COMMISSIONER OF INCOME-TAX v. CHENGALVARAYAN CO-OPERATIVE SUGAR MILLS LTD.
Tax Case No. 817 of 1992, decided on October 22, 1998.
HIGH COURT OF MADRAS
Smt. Chitra Venkataraman, for the Applicant : P. P. section Janardhanaraja, for the Respondent
R. JAYASIMHA BABU, J. :
The assessee is a co-operative sugar mills which had suffered increase in his cost of the machineries installed by the assessee by Rs. 19,78,050 during the asst. yr. 1983-84, on account of the variation in the rate of foreign exchange, the machineries having been imported and the payment being required to be made in foreign currency. The assessee claimed investment allowance for the same. The claim was negatived by the ITO, but was allowed by the CIT(A), in appeal. The order of the CIT(A) has been sustained by the Tribunal.
2. The Revenue, in this background has caused this reference to be made. The question referred is as to “whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the escalation charges should be added to the cost of the plant for the purpose of allowing investment allowance ?”
3. The assessee had installed the machinery during the asst. yr. 1982-83 and the liability for payment of additional amounts, arose by reason of escalation, due to fluctuation in foreign exchange rates. During the year 1983-84, the actual cost of the machinery itself had to be revised upward and the investment allowance claimed during this assessment year is on the amount of escalation.
4. Sec. 32A of the IT Act, 1961 (hereinafter referred to A as ‘the Act’), deals with investment allowance. It provides for allowance at the rate prescribed therein as a percentage of the ‘actual cost’ of the ship, aircraft, machinery or plant to the assessee. Sec. 43(1) of the Act defines 39 ‘actual cost’ to mean the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. It is not necessary for our purpose to refer to the proviso and in Explanation to section 43(1) of the 72 Act. The definition given therein is for the purpose of section 28 to section 41 of the Act, which includes section 32A of the Act.
Sec. 43A of the Act makes special provisions, consequential to changes in rate of exchange of currency. That section opens with the non obstante clause and provides that ‘notwithstanding anything contained in any other provision of this Act, where the assessee had acquired any asset from a country outside India for the purpose of his business or profession and, in consequence of a change in 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 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 is so increased or reduced during the previous year shall be added to, or, as the case may be deducted from the actual cost of the asset as defined in cl. (1) of section 43 of the Act or the amount of expenditure of a capital nature referred to in cl. (iv) of sub-section (1) of section 35 or in section 35(A) or in cl. (ix) of sub-section (1) of section 36, asset referred to in section 50), the cost of acquisition A thereof for the purposes of section 48, and the amount arrived A at after such addition or deduction shall be taken to be 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 as aforesaid.’ It is not necessary to refer to the Explanations and the other parts of section for the purpose of this reference.
5. It is evident by reason of section 43A (1) of the Act, the A amount by which the liability of the assessee is increased or reduced during the previous year by reason of variation in the rate of exchange as between the Indian currency and the foreign currency, in cases, where the assets have been acquired, from a country outside India, such amount shall be added to or as the case may be deducted from the actual cost of the asset, as defined in cl. (1) of section 43 of the Act.
6. There can, therefore, be no manner of doubt that the investment allowance which is required to be allowed on the actual cost of machinery or plant, is required to be allowed on the amount by which that actual cost has increased by reason of variation in the rate of exchange as between Indian currency and foreign currency, where the said acquisition is from a foreign country. The fact that the additional liability for the assessee arose in the year subsequent to the date of installation does not come in the way of the investment allowance being allowed to the assessee. Sec. 43A (1) of the Act refers to the amounts by A which the liability of the assessee is so increased or reduced ‘during the previous year’. The increase in the liability of the assessee during the previous year on account of the change in the rate of exchange is part of the actual cost of the machinery required from a foreign country and the assessee is entitled to investment allowance on the additional cost.
7. The question referred to, is therefore, answered in favour of the assessee and against the Revenue. The assessee shall be entitled to cost in the sum of Rs. 2,500.