R.K. Gulati, J. - (1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), for the consecutive assessment years 1973-74 to 1975-76 at the instance of the Commissioner of Income-tax, Allahabad. The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following common question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Rs. 12,99,806, Rs. 7,82,467 and Rs. 11,19,327 were revenue expenditure and were allowable in computing the total income of the assessee for the years under reference ?"
(2.) THE brief facts are these : THE respondent-assessee is a subsidiary of Hindustan Aluminium Corporation Limited, Renukoot, Mirzapur. It generates power for the consumption of its holding company. In the computation of its total income for the assessment years 1973-74 to 1975-76, the assessee claimed deduction of Rs. 12,99,806, Rs. 7,82,467 and Rs. 11,19,327, respectively as revenue expenditure. It was explained that the said expenditure was incurred on account of difference in foreign exchange rate in making the remittances to IGE Export Division, General Electric Company, New York and General Electric Technical Service Co. Inc., New York, against instalments under the deferred payment contracts Nos. IGE-9584 and GETS-1451 in foreign currency. THE case of the assessee was that parity rate of dollar was fixed by the Reserve Bank of India, yet at the time of making actual remittances, dollars had to be arranged from the open market through the bankers duly registered who dealt in foreign exchange, which resulted in extra expenditure on account of fluctuations in the exchange rate. Further, the exchange loss was not on account of any official devaluation/revaluation of the currency and, as such, the expenditure in question was purely incidental to the carrying on of the business arising from the remittances in the foreign exchange. In response to a query from the Income-tax Officer in the assessment year 1973-74, the assessee stated as under : ". . . we had already submitted before you, the plant and machinery for the company's thermal power plant had been purchased on package deal basis under the deferred payment contract. THE value of the plant and machinery accordingly has been capitalised on the basis of calculations made at the official rate of exchange. We have, therefore, to submit that the amount of Rs. 12,99,806 is purely incidental and has been expended wholly and exclusively for the purpose of business and has rightly been claimed as trade expenses." The Income-tax Officer, however, disallowed the claim of the assessee in each of the three years on the finding that the expenditure in question represented the repayment of instalments towards cost of plant and machinery and any extra expenditure incurred in respect thereof, due to fluctuation in currency rate, was capital expenditure which could not be allowed as a set off against the profit and loss account of the assessee. The assessee contested the matter in appeal before the Commissioner of Income-tax (Appeals) but the assessment orders on this count were upheld. In rejecting the claim, the appellate authority held that the assessee was to make the payment for the price of machinery purchased from foreign parties in foreign currency in deferred instalments. Because of rate fluctuation, the assessee spent more amount in Indian currency in order to meet its commitments for the instalments representing part of the cost of capital assets acquired. The payment is of the price or part of the price of a capital asset and there is no known principle of accountancy or any precedence by which such payment could be called revenue expenditure. The appellate authority then observed in its order for the assessment year 1973-74 as under : "The appellant could have claimed the benefit of Section 43A on the ground of enhanced liability with respect to capital assets on fluctuations of exchange. But before the Income-tax Officer no such claim was made. Even before me the learned representative for the company vehemently argued that this provision was not applicable because this could be applicable only when there was a devaluation by the Government of India. I would, therefore, refrain from giving any finding on this point but content myself by upholding the Income-tax Officer's action in treating the liability as a capital one. The ground, therefore, fails."
(3.) THE assessee thereafter pursued the matter further in the second appeal before the Income-tax Appellate Tribunal which upheld its claim. In doing so, the Tribunal merely relied upon certain decisions of other Benches of the Tribunal where in similar circumstances the view taken was that such an expenditure was allowable as a revenue expenditure. We have heard learned counsel for the parties. Learned standing counsel for the Revenue contended that any increase in the liability of the assessee expressed in terms of Indian currency for remitting the instalments towards the cost of plant and machinery under the deferred payment agreement, is an expenditure on capital account. The extra expenditure in such circumstances, it was urged, will have the effect of increasing the actual cost of the capital asset. Learned counsel further submitted that the cause which occasioned such loss whether owing to day-today fluctuation in the rate of exchange or devaluation brought about by the act of the State, was of no importance in deciding whether the expenditure was revenue or capital expenditure.;