases the amount payable. On that basis, the fluctuation excess was held not deductible in computing income.

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Issues: Whether the excess amount paid on account of fluctuation in the foreign exchange rate, in relation to instalments payable for machinery purchased on deferred payment terms, was allowable as revenue expenditure in computing the assessee's income for the relevant assessment year.

Analysis: The excess payment arose from remittance of foreign currency instalments for the price of capital machinery acquired from a foreign supplier. Applying the settled principle that extra expenditure incurred for repayment of a loan raised for payment of the price of capital goods retains a capital character, the amount was held not to be a revenue outgo. The prior Bench decisions on identical facts were followed, and the exchange fluctuation did not alter the capital nature of the liability.

Conclusion: The amount was not allowable as revenue expenditure and the answer to the referred question was in the negative, against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by holding that the exchange fluctuation excess paid for capital machinery is a capital expenditure and not deductible as revenue expenditure.

Ratio Decidendi: Extra expenditure incurred due to foreign exchange fluctuation in meeting the cost of capital assets or the repayment linked to their purchase is capital in nature and is not deductible as revenue expenditure.

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