Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the sum of Rs. 10,558 paid by the assessee as exchange difference cannot be allowed as a revenue loss ?

Counsel Appeared

V. Surya Narayana Murthy, for the Assessee : M. Suryanarayana Murthy, for the Revenue

A. RAGHUVIR, J.:

In this reference under the IT Act of 1961, the following two questions are referred for the opinion of this Court: “

1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 10,558 paid by the assessee as exchange difference cannot be allowed as a revenue loss ?

2. If the answer to the first question is in the affirmative, whether, on the facts and in the circumstances of the case, the said payment can be added to the cost of plant and machinery for the purpose of calculating the admissible depreciation ? “

The assessee is a manufacturer of two-wheeler vehicles known as “Mopeds “. They are manufactured at Tirupathi. The assessee purchased parts of the vehicles from a French company, M/s Moto- becane. The payment to this French company was made through the assistance of a German firm, for the German firm, Kreditanstalt fur Wiederaugbau, advanced loans in Deutsche Marks (DM) of German currency. The supply by the French company and the loan obtained from the German firm were arranged through an organisation known as ” Industrial Credit and Investment Corporation of India Ltd. ” The supply of parts was made by the French company to the assessee, but the purchase money was to be paid through DM currency. It is common knowledge that the French currency, the German currency and the money equivalent of the two currencies are matters of fluctuations every day. The assessee paid Rs. 15,969 more as a result of the fluctuations. The assessee paid the amount in two segments, one of Rs. 10,558 and the other of Rs. 5,411. As to the latter amount, no question arises in this reference. Therefore, the details of that amount are not necessary to be stated.

The controversy arose when the assessee claimed the amount of Rs. 10,558 paid by them as revenue expenditure. The Revenue asserted that it was part of the purchase money paid to the French firm and, therefore, was not an amount paid to the creditor, i.e., the German firm. The ITO rejected the assessee’s claim. The AAC, on appeal, allowed the claim. The Tribunal held that the amount of Rs. 10,558 was part of the instalments paid by the assessee to the French company and for that reason cannot be deducted as revenue expenditure. Thereupon, the above two questions were referred for the opinion of this Court.

We may sum up the above facts in the following manner: The French company is the supplier. The assessee is the purchaser. The German firm is the creditor and the assessee is the debtor. The payment was made through DM currency which was arranged by the medium of Industrial Credit and Investment Corporation of India Ltd.

If the assessee paid Rs. 10,558 to its creditor, in which case it is obvious that the payment was made by the debtor to the creditor and such an expenditure is revenue expenditure. If the amount is paid to the supplier, i.e., the French company, by the assessee, in which case the amount cannot be held as revenue expenditure for the amount is paid for purchasing the plant and machinery. This legal aspect is not disputed during the debate in this case.

The question is whether the amount claimed was paid as payment to the creditor by the debtor. On this aspect, the statement of case in para. 5 states, ” But the extra amount paid by the assessee in this case on account of exchange difference was different. It was part of the instalments payable to the foreign supplier for supply of plant and machinery “. Having regard to the statement of fact, hardly any question survives for consideration, in that, it is specifically found that the claimed amount was paid to the supplier, i.e., the French company, for supply of plant and machinery. This statement of fact was not disputed, but it is disputed in this Court. No question, however, was raised to say that it was incorrectly set out before the Tribunal.

Learned counsel for the assessee asserted that it is an incorrect statement of fact introduced in the statement of case. It is obvious that if the correctness is disputed, the assessee or learned counsel who represented the assessee knew very well as to what course of action is to be adopted.

We have read the above extracted portion in the context of other facts and are satisfied that, as a question of fact, it was held that the payment was made to the French company towards the supply of plant and machinery and in that sense, it was capital expenditure and was not paid to the creditor to discharge the debt due by the assessee to the German firm. Therefore, the first question obviously has to be answered in the affirmative, i.e., that it is a capital expenditure which is incurred by the assessee for acquisition of plant and machinery. This is recorded against the assessee and in favour of the Revenue.

Having regard to the answer to question No. 1, the second question need not be answered. However, we record that the above amount of Rs. 10,558 cannot be calculated as admissible depreciation. The two questions are answered accordingly. We order no costs in this case.

[Citation : 172 ITR 552]