High Court allows devaluation-related liability as expenditure for 1967-68 profits calculation.

The High Court held that the additional liability due to the devaluation of the Indian rupee was an expenditure to be allowed in computing the revenue profits for the assessment year 1967-68. The Court emphasized that the liability remained a trading debt and did not convert into a loan. The judgment, delivered by Sabyasachi Mukharji J. and Suhas Chandra Sen J., affirmed the Tribunal's decision in favor of the assessee, International Combustion (I) Pvt. Ltd. Each party was ordered to pay their own costs.

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Issues involved:
The judgment involves the issue of whether an additional liability due to the devaluation of the Indian rupee can be claimed as a deduction in computing the profits and gains of the assessee's business for the assessment year 1967-68.

Summary:

The case involved International Combustion (I) Pvt. Ltd., a construction contractor and machinery dealer, for the assessment year 1967-68. The company purchased plant and machinery from the United Kingdom, leading to an increased liability due to the devaluation of the Indian rupee. The Income Tax Officer (ITO) disallowed this amount, relying on a judgment of the Bombay High Court. However, the Appellate Assistant Commissioner (AAC) allowed the deduction, stating it was an expenditure incurred and admissible. The Tribunal upheld that the liability was a trading liability and arose directly from the business.

The Tribunal referred a question of law to the High Court regarding the admissibility of the additional liability. The revenue contended that the liability was not paid for settlement of a transaction in the current year and was of a capital nature. They argued that the devaluation did not impact the liability from the earlier year. However, the Tribunal found that the liability was a trading liability and arose directly from the business.

The High Court, considering previous judgments and the Tribunal's findings, held that the additional liability due to devaluation was an expenditure to be allowed in computing the revenue profits. They emphasized that the liability remained a trading debt and did not convert into a loan. The Court referred to relevant case laws and upheld the Tribunal's decision in favor of the assessee.

The judgment was delivered by Sabyasachi Mukharji J. and Suhas Chandra Sen J., affirming the Tribunal's decision in favor of the assessee. Each party was ordered to pay their own costs.

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