Foreign exchange gains on revenue account upheld as business income by Tribunal, aligning with past assessments.

The court held that the increased liability due to foreign exchange fluctuation should be treated in the revenue account, aligning with past assessments where similar gains were considered business income. The Income-tax Appellate Tribunal dismissed the appeal, emphasizing the consistent treatment of such fluctuations in financial accounts.

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Issues:
Treatment of increased liability on account of foreign exchange fluctuation - Whether to be treated in the capital account or revenue account.

Analysis:
The judgment revolves around the treatment of an increased liability due to foreign exchange fluctuation. The appellant had taken a term loan for a project and resorted to external commercial borrowing to reduce interest liability. The interest rate for the term loan was significantly higher than the external commercial borrowing, resulting in a sharp decrease in interest liability. However, due to exchange rate fluctuation, the appellant debited an amount on account of the increase in liability on external commercial borrowing. The main issue was whether this increase should be treated in the capital account, as argued by the appellant, or in the revenue account, as contended by the respondent.

The appellant argued for the treatment in the capital account, while the respondent argued for the treatment in the revenue account based on past assessments where gains from foreign exchange fluctuation were treated as business income. The counsel for the appellant verified that gains were indeed assessed as business income in previous years, leading to the conclusion that the increased liability should be treated in the revenue account. The Income-tax Appellate Tribunal upheld this view, resulting in the dismissal of the appeal.

In conclusion, the judgment clarifies that the increased liability on account of foreign exchange fluctuation should be treated in the revenue account based on past assessments where similar gains were treated as business income. The decision by the Income-tax Appellate Tribunal to dismiss the appeal aligns with this interpretation, emphasizing the importance of consistent treatment of such fluctuations in financial accounts.

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