2015 (8) TMI 1156

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.... submitted that the assessee explained before the Assessing Officer that the loan was borrowed towards working capital. Therefore, the loss suffered due to exchange fluctuation has to be allowed as revenue loss. According to the Ld. D.R., irrespective of the utilization of the loan, the fact is that what was received by the assessee as loan is a capital receipt, therefore, the loss due to foreign exchange fluctuation cannot be allowed as revenue loss. The Ld. D.R. placed his reliance on the judgment of Calcutta High Court in Bestobell (I) Ltd. v. CIT (1979) 117 ITR 789 and submitted that Calcutta High Court, on identical circumstances, found that the loss on account of devaluation of Rupee is a capital loss. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee as revenue loss. The Ld. D.R. further pointed out that the exact liability can be ascertained only at the time of actual discharge of liability. Therefore, the intermediary fluctuation in the rate of foreign exchange till the date of actual payment of liability is of no consequence to the assessee. According to the Ld. D.R., the liability arising out of exchange rate fluctuation is a contingent l....

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....utlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1. 4. We have considered the rival submissions on either side and perused the relevant material on record. The assessee suffered a loss on the loan borrowed in foreign currency due to exchange rate fluctuation. The assessee claimed increase in liability due to foreign exchange fluctuation as an expenditure under Section 37 of the Act. The Revenue, however, contends that the liability due to exchange fluctuation is only intermediary and it is a contingent one. The Department's contention is that the liability as on the date of payment has to be taken and not in between. As rightly submitted by the Ld.counsel, this Tribunal examined an identical issue in assessee's own case for assessment years 1998-99 and 2000-01 and confirmed similar order of the CIT(Appeals). 5. We have carefully gone through the judgment of Apex Court in Sutlej Cotton Mills Ltd. (supra). In the case before the Apex Court, the assessee-company having its Head Office in Calcutta, had its cotton mill in West Pakistan. The textile mill was a prosperous unit and the assessee made large profit in the assessment year 1954-55. The profit was in fact accrued to the asses....

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....After referring to various case laws on the subject, the Apex Court ultimately observed as follows: "The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. Now, in the present case, no finding appears to have been given by the Tribunal as to whether the sums of Rs. 25 lakhs and Rs. 12,50,000 were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan. If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of Rs. 11 lakhs and Rs. 5,50,....

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....rrency is held on the revenue account or as a trading asset or as a part of circulating capital embarked in the business. In this case, admittedly, the borrowed loan was used as a working capital / circulating capital. Therefore, the loss suffered by the assessee has to be allowed on the revenue account. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. 6. The next ground of the appeal is with regard to computation of deduction under Section 80HHC of the Act. 7. Shri S. Dasgupta, the Ld. Departmental Representative, submitted that while computing deduction under Section 80HHC of the Act, the assessee has not deducted 90% of the miscellaneous receipt of Rs. 4,65,802/- from the profit of the business. According to the Ld. D.R., this sum of Rs. 4,65,802/- does not form part of total turnover, therefore, in view of the Explanation (baa) to Section 80HHC, 90% of miscellaneous income needs to be reduced from the net profit to arrive as the profit of business. On a query from Bench with regard to the nature of miscellaneous receipt, the Ld. D.R. submitted that there is no discussion about the nature of receipt in ....