1985 (10) TMI 90 - HC - Income Tax

Interpretation of Income-tax Act: Companies in Tata Group Win Depreciation Claim

The High Court of Bombay delivered a common judgment on multiple references related to the interpretation of section 43A of the Income-tax Act, 1961. The ... Actual Cost, Depreciation Issues involved: The judgment involves the interpretation of section 43A of the Income-tax Act, 1961, regarding the allowance of depreciation on increased liability due to revaluation of foreign currencies for assets acquired from outside India.Details of the Judgment:Issue 1: Common Judgment for Multiple ReferencesThe High Court of Bombay delivered a common judgment on six references under section 256(1) of the Income-tax Act, 1961, concerning three companies in the Tata group related to the assessment years 1970-71 and 1971-72.Issue 2: Claim for Depreciation on Increased LiabilityThe assessees, companies engaged in the generation and supply of electric power, claimed depreciation on the increased liability for loan repayment due to revaluation of foreign currencies (Deutsche Marks and Netherland Guilders) as per the provisions of section 43A of the Income-tax Act, 1961.Issue 3: Interpretation of Section 43AThe court analyzed the provisions of section 43A, emphasizing that the section applies prospectively from April 1, 1967, and allows for the adjustment of actual cost based on changes in the rate of exchange of foreign currency after the acquisition of the asset, irrespective of the acquisition date.Issue 4: Capitalization of Increased LiabilityThe court rejected the argument that the increased liability must be capitalized to claim depreciation, stating that section 43A focuses on the effect of exchange rate changes on determining the actual cost of the asset for depreciation purposes, regardless of how the asset's value is reflected in the balance sheet.Conclusion:The court ruled in favor of the assessees, affirming their entitlement to depreciation on the increased liability for loan repayment due to the revaluation of foreign currencies, as per the provisions of section 43A of the Income-tax Act, 1961. The Commissioner was directed to pay the costs of the references to the assessees.