Commissioner of
Income Tax Rajkot V. M/S Gujarat Siddhi Cement Ltd. [2008] INSC 1758 (17
October 2008)
Judgment
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
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
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 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 4 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) xx
xx xx
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 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 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 7 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 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 9 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.
(Dr. ARIJIT PASAYAT)
.........................................J
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