Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2008
(Arising out of SLP (Civil) No.12699 of 2007)
Commissioner of Income Tax, Rajkot ...Appellant
Versus
M/s Gujarat Siddhi Cement Ltd. ...Respondent
J U D G M E N T
Dr. ARIJIT PASAYAT J.
1. Leave granted.
2. Challenge in this appeal is to the judgment of a Division Bench of the
Gujarat High Court dismissing the appeal filed by the present appellant. The
appeal was filed under Section 260A of the Income Tax Act, 1961 (in short
the ‘Act’). The question relates to the effect of Section 43A of the Act. The
effect of fluctuation of foreign exchange rate resulting in increase of cost of
plant and machinery was the dispute.
3. Respondent (hereinafter referred to as the ‘assessee’) claimed
increased amount as deduction as investment allowance on account of
increase in the cost of plant and machinery on account of exchange rate
fluctuation. The assessing officer disallowed the claim on the ground that
plant and machinery in respect of which there has been increase were
installed in the earlier years. Therefore, there is no scope for provision for
investment allowance in the year under assessment. It referred to the letter
of the assessee dated IT/JAM/95-96/1226 dated 16.2.1996 making such
claim. The assessee preferred an appeal before the Commissioner of Income
Tax (Appeals) (in short ‘CIT(A)’). The disallowance made by the assessing
officer was upheld by the CIT(A) on the ground that no arguments were
advanced and no factual details were furnished regarding the alleged
fluctuation on account of foreign exchange rate. The matter was carried in
further appeal by the assessee before the Income Tax Appellate Tribunal,
Rajkot (In short ‘Tribunal’) which allowed the claim placing reliance on a
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decision of the Gujarat High Court in Commissioner of Income Tax v.
Gujarat Fertilizers (2003 (259) ITR 526). Revenue preferred an appeal
under Section 260A of the Act before the High Court. By the impugned
judgment the High Court upheld the view of the Tribunal referring to the
judgment of Gujarat Fertilizers’s case (supra).
4. In support of the appeal, learned counsel for the appellant submitted
that the subject matter of controversy is covered by a decision of this Court
in Commissioner of Income Tax, Madras v. Lucas TVS Ltd, Padi Chennai
(2008 (1) SCC 674). He also relied on the decision in Commissioner of
Income Tax v. Arvind Mills (1992 Supp (2) SCC 190).
5. Learned counsel for the assessee-respondent on the other hand
submitted that Lucas TVS’s case (supra) related to an entirely different
question and, therefore, the view expressed by the High Court does not
suffer from any infirmity.
6. The assessment year in the present case is 1993-94 relating to the
previous year 1992-93. In terms of Section 43A(1) the liability decreases or
increases due to foreign exchange rate in the previous year. If that is not the
position, there is no application of Section 43A(1). Section 32A deals with
investment allowance. Section 43A deals with special provisions
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consequential to changes in rate of exchange of currency. It is to be noted
that Arvind Mills’s case (supra) did not deal with investment allowance
under Section 32A of the Act. It in fact related to “development rebate”
under Section 33. It is to be noted that Section 43A in the present form was
substituted by the Finance Act, 2002 w.e.f. 1.4.2003. Prior to its substitution
Section 43A as inserted by the Finance Act, 1967 w.e.f. 1.4.67 and amended
by Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1.4.1989 contained sub-
section (2). The said sub-section as it stood at the relevant point of time
clearly stated that the provisions of sub-section (1) shall not be taken into
account in computing the actual cost of assets for the purpose of deduction
on account of development rebate under Section 33.
