Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the devaluation loss of Rs. 4,17,833 was not deductible in computing the assessee's business income."
(2.) The assessee is a private limited company and the reference relates to the assessment year 1967-68. Daring the previous year relevant to this assessment year there was devaluation of the Indian rupee on 6th June, 1966 and the assessee-company, therefore, claimed before the revenue authorities devaluation loss of Rs. 5,71, 615 on this account, the break-up of which WMS as follows : JUDGEMENT_344_ITR140_1983Html1.htm
(3.) The ITO, however, disallowed the entire devaluation loss claimed by the assessee-company. The assessee went up in appeal before the AAC. Now, so far as the second item, that is to say, loss on devaluation on balance outstanding for purchase of capital goods is concerned, this was disallowed by the I.T. authorities and has subsequently been upheld and no question has been directed on this account. The loss on devaluation on the balance outstanding for the import of raw materials and components used for the purposes of the assessee's business has been allowed by the Revenue. Therefore, that question is also not the subject-matter of reference before us as the Revenue has not come up in reference on tins point. The deduction of profit on devaluation on the sterling bank balance is also not the subject-matter of adjudication by us because it has been allowed and no question arises on this point. The only question with which we are concerned in this reference is the first item referred to hereinbefore, that is to say, whether loss on devaluation of sterling loan amounting to Rs. 4,17,833 was properly disallowed by the ITO. The facts as found by the AAC were that the assessee-company had raised sterling loans carrying interest at 5% per annum to the extent of 65,000. The rupee equivalent of the sterling loan amounting to Rs. 8,66,667 was brought to India for use in the assessee's business as the company's circulating capital. The assessee-company made a repayment to the extent of 10,500 up to the 5th of June, 1966, and the balance outstanding on the 6th of June, 1966, i.e., the date of devaluation of the Indian rupee was 54,500. The rupee equivalent of the above amount prior to the date of devaluation was Rs. 7,26,667 and the rupee equivalent after the date of devaluation was Rs. 11,44,500, The difference between the aforesaid sums amounted to Rs. 4,17,833 and it represented the loss on devaluation in respect of the sterling loans outstanding as on the 6th of June, 1966. It is this loss which in the subject-matter of adjudication before us. As we have mentioned before the assessee's claim was disallowed by the ITO on the ground that the loss was capital in nature.;