Actual cost of imported machinery includes exchange difference from rupee devaluation for depreciation and development rebate purposes.

For depreciation and development rebate under the Income-tax Act, 1961, the actual cost of imported plant and machinery includes the exchange difference arising from rupee devaluation where the asset was acquired with foreign currency funds and its cost was reflected in Indian rupees at post-devaluation rates. The court followed its earlier decision on identical facts and applied the same principle, treating the devaluation-related difference as part of the capital cost of the machinery. The question was answered in the affirmative, in favour of the assessee.

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Issues: Whether the difference in rupee value of imported machinery arising from devaluation of the rupee formed part of the actual cost of the plant and machinery for the purpose of depreciation and development rebate.

Analysis: The machinery was acquired against funds standing in foreign currency and the assessee valued the cost in Indian rupees at post-devaluation rates. The question was whether, for the purposes of allowances under sections 32 and 33 of the Income-tax Act, 1961, the relevant actual cost had to reflect the exchange difference resulting from devaluation. The Court followed its earlier decision on identical facts and applied the same principle.

Conclusion: The exchange difference formed part of the actual cost. The question was answered in the affirmative and in favour of the assessee.

Ratio Decidendi: Where imported machinery is acquired with foreign currency and the rupee is devalued before the cost is reflected in Indian currency, the resulting exchange difference is included in the actual cost for depreciation and development rebate purposes under the Income-tax Act, 1961.

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