Exchange rate loss on foreign currency loan repayment was treated as a substantial question of law for Supreme Court consideration.

The Calcutta HC treated the tax treatment of excess payments arising from exchange rate fluctuations on repayment of foreign currency loans used to acquire machinery as a substantial question of law fit for Supreme Court consideration. It noted that the issue could recur in international transactions, that a related devaluation-loss question involving the same assessee had already been referred, and that the Madras High Court ruling relied on by the Revenue was not directly applicable. The Court also observed that section 43A of the Income-tax Act, 1961 was not in force for the relevant assessment years. The certificate was granted and the application was allowed.

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Issues: Whether the assessee was entitled to a certificate that the reference involved a substantial question of law fit for appeal to the Supreme Court on the tax treatment of excess payments arising from exchange rate fluctuations on repayment of foreign currency loans used to acquire machinery.

Analysis: The question was held to be substantial and capable of recurring in international transactions. The Court noted that a related question concerning devaluation loss in the case of the same assessee had already been referred to the Supreme Court, and that the Madras High Court decision relied upon by the Revenue did not directly govern the present matter. It was also noticed that section 43A of the Income-tax Act, 1961 was not in force during the assessment years involved in that decision.

Conclusion: The certificate was granted and the application was allowed.

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