7. In Arvind Mills’s case (supra) it was observed inter-alia as follows:
“13. It may also be mentioned that the Ministry of Finance, by
its letter of 4th January, 1967, sometime earlier to the
enactment of Section 43A had clarified its stand on certain
points raised by the Federation of Indian Chambers of
Commerce and Industry. The first two paragraphs of this letter
have a bearing on the issue before us and may be extracted here
:
“1. As regards the point that the additional rupee
liability in regard to assets imported before but
installed after the date of devaluation would, in
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any case, be treated as forming part of the actual
cost of the asset for the purpose of allowance of
development rebate under the existing law the
interpretation of the Government on legal position
is different. It is that the actual cost of the asset in
such a case will be reckoned at the cost on the date
on which the legal ownership in the assets passed
to the assessee, i.e., the cost as calculated in
accordance with the pre-devaluation rate of
foreign exchange.
2. The Government agrees that for the purpose of
the calculation of depreciation allowance, the cost
of capital assets imported before the date of
devaluation should be written off to the extent of
the full amount of the additional rupee liability
incurred on account of devaluation and not what
is actually paid from year to year . The proposed
legal provision in the matter is intended to be
framed on this basis.”
(Emphasis Added)
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18. We also find it difficult to find substance in the second
argument of Sri Salve that Sub-section (1) was inserted only to
define the year in which the increase or decrease in liability has
to be adjusted. It is no doubt true that, but for the new section,
various kinds of arguments could have been raised regarding
the year in which such liability should be adjusted. But, we
think, arguments could also have been raised as to whether the
actual cost calls for any adjustment at all in such a situation. It
could have been contended that the actual cost can only be the
original purchase price in the year of acquisition of the asset
and that, even if there is any subsequent increase in the
liability, it cannot be added to the actual cost at any stage and
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that, for the purposes of all the statutory allowances, the
amount of actual cost once determined would be final and
conclusive. Also Section 43A provides for a case in which, as
in the present case, the assessee has completely paid for the
plant or machinery in foreign currency prior to the date of
devaluation but the variation of exchange rate affects the
liability of the assessee (as expressed in Indian currency) for
repayment of the whole or part of the monies borrowed by him
from any person directly or indirectly in any foreign currency
specifically for the purposes of acquiring the asset. It is a moot
question as to whether in such a case, on general principles, the
actual cost of the assessee's plant or machinery will be the
revised liability or the original liability. This is also a situation
which is specifically provided for in the section. It may not,
therefore, be correct to base arguments on an assumption that
the figure or actual cost has necessarily to be modified for
purposes of development rebate or depreciation or other
allowances and that the only controversy that can arise will be
as to the year in which such adjustment has to be made. In our
opinion, we need not discuss or express any concluded opinion
on either of these issues. As we said earlier, there is no need to
speculate on all the problems that might have arisen if Section
43A had not been there because the statute had resolved these
problems. It lays down, firstly, that the increase or decrease in
liability should be taken into account to modify the figure of
actual cost and secondly that such adjustment should be made
in the year in which the increase or decrease in liability arises
on account of the fluctuation in the rate of exchange.
19. The result of the above discussion is that once the language
of Sub-section (1) is attracted to a particular case, Sub-section
(1) applies. Once Sub-section (1) is attracted, its application is
excluded, qua development rebate, by the operation of Sub-
section (2).
xx xx xx
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22. Nor is there any in-appropriateness of statutory language as
urged. As we have discussed above, the provisions of Sub-
section (1) apply to the present case and the increased liability
should be taken as 'actual cost' within the meaning of Section
43A(1). All allowances including development rebate or
depreciation allowance or the other types of deductions
referred to in the sub-section will therefore have to be based on
such adjusted actual cost. But then Sub-section (2) intercedes
to put in a caveat. It says that the provisions of Sub-section (1)
should not be applied for purposes of development rebate. The
effect is that the adjusted actual cost is to be taken as the actual
cost for all purposes other than for grant of development rebate.
Read thus, there is no difficulty in the application of the
language of the section to the present case. There is no
inappropriateness of language either in Sub-section (1) or in
Sub-section (2). The language used is quite appropriate and
meets the situation fully.
