Madras High Court
Commissioner Of Income-Tax vs Chengalvarayan Co-Operative Sugar ... on 22 October, 1998
Equivalent citations: [2000]242ITR440(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha babu, J.
1. The assessee is a co-operative sugar mill which had suffered increase in the cost of the machineries installed by the asses-see by Rs. 19,78,050 during the assessment year 1983-84, on account of the variation in the rate of foreign exchange, the machineries having been imported and the payment being required to be made in foreign currency. The assessee claimed investment allowance for the same. The claim was negatived by the Income-tax Officer, but was allowed by the Commissioner, in appeal. The order of the Commissioner has been sustained by the Tribunal.
2. The Revenue in this background has caused this reference to be made. The question referred is as to "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the escalation charges should be added to the cost of the plant for the purpose of allowing investment allowance ?"
3. The assessee had installed the machinery during the assessment year 1982-83 and the liability for payment of additional amounts, arose by reason of escalation, due to fluctuation in foreign exchange rates. During the year 1983-84, the actual cost of the machinery itself had to be revised upward and the investment allowance claimed during this assessment year is on the amount of escalation.
4. Section 32A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), deals with investment allowance. It provides for allowance at the rate prescribed therein as a percentage of the "actual cost" of the ship, air craft, machinery or plant to the assessee. Section 43(1) of the Act defines "actual cost" to mean the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. It is not necessary for our pur pose to refer to the proviso and the Explanation to Section 43(1) of the Act. The definition given therein is for the purpose of Sections 28 to 41 of the Act, which include Section 32A of the Act.
5. Section 43A of the Act makes special provisions consequential to changes in rate of exchange of currency. That Section opens with the non-obstante clause and provides that "notwithstanding anything contained in any other provision of this Act, where the assessee had acquired any asset from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such assets, there is an increase or reduction, in the liability of the assessee as expressed in Indian currency for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset, (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during the previous year shall be added to, or, as the case may be, deducted from the actual cost of the asset as defined in Clause (1) of Section 43 of the Act or the amount of expenditure of a capital nature referred to in Clause (iv) of Sub-section (1) of Section 35, or in Section 35A or in Clause (ix) of Sub-section (1) of Section 36, or, in the case of a capital asset (not being a capital asset referred to in Section 50), the cost of acquisition thereof for the purposes of Section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid". It is not necessary to refer to the Explanations and the other parts of the section for the purpose of this reference.
6. It is evident that by reason of Section 43A(1) of the Act the amount by which the liability of the assessee is increased or reduced during the previous year by reason of variation in the rate of exchange as between the Indian currency and the foreign currency, in cases where the assets have been acquired from a country outside India, shall be added to or as the case may be deducted from the actual cost of the asset as defined in Clause (1) of Section 43 of the Act.
7. There can, therefore, be no manner of doubt that the investment allowance which is required to be allowed on the actual cost of machinery or plant, is required to be allowed on the amount by which that actual cost has increased by reason of variation in the rate of exchange as between Indian currency and foreign currency, where the said acquisition is from a foreign country. The fact that the additional liability for the assessee arose in the year subsequent to the date of installation does not come in the way of the investment allowance being allowed to the assessee. Section 43A(1) of the Act refers to the amount by which the liability of the assessee is so increased or reduced "during the previous year". The increase in the liability of the assessee during the previous year on account of the change in the rate of exchange is part of the actual cost of the machinery acquired from a foreign country and the assessee is entitled to investment allowance on the additional cost.
8. The question referred is, therefore, answered in favour of the assessee and against the Revenue. The assessee shall be entitled to costs in the sum of Rs. 2,500.