Exchange difference for machinery not deductible as revenue expenditure, ruled High Court.

The High Court held that the amount paid as an exchange difference was capital expenditure for acquiring plant and machinery, not a revenue loss. Therefore, the payment could not be added to the cost of plant and machinery for calculating admissible depreciation. The court ruled in favor of the Revenue, affirming that the payment was not deductible as revenue expenditure but rather as part of the purchase price of the machinery. Consequently, the court deemed the question of calculating admissible depreciation unnecessary and ordered no costs in the case.

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Issues:
1. Whether the sum paid by the assessee as exchange difference can be allowed as a revenue lossRs.
2. Whether the said payment can be added to the cost of plant and machinery for calculating admissible depreciationRs.

Analysis:
The case involved a manufacturer of two-wheeler vehicles purchasing parts from a French company, paying through a German firm in Deutsche Marks (DM) currency, resulting in an exchange difference of Rs. 10,558. The controversy arose when the assessee claimed this amount as revenue expenditure, which was rejected by the Income-tax Officer but allowed by the Appellate Assistant Commissioner. The Appellate Tribunal held the amount was part of instalments paid to the French company, not deductible as revenue expenditure, leading to the reference of two questions to the High Court.

The High Court clarified that if the amount was paid to the creditor (German firm), it would be revenue expenditure, but if paid to the supplier (French company), it would be part of the purchase price of plant and machinery. The statement of facts confirmed the payment was made to the French company for plant and machinery supply, not disputed during the case. The court noted that the payment was capital expenditure for acquiring plant and machinery, not to discharge the debt to the German firm, thus ruling in favor of the Revenue.

As a result, the first question was answered affirmatively, stating the payment was capital expenditure for acquiring plant and machinery. Consequently, the second question regarding the calculation of admissible depreciation based on the amount was deemed unnecessary. The High Court concluded that the amount of Rs. 10,558 cannot be considered for admissible depreciation and ordered no costs in the case.

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