TaxTMI 
TaxTMI 
There was a loss on account of Foreign Exchange Fluctations on restatement of Foreign currency loan taken for purchase of Land, Building and Machinery ( indegenous) for a manufacturing project. How will it be treated in Income tax ??
Treatment of loss due to foreign exchange fluctuations
17 Sep 2009 
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Foreign exchange fluctuation loss treatment: capitalisation or revenue deduction hinges on asset use and characterisation of the loss.
Issue: whether exchange loss on restatement of a foreign currency loan taken to acquire land, building and indigenous machinery is capital or revenue in character. If capital, the loss may be capitalised as part of asset cost under the capitalisation rule; if revenue, it may be deductible. Section 43A was noted as inapplicable to indigenous machinery here, creating uncertainty whether a capital-account exchange loss not covered by that provision is disallowed or must be assessed by economic substance and use of funds. (AI Summary)
Issue: whether exchange loss on restatement of a foreign currency loan taken to acquire land, building and indigenous machinery is capital or revenue in character. If capital, the loss may be capitalised as part of asset cost under the capitalisation rule; if revenue, it may be deductible. Section 43A was noted as inapplicable to indigenous machinery here, creating uncertainty whether a capital-account exchange loss not covered by that provision is disallowed or must be assessed by economic substance and use of funds. (AI Summary)