TaxTMI 
TaxTMI 
2009 (9) TMI 62
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.... of foreign exchange receipt is a capital receipt or revenue receipt irrespective of the source of the said income. An alternate plea was also taken by the Revenue to the effect that 22% of the funds were utilized for working capital, which is in a nature of circulating capital and therefore, 22% of the gain on account of exchange rate fluctuation is to be held as revenue receipt. 2. The assessee is the same in all these appeals and the aforesaid issue arose in various Assessment Years, under the following facts and circumstances. 3. The assessee is a multi-product company engaged in the business of alcoholic beverages, malted milk food, dairy products, etc. During the assessment year 1997-98, the assessee company had issued 2,52,10,0....
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....t year, there was a fluctuation gain amounting to Rs.88,58,349/-. The Assessing Officer treated this entire gain on exchange rate fluctuation as revenue receipt exigible to tax. The assessee filed appeal against this addition before the CIT(Appeals). This appeal was partly allowed. The first Appellate Authority treated proportionate ratio of share capital raised for acquisition of fixed assets at 79% as arising on account of capital receipt and the balance 21% gain was treated as revenue receipt. In a nutshell, the CIT (A) went by the end user of the said share capital. Since 79% of the share capital was to be used for the fixed capital assets, the gain on exchange fluctuation to this extent was treated as capital gain. On the other hand, a....
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....sions of law? 7. It would be relevant to point out at this stage that initially for the Assessment Year 1997-98, the entire gain on the foreign exchange fluctuation was treated by the Assessing Officer as capital gain and, therefore, the amount was not added to the income of the assessee. However, this order was revised by the Commissioner of Income Tax in exercise of his powers under Section 263 of the Income Tax Act, pointing out that part of the share capital raised was to be utilized for working capital, which aspect was not considered by the Assessing Officer and matter was remanded back to the AO for fresh consideration. Thereupon, the AO passed the orders treating 78% share as capital receipt and 22% as revenue receipt of the gain....
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....is treated as capital receipt. Obviously, for setting up or for expansion of business, part of the said share capital raised can be utilized for acquiring assets and from other part, the other expenses can be met treating the same as 'working capital'. Merely because the part of the share capital is used as 'working capital' that has never been treated as revenue receipt. Once this aspect becomes clear and the entire money raised through issue of equity shares is to be treated as share capital, the gains on account of foreign exchange fluctuations, in the event such share capital collected in foreign exchange, the determination as to whether it is to be treated as capital receipt or revenue receipt cannot depend upon the end use of the shar....