23. For the reasons discussed above, we are of the opinion that
the language of the provision is perfectly clear. It cannot be
interpreted in a restrictive manner as contended for by the
learned Counsel for the assessee. In our opinion, it is a clear
requirement of the statute that, for purposes of development
rebate, any increase or decrease in the actual cost consequent
on fluctuations in exchange rate should not be taken into
account. It may be that the legislature intended to give a
different treatment to development rebate from depreciation
and other allowances because the allowance of development
rebate can result in an assessee claiming allowances exceeding
the original cost. It may be that the legislature thought that,
though development rebate was intended to promote
development of industries, this could not be allowed at the cost
of the foreign exchange resources of the country which are also
depleted when there is an increase in liability due to
devaluation of the currency. It is unnecessary to attribute any
particular reason for the provision when the language of the
section is otherwise plain and unambiguous. We do not think
that, in face of the language of Sub-section (2), it would be
right to permit the assessees to claim development rebate on the
increased cost. We, therefore, allow the appeal and uphold the
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action of the assessing officer granting development rebate to
the assessee only in respect of a sum of Rs. 52.48 lakhs and not
on Rs. 61 lakhs on the basis of which it was claimed. Having
regard, however, to the fact that the assessees had succeeded
before all the High Courts we make no order regarding costs.”
8. In the said case the issue related to the development rebate.
9. On a bare reading of the provision i.e. Section 43A(1) the position is
clear that it relates to the fluctuation in the previous year in question. If any
extra benefit is taken the same has to be taxed in the year when the liability
is reduced as provided in terms of Section 41(1)(a) Explanation 2.
Therefore, whenever there is fluctuation in any previous year, Section 43A
(1) comes into play. Section 43A(1) as it stood at the relevant point of time
reads as follows:
“43A. Special provisions consequential to changes in rate of
exchange of currency- (1) Notwithstanding anything contained
in any other provision of this Act, where an assessee has
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 asset, 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
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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 previous year shall be added to, or,
as the case may be, deducted from, the actual cost of the asset
as defined in clause (I) of section 43, 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 expenditure or a capital nature or,
as the case may be, the cost of acquisition of the capital asset as
aforesaid.
Explanation 1- In this sub-section, unless the context requires:-
(a) "rate of exchange" means the rate of exchange determined
or recognised by the Central Government for the conversion of
Indian currency into foreign currency or foreign currency into
Indian currency;
(b) “foreign currency” and “Indian currency” have the
meanings respectively assigned to them in section 2 of the
Foreign Exchange Regulation Act, 1947 (7 of 1947).
Explanation 2- Where the whole or any part of the liability
aforesaid is met, not by the assessee, but directly or indirectly,
by any other person or authority, the liability so met shall not
be taken into account for the purposes of this sub-section.
Explanation 3- Where the assessee has entered into a contract
with an authorized dealer as defined in section 2 of the Foreign
Exchange Regulation Act, 1947 (7 of 1947), for providing him
with a specified sum in a foreign currency on or after a
stipulated future date at the rate of exchange specified in the
contract to enable him to meet the whole or any part of the
liability aforesaid, the amount, if any, to be added to, or
deducted from, 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 under this sub-section shall,
in respect of so much of the sum specified in the contract as is
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available for discharging the liability aforesaid, be computed
with reference to the rate of exchange specified therein.”
10. After the substitution by Finance Act, 2002 w.e.f. 1.4.2003 the
position is quiet different.
11. In the instant case as rightly submitted by learned counsel for the
revenue, CIT(A) recorded to a categorical finding that no argument was
advanced and no details were given.
12. In the aforesaid background we feel that it would be appropriate to
grant opportunity to the assessee to establish the factual position relating to
fluctuation in foreign exchange rate. For that limited purpose the matter is
remitted to the Tribunal to consider whether assessee is justified in
claiming deduction in the background of Section 43A(1) as it stood then,
keeping in view the legal position as highlighted above.
13. The appeal is disposed of accordingly.
……..……………………………J.
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(Dr. ARIJIT PASAYAT)
…….…………………………....J.
(Dr. MUKUNDAKAM SHARMA)
New Delhi,
October 17, 2008
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